Blockbuster Dumping Late Fees

Blockbuster Inc., plans to eliminate late fees on games and movies as of Jan. 1.

But there is plenty of fine print, which suggests that the nation's biggest movie rental company is still struggling to come up with a formula to blunt the competitive threat from NetFlix and cable operators' movies-on-demand offerings.

Blockbuster is also offering a monthly flat-fee rent-by-mail program, similar to competitor NetFlix.

Its shares were down 21 cents, or 2.5 percent, at $8.05 in morning trading on the New York Stock Exchange.

Blockbuster announced Tuesday it will continue to set due dates, with one week for games and two days or one week for movies. But the company will give customers a one-week grace period at no additional charge, starting on New Year's Day.

Renters who want to keep movies or games longer can buy the products, less the rental fee. Or, Blockbuster says customers can return products within 30 days for credit to their accounts, with a restocking fee.

"Doing away with late fees is the biggest and most important customer benefit we've ever offered in our company's history," John Antioco, Blockbuster Inc. chairman and chief executive, said in a prepared statement. "So as of the first of the year, if our customers need an extra day or two with their movies and games, they can take it."

Officials of the Dallas-based company also said Tuesday they expect continued softness in the rental industry and flat operating income in 2005 compared with this year before the estimated $50 million costs of marketing and implementing the late-fee elimination policy.

Blockbuster said it has tested the new program in some markets and found increased rental transactions and retail sales offset the decline in revenue resulting from eliminating late fees.

For the full year 2005, the company projects that late fees would have contributed approximately $250 to $300 million to operating income. But it said that is expected to be offset by growth in revenues due to increased store traffic, less promotional and marketing activity and an increased focus on operating expense management.

Blockbuster has more than 4,500 company-operated and participating franchised stores in the United States.