There have been a number of comments suggesting that Netflix should add game rentals. I'm not into computer games (ok, I've played Half-Life 2 a few times), but I understand the interest in renting them when they cost $40 or more.
I've admired Netflix for their almost obsessive focus on DVD-by-mail, especially when there are so many opportunities they could pursue (it must be driving them mad). Blockbuster is getting much better at the online rental business, but they are fighting a multi-front war. They are trying to buy a store-based competitor, buy and sell DVD's, worry about video-on-demand, and fight Netflix, Walmart, and possibly Amazon at the same time.
Fool.com is running a story about the economics of renting games, Stick to Flix, Netflix. Matt did an excellent job explaining why Netflix shouldn't sell get into the video game rental business. Here's a few choice bits from the story:
First, the business is very hit driven. This means that Netflix would have to buy a new inventory of games every few months and then scramble to sell the already depreciated "old" ones. Second, Reed mentioned that at $40 a pop, dealing with video games is tricky business.
What do you do with all of those copies of Halo when Halo 2 comes out?
...Netflix has two expenses that dwarf the rest: the cost of postage and packaging and the cost of DVDs. Over the past nine months, Netflix has spent 23% of its revenues paying for packaging and postage. Another 32% has gone toward acquiring DVDs.
Aquisition costs would soar and games have a much shorter life than movies (Netflix rents up to 98% of their titles each quarter).
The only way to make the model profitable is to mount a successful resale effort, charge high prices compared to other rental methods, and cap the number of games allowed per month.
Netflix doesn't have the retail outlets to resell games, and a rental cap complicates the experience for the user. As much as it would be interesting to some customers, it's just not a good idea for Netflix to rent games.
Thanks to David and "M" for sending this in.