Blockbuster to eliminate late fees in 2005

Blockbuster plans to eliminate late fees on overdue movies and games in the new year, the video rental giant said Tuesday. But there are some plot twists to the offer.

Blockbuster said the move will take place Jan. 1 at its 4,500 U.S outlets. The new policy will apply "sometime in the first quarter" of 2005 in Canada, the president of the company's Canadian division said.

Blockbuster has 410 outlets in Canada and 8,000 worldwide. It is the largest movie and game rental company in Canada a position it also holds in the world.

"Doing away with late fees is the biggest and most important customer benefit we've ever offered in our company's history," Blockbuster CEO John Antioco said in a news release.

Blockbuster will still technically have due dates one week for games and two days or one week for movies. In the new year, Blockbuster will start giving customers a one-week grace period. If customers want to keep the movie or game longer than that, Blockbuster will automatically sell them the product, subtracting the rental fee.

If customers return the movie or game over the next 30 days, the purchase price will be refunded, minus a "minimal restocking fee."

The chain said in its "no late fees" test markets, lower revenues from the abolition of late fees were offset by increased rental transactions and retail sales.

Still, Blockbuster estimates that the decision to eliminate late fees will lower its operating income by $250 million to $300 million in 2005.

As a result, it's projecting that its 2005 operating income will show no increase over 2004's. It's also citing "continued softness in the rental industry."

Blockbuster shares were up 18 cents to $8.98 US in noon-hour trading on the NYSE.