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Switched On: The Peerflix challenge: Rip. Flix. Churn.

Ryan Block, @ryan
07.20.05
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Every Wednesday Ross Rubin contributes Switched On, an opinion column about consumer technology, multimedia, and digital entertainment:

Peerflix

DVD collectors have always been a bit of a mystery to me. Sure, for not much more than the cost of renting many DVDs, you can buy them. However, with the exceptions of kids' videos watched ad nauseum by the preschool set and perhaps The Rocky Horror Picture Show, how many times does one want to watch the average movie? Perhaps, like music collections, movie collections are displayed as reflections of the collector's taste. Or maybe the media shelves of the masses are simply filled with dusty discs.

Enter Peerflix, which can be described on a basic level as eBay meets Netflix. Peerflix resembles many online DVD stores, but it neither rents nor sells DVDs. Rather, it depends on a community of users willing to trade DVDs they have for DVDs they want. There are no subscription fees. Peerflix charges a 99-cent transaction fee and senders are responsible for the postage charge of 37 cents for the mailers that the company distributes. Behold the $1.36 DVD.


Peerflix is not the first company to try and capitalize on second-hand media. In 2000, WebSwap created a barter site in which consumers listed all kinds of disposables and desirables along with a means to make up the difference in cash. While it failed, the standard bar code numbers and descriptions for such media as CDs, DVDs and video games inspired Half.com, which eBay eventually snapped up. eBay?s flagship site also offers used DVDs, as does Amazon Marketplace. However, by the time one factors in the profit motive and shipping, used DVDs aren?t a great online deal with most starting at about $8 and going up from there.

Peerflix will face many of the same issues in reaching critical mass that its predecessors did. The great thing about network effects is that their momentum allows them to grow quickly; the hard part is getting them started. That said, Peerflix debuts at a time when more consumers are used to transacting online and DVD movies are at the height of their popularity. According to Rentrak, over a billion DVDs were rented in the first half of this year.

Fleeting consumption makes DVDs an excellent content source with which to start. The Peerflix terms of service discourages swapping pirated DVDs, noting plainly that ?users may not illegally copy DVDs? and that ?as a User, you acknowledge and agree that you have valid title and ownership rights to any DVDs that you make available.?

But avast ye maties, Peerflix can?t prevent DVD copiers from keeping their pirated version and selling the original. Besides, once you?ve ?traded? a DVD, you gain title to the one you receive, and making a copy technically falls under fair use. Peerflix may be trafficking in legal physical product, but the fluidity of media it could create raises new questions around what is ownership.

The legal shenanigans will really kick into the gear if the Peerflix model proves successful enough to expand into CDs. That could be described as a ?poor-man?s KaZaa? except Peerflix would cost more, so perhaps it would just be the ?slow-man?s KaZaa.?

At that point, Peerflix could slow the pirate ships further by implementing a ?cooling down? period for purchased media. You wouldn?t be able to sell a CD you purchased on the service for, say, a month. That would punish those who were simply disappointed by the CD, but is an example of the kinds of roadblocks companies are being forced to consider in the post-Grokster era.



Ross Rubin is director of industry analysis at NPD Techworld, a division of market research and analysis provider The NPD Group. Views expressed in Switched On, however, are his own. Feedback is welcome at fliptheswitch@gmail.com.

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