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Competition Eases In Online DVD Rental Market .

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Competition Eases In Online DVD Rental Market
Ed Lin, 08.09.05, 5:01 PM ET

Credit Suisse First Boston said Blockbuster's (nyse: BBI - news -
people ) unwillingness to incur losses at the $14.99 price point was a
"major driver" to raise prices. On its quarterly earnings call,
Blockbuster announced plans to increase its basic online DVD
subscription rates from $14.99 to $17.99, effective later this month.

Blockbuster cited the value-added in-store rental feature as the
reason for the increase.

CSFB noted that the increase will place Blockbuster's premium service
at the same price point as Netflix's (nasdaq: NFLX - news - people )
unlimited "three-DVDs-out" rental service.

Blockbuster's subscriber count has reached the 1 million mark at
$14.99, versus Netflix's 3.2 million subscribers at $17.99, the
research firm noted. Blockbuster expects to reach a subscriber base of
2 million by the end of the first quarter of 2006.

CSFB said, "We believe [Blockbuster's price increase] is further sign
that the hypercompetitive period in the online DVD rental market is
easing, with less-aggressive marketing spend and pricing pressure on
Netflix likely the result. Over time, this should further reduce churn
and provide an offset to higher online advertising costs."

Netflix shares are in the high risk/high reward quadrant, but the
risk-reward ratio "at these levels is in the investor's favor," CSFB
said. The firm rates Netflix at "outperform" with a 12-month price
target of $26.

"Arguing with anonymous strangers on the Internet is a sucker's game
because they almost always turn out to be -- or to be indistinguishable from
-- self-righteous sixteen-year-olds possessing infinite amounts of free time."
- Neil Stephenson, _Cryptonomicon_
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