Thinking about a great last-minute gift that doesn't require going to the mall or waiting for the FedEx driver to find your house?  Give a subscription to a DVD-by-mail service.

Better, give a Netflix subscription.  This from a for-the -moment Blockbuster Online subscriber.

Here's the full story.

I like the ability to go online to the Blockbuster site and pick out movies for family viewing.  When we first signed up, we considered the monthly fee on par with about what we spend on visits to the retail store, on top of the video game rentals and miscellaneous purchases we make. And we chose Blockbuster as we already have a local store that the kids enjoy carousing through as they make their selections for a weekend evening movie night.

But the proverbial straw has landed on my back, and I'm about to contribute to what the industry calls "subscription churn."

Translation: I am leaving Blockbuster "Total Access" online, DVD-by-mail service for Netflix.

In case you missed the news, Blockbuster is raising prices for their online service, which will mean an increase in the monthly cost for many (MSNBC estimates that increases of up to 40 percent will impact current customers and all new customers).  And the way the message was delivered to me was quite extraordinary:

"We know that during this busy time of year the convenience of BLOCKBUSTER Total Access is especially important to you. Have your movies delivered right to your door. If you want new movies right away, exchange in-store. And with free shipping both ways and no late fees, it's easy to enjoy all the movies you want for as long as you want.

"To continue to bring you the unmatched convenience of both online and in-store DVD rentals, your monthly subscription fee will change slightly from $9.99 to $11.99."

Uh, hello?  Care to explain what I am getting for the 20 percent jump?  No lament about the rise in processing and labour costs, postage increases or price of recycled paper in China?  The only thing I see in the mail is that it's the same service, it just costs more.

It will be funny to see what impact a two-dollar-a-month increase will have on customers.

If my cable bill rose by 20 percent in one month, I might be prompted to move to an alternative.  If my mobile phone service rose by 20 percent, I might consider changing carriers.  

I'm surprised by this move after learning that Blockbuster lost in the neighbourhood of 500,000 online customers last calendar quarter. I enjoyed the privilege of being able to return movies back to my local store for a free exchange, but the additional cost outweighs the benefit when I think of the few times we actually used the service.

Also, no note in the email to me from Blockbuster of the options I have as a Blockbuster customer to downgrade my subscription to subscription-by-mail only. On the blockbuster site, I found references to the current $8.99 per month fee for mail-only, and read in the above article that the "basic plan that lets subscribers keep one DVD but doesn’t entitle them to free in-store exchanges will drop from $4.99 to $3.99 per month." (After posting this entry, I found on the Blockbuster customer service page has more info on the price restructuring in order to learn more about the price increase.)

One of those may be better for us.  But I get a sense that this is a beginning of a slippery slope, and that the momentum and popularity of Netflix is added justification to make the move.

Not to mention that Netflix offers DVD by mail in addition to live customer service and movies over the Internet.  And with the hiring of my previous boss, Anthony Wood of ReplayTV fame, I expect more great things as Netflix looks for more innovative ways to deliver movies via the Internet, with rumours recently that the company is considering a $50 set-top box.

"Netflix has all but said that it will introduce some type of set-top box to get video to the TV. The company hired Replay TV founder Anthony Wood as its VP of Internet TV in April and in May, CFO Barry McCarthy said the company has been working on a solution for the last two years but wouldn't discuss it's "box strategy" until later this year or next."

(Hmmm... CES is just around the corner... perfect timing for a Vudu-Netflix acquisition announcement.)

As much as I would rather see Xbox Live be the set-top box in our living room that provides over-the-Internet movies, I think that this will continue to be first and foremost a gaming platform, leaving a breadth of broadband movies to Vudu and companies like Tivo, DirecTV and Echostar. 

Nearly two years ago I predicted that as consumer broadband installations increase, subscription music packages (Rhapsody, Zune) would increase at a faster rate than online music sales (iTunes).  In that vein, I would like to see a monthly subscription video programme from Xbox Live, perhaps in combination with a company such as Netflix.  Full disclosure: Reed Hastings is on Microsoft's board, and 'though I have no insider knowledge of any such deal, it would be super to have a Netflix page on Xbox Live. ;)

It appears that the article in the Times was right: Netflix customer service is a strategic weapon against your DVD-mailing service... 

"Netflix’s decision to eliminate the e-mail feature was made after a great deal of research, Mr. Osier said. He looked at two other companies with reputations for superb phone-based customer service, Southwest Airlines and American Express, and saw that customers preferred human interaction over e-mail messages. “My assessment was that a world-class e-mail program was still going to be consistently lower in quality and effectiveness than a phone program,” he said."

... And now, so is the price.

(A side bar: Netflix chose Oregon as the location for the customer service call centre as one exec "found Oregonians to be polite.")

In defense, I should say that I have found the representatives at my local Blockbuster to be super helpful, once calling and holding for us a new, popular movie once it was returned by another customer.  But unlike Netflix, you can't talk to a Blockbuster customer service agent, just send them an email through the Blockbuster online customer service web page.)

I agree with Thomas Hawk who wrote on his blog...

"Blockbuster has been in liquidation mode...

"For every store that goes out of business, it creates a big opportunity for Netflix to expand into their market. Blockbuster might be able to move some of these customers online, but the loss of the higher transaction revenue will certainly be felt as Antioco & Co. continue to dismantle the company piece by piece."

Another sign of this: Shane Evangelist left Blockbuster Online for U.S. Auto Parts Network as Chief Executive Officer (as reported in this PR). Mr. Evangelist previously served as Senior Vice President and General Manager of Blockbuster Online until this past October.  The role for managing the online business now falls to CIO Keith Morrow (as noted here), so he understands why a previously enthusiastic customer (one who also rented and purchased product in your retail stores) is leaving Blockbuster for Netflix.

BTW, interesting to note that Mr. Morrow is on Facebook (as am I).  Care to poke him with your opinion of the price increase? ;)

Tags: Microsoft, Customer Service, Customer Support.

Delicious Bookmark this on Delicious Bookmark and Share

Also available at http://bit.ly/IsbLQ