Analysts say this move could well make Netflix drop prices, thus reducing its profits. This would make the market even more competitive, growing at more than 40 per cent according to estimates.

Blockbuster said it would offer a plan wherein customers can rent three movies at a time for $16.99, a buck cheaper than its most popular offering, called ‘Total Access‘. It said it would offer more limited plans, such as two movies a month for $4.99.

Stacey Widlitz, an analyst with Pali Research, said $1 a month might not convince current Netflix customers to switch, "but it will affect the new customers."

Netflix does not have an offline presence, but it boasts more online subscribers than Blockbuster. The latter however, is growing faster, say analysts.

Blockbuster will lose an undisclosed amount but chief executive John Antioco has said it will be profitable next year as the number of Internet orders are expected to rise. It began the year with 2 million online subscribers and predicts it will have more than 4 million by year end.

In the first quarter, Blockbuster added 8,00,000 new online subscribers, nearly double of Netflix‘s increase of 4,87,000.

Blockbuster and Netflix now could well lock horns over movie streaming, wherein the latter has already made a headstart. Blockbuster had earlier tried acquiring a Movielink, which is owned by major Hollywood studios.