Blockbuster (BBI) and Netflix (NFLX) are slugging it out in the DVD market like Ali and Frazier in the “Thrilla in Manila” or Rocky Balboa and Apollo Creed in “Rocky II.” And the two companies, which are engaged in a bitter price war for online DVD rental subscriptions, are now taking their battle to the online movie download and streaming business as well. Blockbuster announced late Wednesday that it was buying Movielink, an online movie download site which is a joint venture of major Hollywood studios MGM, Sony, Viacom’s (VIAB) Paramount, GE’s (GE) Universal Studios and Warner Bros., which, like this Web site, is owned by Time Warner (TWX). Terms of the deal were not disclosed. Netflix already offers free movie streams, but not downloads, to its customers. So in theory, this move could make life tougher for Netflix, whose stock has been reeling as of late due to concerns about slowing subscriber growth — the company actually reported a slight dip in subscribers in the second quarter — and the impact that the price wars would have on the company’s profit margins. Shares of Netflix fell nearly 4 percent on Thursday morning, an admittedly brutal day for most stocks given the latest credit concern du jour. But Wall Street does seem to think that Blockbuster is making a smart acquisition. Shares of Blockbuster gained 3 percent despite the gloomy tape. But Youssef Squali, an analyst with Jefferies & Co., pointed out in a research note Thursday morning that the acquisition might not change the online movie landscape that much. That’s because Movielink currently does not offer free streams. Instead, the site charges fees to rent or own downloads. And since Blockbuster is also suffering from concerns about profit margin erosion due to the price cuts for its Total Access product, which allows customers to rent DVDs online or pick them up at a store, Squali doesn’t think Blockbuster can afford to make Movielink a free site. “Given that Total Access has been hurting BBI’s profitability and the company is looking for ways to raise the price for Total Access, we doubt that BBI would introduce a free movie download offering to its online DVD rental subscribers. Rather, we would expect BBI to have a tiered offering and charge a premium for the download service,” he wrote. In other words, Blockbuster needs to be wary of throwing too many haymakers or it could knock itself and Netlflix out….which is exactly what happened to Rocky and Apollo in the climactic scene of “Rocky II.” Still, with Netflix’s stock down nearly 33 percent year-to-date as investors debate its future, could the company once again become the subject of takeover rumors? Earlier this year, Wall Street was speculating that Netflix could be a good fit for Amazon.com (AMZN). “Netflix is still the predominant player in this arena. But I would not be confident that they can make it on their own,” said Richard Dorfman, managing director of Richard Alan Inc., a financial advisory and investment company focusing on the media industry. But instead of Amazon being a buyer, he actually thinks it’s more likely that Netflix and Blockbuster might one day merge. He doesn’t think this would necessarily raise anti-trust concerns given that cable and satellite TV companies offer video-on-demand services. Plus, there are several other sites out there where people can legally download or stream movies, such as Amazon’s Unbox, Apple’s (AAPL) iTunes, BitTorrent and CinemaNow. So to bring my “Rocky II” analogy full circle, Netflix and Blockbuster may be rivals right now but they could eventually become friends. After all, Apollo trained Rocky in “Rocky III.” Posted by Paul R. La Monica 10:35 am 17 Comments
 | Add a commentNetflix does throttle. Just depends on how many movies you rent. Anything over 15 and you get throttled. Total Access dominates any Netflix plan as long as you are viewing 20+ movies a month and your local blockbuster is in close proximity. For those who are 5+ miles away from a blockbuster (small towns ect.) then Netflix might be a better choice. Posted By Matt, Los Angeles, SO cal : August 9, 2007 3:12 pm
 Slight throttling aside, we’ve always been happy with our NetFlix account, until they announced that we’re now paying for five movies downloadable movies a month. That is, unless you have a Mac. Posted By Joe : August 9, 2007 3:06 pm
I have never noticed any “throttling” going on at all. I get a lot of movies every month and everything is always as smooth as can be! It has always taken 1 day for me to receive the DVDs. I have had such horrible experiences with Blockbuster’s customer service and their store managers are almost always unhelpful and simply don’t care. When I had a terrible customer service experience with Blockbuster and couldn’t get any in-store help, I finally had to resort to mailing them a letter. I NEVER heard back! I am so happy I fould Netflix and will never ever rent from Blockbuster again. Posted By Christina, Queens NY : August 9, 2007 2:29 pm
Customer Service Important! Posted By Jamie, Longmont, Colorado : August 9, 2007 1:46 pm
I dropped Netflix because I received too many damaged movies. And of course there is no phone number to call and complain. And Blockbuster closed up all their brick and mortar stores that were in my area. So, now I download movies from my cable company whenever I want. I hope both Netflix and Blockbuster go the way of typewriters. Posted By Pau Mennen, Chicago, Illinois : August 9, 2007 1:38 pm
Netflix was made buy a guy who hated blockbuster. Why would they merge? I’d rather see someone else buy them. Posted By raz, tallahassee, florida : August 9, 2007 1:21 pm
Instead of cable, I rent and buy movies I want to watch. I’ve been BB customer for long and tried every product they had. Then Netflix came, and I tried it for over a year. Like many complains, it was great until they started to delay movies, so I jumped ship to BB and with Total Access, I get whatever I want to watch. BB could be a entertainment powerhouse once again, only if they lower their new movie price for sale at the store. Why would anyone buy at $21 when Walmart has it for $19? They should do movie buyer club like columbia house. Every new movie you buy get a free used one. It gets rid of old inventory and brings in higher margin sales. Posted By Phil, Fairfax, VA : August 9, 2007 12:52 pm
I changed over to Blockbuster after it offered their TOTAL ACCESS. I actually get twice as many movies because i can just take my online movies after i’m done and pick up more for free. on top of that they give out a free movie coupon each month. the consumer is def winning from the war going on. lastly, while the rocky comparisons didn’t add important financial info it did make the article more fun to read. Posted By John Scott, Virginia : August 9, 2007 12:46 pm
I’ve been a NFLX customer for 7-8 years and have never once experienced “throttling”. Brand new releases are in my mailbox the very day the movie is released. I couldn’t be a happier NFLX customer. With the incovience of going to a store, time pressure and inconvience to watch & return a rental to avoid a late fee, extremely poor selection, long weekend lines, slow clerks, and the clientele… you’ll NEVER find me back in a Blockbuster store. I’d guess the moral here is that if you use the NFLX service, instead of abuse the service, you too will be one happy camper with NFLX. Posted By Anonymous : August 9, 2007 12:29 pm
Netflix & Blockbuster MERGE is an awesome partnership. In fact, both can become so powerful that it can lead the media rental industry, if they choose to work seemlessly together. They can outdo Amazon’s Unbox, Apple’s iTunes, BitTorrent and CinemaNow. Blockbuster & Netflix Management just need to take advantage of each of their best assets - Blockbuster, their name brand quality, over 9,000 stores worldwide access (4,000 in the US), Total Access program while Netflix, with its over 6,000 subscriber online rental business and technology savvy capability. Merging as one can become THE INDUSTRY LEADER of media sales/rental that will be hard to beat. Remember, the others are newcomers - Amazon is mainly good for books, Apple for their expensive ipod that last only 2-3 years, and the rest are baby comers. So, get moving Netflix & Blockbuster to MERGE as a COLOSSAL PLAYER and STAKE your territory in the business that you both deserve to be in. Posted By Bastan, Culver City CA : August 9, 2007 12:25 pm
I have tried both and blockbuster stinks. It took them over a week to deliver movies, sometimes it took them two days to update the item to shipped on their system. I get my netflix movies in three days, send finish. Besides, who wants filtered movies anyway. Posted By Brian, Dubuque, Iowa : August 9, 2007 12:11 pm
Enough of the Rocky comparisons. I think most readers understand the competition involved. It’s cute but dumbs down your story. Posted By John Clements Seattle, WA : August 9, 2007 11:59 am
The throttling killed people. I love Netflix, and have rarely been a victim of the throttling. However, they absolutely alienated the hard core movie buffs that were their evangelists before throttling them. The bean counters decided that they were losing money on the heavy users, ignoring that they heavy users advertised for them. Once you alienate customers, it’s hard to win them back. The last 10 years our customer support has collapsed as marketing took over businesses, and America is hurting. Posted By Alex, Miami, FL : August 9, 2007 11:47 am
Investing a side… I have zero love for Blockbuster. They rip me off for years until netflix came along. However this is a good move for them. Posted By James, Troy MI : August 9, 2007 11:46 am
Netflix cannot win this fight when they allienate their customer base. I was a long time customer of the highest tier that Netflix offered and I found that over time, I stopped getting my movies as quickly as I once did. Once I read about the articles about the “throttle” that they imposed, I quit them flat. This is their fault. Treat your customers right, or we will leave for another company that is happy to have my $50 / month. http://www.msnbc.msn.com/id/11262292/ Posted By Anonymous : August 9, 2007 11:27 am
In other words, Blockbuster needs to be wary of throwing too many haymakers or it could knock itself and Netlflix out….which is exactly what happened to Rocky and Apollo in the climactic scene of “Rocky II.” -Paul stick to watching movies and stay away from financial advice. Posted By Eric Camarillo California : August 9, 2007 10:42 am
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It cracks me up that people actually rent 20 movies a month and complain about getting ‘throttled’. How about a life, people? Do you have any friends? Relatives? Anyplace nearby that real people actually talk and do things with real people? Ever heard of physical activity? If Americans were not so lazy that they need their entertainment spoonfed in these little boxes, then both Netflix and BlockBuster would be out of business.