Netflix prepared to defer profits to win market share
posted March 3rd 2005 11:35PM
Remember the old days of the dot-com bubble, when Internet companies were willing to trade profits for market share, all in the name of building their business (and their stock price, of course). Looks like Netflix remembers. In comments at the Reuters Technology Summit in San Francisco, Netflix CEO Reed Hastings said the company is prepared to forego profits for five years in order to build its customer base to 20 million from its current 2.6 million. Netflix, which is still the leader in DVD-by-mail rentals, is battling Blockbuster, Walmart and others for market dominance. A price war has already forced the company to lower its monthly fee for rental of three DVDs at a time to $17.99 from $21.99. "We are going to fight until the death because we have to. So is Blockbuster," Hastings said. Netflix's battered stock closed down 11 cents after Hastings' comments. Looks like investors remember the bubble, too — and they haven't forgotten how it burst.
I pretty much always have a 2 day turn-around with Netflix. Ship my movies back on a Monday, I will have a new set by Wednesday. I've had a few friends here at work try out the Blockbuster service, and even though they carry most of the mainstream movies, they often never have any availability for the most popular titles. AND even when they did ship them, it would take up to 5 days (or even more in some cases) to actually show up in their mailboxes. BB needs to improve this, or they just can't compete. Honestly, I don't think Netflix should shave their profit margin at all...just add more compelling features! Maybe even throw an extra DVD into their plan.
My GF just signed up for Netflix because the local Blockbuster store has had issues keeping enough popular titles in stock...presumably due to the "No More Late Fees" decision. The growth to 20 million users will have to come from people used to going the brick and mortar (either Blockbuster or someone else), not from competing mail order outfits.
A price war with companies who have other sources of revenue is a losing battle.
I hope netflix can hold out. I personally don't use them because I live right next to the largest independant video store in the US (maybe even in the world) http://www.scarecrow.com/ If they didn't have more movies than netflix or if I moved away I would shop with netfix over blockbuster anyday! I hate blockbusters selection of crappy movies....
#1 is right, unless Netflix finds another source of revenues, they will loose the battle.
Even if Walmart decides to lower the price under $10, they will not domain this market. The kind of people who shops in Walmart usually walks in the stores and don't go online for shopping. Moreover, when you think about movie rentals, the last thing it comes to our minds is Walmart.
But Blockbuster is another history. They have the dominance in the movie rentals market and they are able to subsidize their online front's looses with their walk-in revenues.
I'm one of the few people who don't rent movies (I hate having to watch a movie under the pressure of late fees) and even so I’d never thought in joining Netflix, but Blockbuster's price and current offer (free in-store movies) has started to be very tempting for me.
If they would add video games to the mix then I would sign-up for an account with either NetFlix or Blockbuster, until then I don't rent either often enough to sign-up for any monthly fee based service.
I tried Blockbuster Online but, even with the in-store rentals, the long turnaround time turned me off. I signed up for Netflix and my movies get her more than twice as fast as with Blockbuster. I'm from the west side of Cleveland where the nearest Blockbuster distrubution center is in Gathersburg, MD. The closest Netflix distribution center is right here in Cleveland.
The extra 2 bucks a month is worth it for me to get my movies in under a week. 2-3 days, in fact.
My business strategy class talked about this very industry last week. The interesting thing my teacher pointed out was that Blockbuster entered the DVD-by-mail segment as a defensive strategy. According to his numbers, Blockbuster is losing money by entering this segment that has such small margins. Blockbuster has all of its money invested into brick and mortar buildings and Netflix simply does not have enough money to completely dominate this market segment. So, what is Netflix to do? My teacher seems to think that Netflix will be getting a call from Walmart in the near future to combined. That is just my take though.
Didn't microsoft have a stake in netflix?
The problem with this is that people can change over anytime they want. So in 5 years they should have 'killed' all competition. Otherwise people like me will just jump over to the next cheapest option.
I agree with #5.
Two bucks isn't that much of a difference. Two days is. The by-mail thing only works if a customer can drop his movies in the mail on Monday and have a new set by Friday. Netflix does a phenomenal job of this (I get a 2-3 day turnaround). Unless Blockbuster can match them there, I don't see them retaining subscribers.
I've been a Netflix subscriber for four years now (wow, I had to double check that, but yes it's true) and while in the early days I thought it was "novel" at best, their service (and inventory) has substantially improved. Now -- save for Scarecrow -- I can't imagine going back into a movie store. Especially Blockbuster. Netflix is right to take Blockbuster seriously, but I think that as long as they can maintain their lead in service, they can win this one.
I guess I missed this news (from http://us.imdb.com/news/sb/)
Blockbuster has intensified its online rental war with Netflix, announcing today (Thursday) that it is integrating its in-store and online rental operations and offering new subscribers an introductory price of $9.99 for the first month. After that, the monthly fee rises to $14.99. In a statement, the company said that subscribers will be able to rent an unlimited number of movies, one at a time, in stores or three movies at a time online. "Blockbuster is the only company that lets customers choose to rent their movies at the store or through the mail," Nick Shepherd, president of U.S. Store Operations at Blockbuster, said in a statement.
I'm sticking with Netflix, but that's a pretty compelling offer for keeping Blockbuster customers.
I use Netflix and I love it. But that's not the issue at hand here. I think competition can only help the whole thing. If not for the other guys jumping it, Netflix would still be 22 bucks. I actually remember when it was 19.99 a month and then they raised it to 21.99, now it's down to 17.99. Who is to say that if there was no competition, they would not raise it to 24.99 next year?
The main problem now is that this online stuff makes walking into blockbuster a rip off. Netflix and other online video rental companies did do damage to blockbusters hold, whether they admit it or not.
I do agree as far as wishing they'd add games though.
Nice find Brad, I hadn't heard that news either... that is a pretty interesting offer.
scarecrow video :) ahhh.. used to live a couple blocks from them, too. gotta love em!
good ideas about the games, the only thing i see there is that they'd have to carry a huge stock of them because most people (well, myself anyhow) would want to have those out for a longer time than just the quick "wednesday movie night then send back". but yeah, that would get quite a crowd flocking to them. i personally love netflix, haven't tried blockbuster (nor do i want to) or walmart (gag, i don't even shop there, no way am i supporting their dvd rental thing so they can copy and then squash out another innovative business). the closest blockbuster is on the other side of town from me, and i don't own a car, so blockbuster is kind of a pain. netflix is basically the best option i know of for rentals anyhow. it's fast and cheap enough.
#9 and #5 got it right. I remember the fee jumping from 19.99 to 21.99 for 3-at-a-time, but at the time, I thought it didn't make much of a difference. Turnaround is super-fast, and their website is more well-thought out than Blockbuster's. I tried the Blockbuster on-line service because it was cheaper, but the selection was nowhere as large as Netflix's, and their website is horrible to navigate (did I mention that already?). Using their website is as frustrating as walking into their stores and trying to find something. It's that bad. And then you have to wait 3-4 days to get your movies... Why torture yourself?
I can't live without Netflix. Their website is so well designed and organized, it is a pleasure to search their listings. Plus with apps like NetflixFreak (sorry, mac only), you can enhance your experience even more.
I've been with Netflix, on and off (as money permits) since Oct. 1999. I've hardly ever had any issues, and when I have, they have addressed them in a timely manner.
As much as I love a good deal, I would hate to see Netflix cheapen themselves by getting into some price war with Blockbuster. For the most part, I live by the rule "you get what you pay for" and having been pretty happy about Netflix for so long, I feel that even at a few dollars more than BB, I'm getting what I pay for: great service, quick shipments and a great selection.