Hacking NetFlix

Thanks for a Wonderful Year

I just wanted to thank you, my readers, for a wonderful year. I've been working on Hacking Netflix for about 14 months, and in that time I've made a lot of interesting friends, learned a lot about the DVD rental industry, and I've started to understand why blogging is so powerful. I know Netflix has read what we've had to say, and they are listening to our ideas, problems, and suggestions.

We broke a few stories before the mainstream press, including the Blockbuster Online service, Netflix Friends List, Blockbuster dropping late fees, etc. We've had "spirited discussions" about ripping movies, Netflix (the good and the bad), Blockbuster, Amazon, and more. I have posted more than 340 stories, and I'm close to 250,000 pageviews. There are hundreds of links to this blog, and I appreciate every one.

This site wouldn't be where is it today without the frequent contributors: Joe, Aron, Becky, The Blockbuster Guy, "M", Peter, David, Ryan, Lamarr, Tony, and many more (please, please forgive me if I left someone out).

I also applaud the other Netflix Bloggers, Becky (Netflix Fan) and Raven (A Netflix Odyssey). I have enjoyed "meeting" you and becoming good friends.

Thanks to Dave for inspiring me to start this blog, and Six Apart for making TypePad so this blog was a joy to create and update.

I have really enjoyed working on Hacking Netflix and wish everyone a safe and prosperous New Year!

Free Blockbuster Rental...

...in exchange for your e-mail address if you sign up for the Blockbuster New Releases E-mail (www.Blockbuster.com/optin). You're required to enter your e-mail address, name, physical address, and Blockbuster ID. When I signed up it rejected me because I already get the e-mail. This card was on the counter at my local Blockbuster store.

Video Business: Rental Biz Flat in '04

Video Business Online just released a story stating that the video rental business is down .4% in 2004.

Consumers spent $8.06 billion on DVD and VHS rentals in 2004, off just 0.4% from a year earlier, according to Rentrak's Home Video Essentials.

DVD rental revenue grew 39.2% to hit $5.73 billion and account for 71% of all consumer spending on rentals. VHS continued to slide, falling 41% to $2.33 billion, and making up just 29% of rental revenue.

The story also lists the top 10 rentals last year (just in case you were curious, The Day After Tomorrow was #1).

Blockbuster Considering Hostile Takeover of Hollywood

Blockbuster, unhappy that Hollywood Video is still considering their options, is putting the heat on and is threatening a hostile takeover.

Reuters.com on the deal:

Blockbuster Inc., the No. 1 U.S. video rental chain, on Tuesday threatened to launch a $1 billion hostile bid for Hollywood Entertainment Corp. if its smaller rival decides to stick with a previous offer from a buyout firm.

Dallas-based Blockbuster said it would launch a tender offer for Hollywood at $11.50 a share by mid-January if Hollywood rejects its pleas to consider friendly talks to counter a previous $10.25-a-share agreed bid by Leonard Green & Partners LP.

The Wall Street Journal noted that there may be a problem with Hollywood:

McAlpine said Movie Gallery may actually be the better partner for Hollywood. Blockbuster and Hollywood stores are often in close proximity, while Movie Gallery is usually in different markets, he said. McAlpine doesn't maintain an investment banking relationship with any of the companies and McAlpine himself doesn't own shares.

Investors may also wait to see Hollywood is hiding, he said. Leonard Green originally offered $14 a share for the company, then lowered his bid to $10.25 a share after seeing the books.

"The real concern among anybody interested in Hollywood is, what did Leonard Green find?" said McAlpine.

Elites TV has more on the deal:

The battle for video and DVD rentals heated up this week as Blockbuster indicated it would seek to buy out rival Hollywood video and would do so by hostile takeover if necessary. Thus far, Hollywood has refused to negotiate a sale with Blockbuster and the number one chain is apparently losing patience.

The offer includes $700 million in cash and the assumption of $300 million in Hollywood Video's debt. After the announcement was made, shares of Blockbuster Video fell to $9.33.

I think the billion dollars would be better spent buying Netflix (gasp!) before Amazon (or someone else) gets them.

Thanks to Joe & The Blockbuster Guy for contributing to this story.

WSJ on Netflix Competition

The Wall Street Journal Online is running a story about Netflix and how they are dealing with the increased competition from Blockbuster and (soon) Amazon:

The company attributed its improved subscriber growth to the Nov. 1 price cut in its monthly subscription fee to $17.99 from $21.99, an effort to blunt the then-impending entry of Amazon into the DVD-rental market. Though that price cut had been a reversal of its June price increase to $21.99 from $19.99, Netflix cited benefits from it. It said it expects to end the fourth quarter with as much as 2.65 million subscribers, up from 2.23 million in the third period. Aided by the price cut, Netflix has said that its "churn," or the number of people leaving the service, is nearing historically low levels.

Interesting statistic on the availability of movies and percentage of customers that get fast movie turnaround:

Eighty-seven percent of Netflix customers get their first-choice movie and 88% of its customers are located close enough to receive their movie titles by one-day shipping, Ms. Daver said.

Thanks to Joe for sending this in.

NY Times Covers Netflix Friends List Feature

The New York Times has a story about the new Netflix Friends List feature:

Shernaz Daver, Netflix's vice president for corporate communications, points out that while people within a single Netflix Friends network can see information about others' movie preferences, that's as far as it goes. Unlike the Friendsters of the world, which connect friends to friends and friends to friends of friends, Netflix's system stops at one degree of separation, ensuring members' privacy, she said.

While Netflix Friends does not have many core features of a social networking service - connecting people through intermediaries, for example, or helping with dating and business connections - some feel that it belongs in the same category.

I think the one thing missing is the ability to find people with similar interests in movies. I'm wondering if Netflix could analyze my movie ratings and rental history and suggest members who might have similar interests. If somone has written a review I agree with, I while I can already see their other reviews, why can't I ask to become their "friend?" Maybe the next step for Netflix is to allow people to publish their e-mail in reviews?

I'm still willing to send Friends List invites (e-mail mikek at HackingNetflix.com).

Thanks to Joe for sending this in.

Fool.com: Netflix Revenue Opportunities

Rick Aristotle Munarriz at Fool.com has written a story (Netflix Hasn't Failed Yet) about revenue opportunities that Netflix needs to consider:

For starters, we have those mailers. The company's signature red mailers have taken a break from the ordinary for subtle marketing promotions to coincide with the release of Garfield, Shrek 2 and My Big Fat Greek Wedding. Would it really impose on its subscribers if it were to help subsidize its low monthly rental fees by including a little more advertising on its welcome postal deliveries? Netflix has a lucrative target audience and if it works for insurers, credit card companies and frequent flier programs why not meaty little Netflix?

And what about the active website? Busy online retailers like Amazon (Nasdaq: AMZN) and Rule Breaker recommendation Overstock.com (Nasdaq: OSTK) have every reason to avoid cutting their piece of the paid search pie because they don't want to shoo their audience away before they complete a sale. However, Netflix already has the captive audience in place and its content-heavy site would be perfect fodder for the paid search products that find Google (Nasdaq: GOOG) and Yahoo! (Nasdaq: YHOO) cutting big checks to successful online content publishers.

I'm all for Netflix throwing some advertising my way, as long as it's low-key (and helps keep them profitable).

Not All Blockbuster Stores Dropping Late Fees

In a move that should cause a bit of confusion for customers hearing the widely covered story that Blockbuster is dropping late fees, my local store is only running it as a promotion for a month. The store, located in Connecticut, is part of a 22-store franchise that is privately owned. They have decided to wait an see how well it works before making it a regular policy.

The Bradenton Herald (Florida) is also reporting that the local franchises are not participating in the "No Late Fees" policy:

In Manatee County, all eight Blockbuster stores are franchise-owned.

Locally, late fees account for 15 percent to 18 percent of revenue, said Rick Lacombe, general manager of KCS Enterprises, which owns the Manatee franchises.

Local store officials are taking a wait-and see approach. They aren't ready to jump on the fee-forgiveness bandwagon. Neither are they bound by corporate moves, Lacombe said.

"Sometimes, corporate's decisions don't necessarily mean it's the right thing to do because we're a small market," Lacombe said. "This has been a good year. We're satisfied."

Blockbuster's new program is a bold move, one Lacombe predicts will change the dynamic of the movie rental business. Lacombe worries it could have unintended consequences, as movie renters become movie owners.

According to the story, 1,100 of the 4,500 U.S. Blockbuster stores are franchises. I'm wondering how many of the franchises have decided to keep late fees and confuse customers?

Netflix in the News

Rick Aristotle Munarriz on Fool.com (If Netflix Wants to Live....) believes that Netflix made the right move to ignore Blockbuster's latest price cut:

Combined, these two companies with everything to lose if they fail in their online endeavors -- and, trust me, that applies to Blockbuster too -- have proven themselves to be fiscal masochists. Wall Street has had no problem whacking away at the companies, either.

Eric Hellweg at Business 2.0 predicts that Amazon will buy Netflix in 2005:

Netflix, a division of Amazon. I've been thinking about this since about November, when word of Amazon's interest in the online DVD rental space was confirmed by Reed Hastings, CEO of Netflix. And now, with Netflix trading near its 52-week low and with its market cap around $600 million (compared with Amazon's $16 billion ), the time is right for Bezos & Co. to consider a purchase.

The New York Times talks about online DVD subscription services:

Americans paid about $1.3 billion this year in late fees, said Tom Adams, president of Adams Media Research, a market analysis firm in Carmel, Calif. He said 4.7 million Americans will have subscribed to a mail-order DVD service by the end of this year, and he predicted that number would jump to 17 million by 2009.

The Wall Street Journal mentioned Netflix in a story with a quote from Reed Hastings:

Netflix CEO Reed Hastings is confident the Netflix mail-order subscription model -- which allows customers to hold onto several DVDs indefinitely, rather than charge late fees -- will prevail over the traditional rental-store services. "The only thing for sure is that the video stores of America will be vacant next year. More and more consumers will switch to renting online," he says.

Thanks to Joe & Peter for contributing to this story.

Blockbuster Online as Low as $12.99 / Month

The Blockbuster Guy tipped me off to two items:

1. In-store late fees are being eliminated early, and it should start today (Tuesday). Check with your local Blockbuster store to be sure.

2. If you try and cancel your Blockbuster Online account you will be offered 2 movies at a time for $12.99 or 3 movies for $13.99. This is a three month promotion, and at the end of the promotion your rate will return to $14.99 (I verified this and signed up for $13.99 per month).