Citigroup Likes Blockbuster’s (BBI) Plan To Lose More Money

Just when you thought the analyst calls could not get any odder, here we go.

Citigroup upgraded Blockbuster (BBI) today to “buy” from “hold”, saying the high cost of its combined online and store movie rental scheme is now reflected in the share price. It added the firm’s announcement of a lower-priced online-only rental product could help improve costs by eliminating in-store costs and could help it gain market share in rural areas.

How is voluntarily reducing revenues for a company losing money going to help? They are just sticking their finger in a leaking dam. As long as they are store heavy and not offering online downloads, not only are they not a “buy”, they are a screaming “sell”.

What happens if today Netflix (NFLX)comes out today and matches these new prices? Is Blockbuster going to get downgraded? They simply cannot compete on price with NetFlix as their cost structure is just too high. A Netflix price match will only exacerbate already increasing losses at Blockbuster. They could really boost subscribers by just offering free rentals. Maybe that would get a “strong buy” rating?

Pricing is not Blockbuster’s problem. Too many stores and being one of the last to offer downloads is. Until these change, avoid shares at all cost.