Variety: Netflix Moving in for the Kill

Variety Magazine is running a story about the war between Netflix and Blockbuster, "Frisky Disc Biz: Netflix Grows at Blockbuster's Expense" (this story is available for free).

"A year after it slashed prices in an aggressive move to hold off competitor Blockbuster, Netflix is moving in for the kill."

Comments

Look, let's not kid ourselves. The gist of this story is that they are going to start throttling people even more so they can "cut prices while maintaining profit margins." I mean, that's the only way to do both those things simultaneously. Netflix is already straining to maintain decent service. They don't stand a chance against Blockbuster in the long term. They are going down.

[Steve A.]

Yeah, judging by the Netflix adding subs more quickly than expected and Blockbuster announcing last month that they are adding subs more SLOWLY than expected, you're right.

Add that to the lowest ever 4.3 churn rate that Netflix has, yeah, you're right.

Blockbuster is in GREAT shape. Online sales not growing as fast as planned. All the while, canibalizing their brick & mortar stores. Cutting the largest area of profit margin ... their late fees. Yeah, BB is crushing Netflix.

"4.3 churn rate that Netflix has"

That's just playing with numbers. How many new subs are old ones that quit and signed back up to bypass throttling for awhile?

[Steve A.]

"That's just playing with numbers."

And BB's higher churn and lower subscriber growth rate is not indicative of a shift in consumer behavior?

if blockbuster falters they will be bought outright or suplanted by a big player. amazon specializes in distribution and they have already been looking at this very favorably.

the guy above who said blockbuster online is "canibalizing" its brick and morter misses the point. they will move out of brick and morter. as long as they hit two million in a year or two they will be fine.

Also churn is easily fudged. this has been discussed over and over with subscription services.

[Throttled]

"And BB's higher churn and lower subscriber growth rate is not indicative of a shift in consumer behavior?"

It's an indication that they are more honest than Netflix, which actually has much higher churn rates - something like 30% of Netflix customers quit each year. Many quit and then re-join later to get a reprieve from Netflix throttling. It's sad (but true) that we must use this routine to get decent service.

[Steve A]

I don't think BB would fudge any less than NF would. Most companies play with numbers.

However, I think lower churn rates for Netflix are attributable to the 9.99 plan. During the NFL season, I don't watch as many movies. I used to cancel in September and rejoin in Feb. Not anymore. I still watch 3-4 movies a month with the one-out plan. Perfect for having a movie on hand when I'm in the mood.

All in all, I still find it very funny how suddenly BB is looked at as being bullied by big, bad corporate Netflix. Hah. How times have changed...

"the guy above who said blockbuster online is "canibalizing" its brick and morter misses the point. they will move out of brick and morter"

Let's review basics. The money that fuels all of Blockbuster's initiatives comes from it's stores. They are bleeding like an ebola victim as far as their online effort is concerned. So, and try and keep up here, as they convert their in-store customers (the money source) into online customers (the money black hole) they are not only bleeding cash out of the money generator (stores) but turning around losing more money via the online venture.

Can they be bought? Probably. Will they? I doubt it. Would you buy Blockbuster?

"They are bleeding like an ebola victim as far as their online effort is concerned."

They [blockbuster's online enterprise] is "bleeding" LESS than Netflix during the comperable growth period. they are also growing their online FASTER than Netflix did. Thye are also losing LESS money during the comperable period than netflix did.

Soundsl like they are doing Netflix better.

[Throttled]

I wouldn't miss Blockbuster (or Netflix) if they went out of business. There are always more greedy companies to take their places. But right now I appreciate getting DVDs from Blockbuster that Netflix refuses to carry. Like "Toy Story 2", "Basic Instint: Unrated Director's Cut", "Conan The Barbarian", "8 & 1/2 Women", "Wild Things: Unrated", "Mummy Returns: Widescreen", etc. I could care less about who has the "best" website. I spend 5 minutes there. SELECTION AND THROUGHPUT RULE.

"They [blockbuster's online enterprise] is "bleeding" LESS than Netflix during the comperable growth period. they are also growing their online FASTER than Netflix did. Thye are also losing LESS money during the comperable period than netflix did."

Hey winner, my comments were directed purely as a "how BB is has to screw itself in the stores to grow an online business". So using phrases like "LESS than Netflix" or "FASTER than Netflix" is irrelevent.

Also, unless you have some great insider information, your comments are without foundation. Blockbuster is not required to, nor do they, release numbers for things like churn or how much they're actually spending to get each online customer. So you're either a Blockbuster corporate employee or you're pulling it out of your ass. I'm betting it's the latter of the two.

Good to see on the post after you that Manuel has changed his name to 'throttled'. Hey, maybe you guys can start a support group?

[JD]

If you look at the number of subscribers, the growth of subscribers, etc, Blockbuster Online is way ahead of Netflix for the same period from program startup.

I don't think citing a known figures (and they are not insider info but part of audited public statements) makes someone an insider.

Are you saying Blockbuster online is not very far ahead of Netflix comparing first year growth? They are 2.4 times ahead.

>throttling people even more so they can
>"cut prices while maintaining profit margins."
>I mean, that's the only way to do both those
>things simultaneously.

Not true, they can lower their internal handling costs ( as mentioned during the conference call ) which will directly improve margins.

>They don't stand a chance against Blockbuster
>in the long term. They are going down.

So why is blockbuster having to lower their previous estimates on customer growth? Blockbuster will file their first bankruptcy sometime before Q2 next year. Actually this will be a good thing for blockbuster because it will allow them to shed their unprofitable stores and keep the high performers that remain.

>if blockbuster falters they will be bought
>outright or suplanted by a big player. amazon
>specializes in distribution and they have already
>been looking at this very favorably.

Amazon will have difficulty moving into this space without upsetting their current sales tax position. Why would you buy BBI when it has over $1B in debt.

>the guy above who said blockbuster online is
>"canibalizing" its brick and morter misses the
>point. they will move out of brick and morter.
>as long as they hit two million in a year
>or two they will be fine.

Without the previously mentioned backruptcy, they can't move out of brick and mortar. Online *IS* taking away from B&M. Why is Netflix able to grow when the rental market is currently shrinking?

>If you look at the number of subscribers, the
>growth of subscribers, etc, Blockbuster Online
>is way ahead of Netflix for the same period from
>program startup.
>Are you saying Blockbuster online is not very far
>ahead of Netflix comparing first year growth?
>They are 2.4 times ahead.

That's not a fair assesment. Blockbuster poured hundreds of millions into their online program and its marketing in the first few months. Hell, they had superbowl ads. Netflix was a startup and did not have those resources in their first few years.

The real test is now. Netflix is outpacing BBI on customer growth. BBI is unable to add new customers at their previously predicted rates, and now claims to have 2M subscribers "sometime" next year. BBI is slowing and unable to hit their targets while Netflix is growing and surpassing their's.

[Throttled]

"Why is Netflix able to grow when the rental market is currently shrinking?"

Creative account - AKA Lying with Numbers. You've fallen for the lie that they have low churn rates and high growth. The fact is BB has done better at growing their business on line than Netflix. Which shows how clueless Netflix must have been starting out...

[Throttled]

"Why is Netflix able to grow when the rental market is currently shrinking?"

Creative accounting - AKA Lying with Numbers. You've fallen for the lie that they have low churn rates and high growth. The fact is BB has done better at growing their business on line than Netflix. Which shows how clueless Netflix must have been starting out...

[Throttled]

"Not true, they can lower their internal handling costs ( as mentioned during the conference call ) which will directly improve margins."

You don't think they'll pass those savings on to users in the form of less throttling, now, do you? Surely you aren't THAT naive... THey will take the savings and still cut service. That's NFLX's Modus Operandi. Cut prices and improve efficiency, then throttle people more.

[wow]

To Throttled - Good luck in finding the rattle you dropped. I do hope the rest of the world isn't after you like you think Netflix is.

JD - Once again my original statment was regarding how BB's online cannablizes their in-store sales. I wrote nothing comparing BB's growth to Netflix's. Even still, BB has spent more to acquire it's first million customers than Netflix, period. Their TV ad launch earlier in the year probably cost more money than Netflix spent it's first 2 years.

[Throttled]

Wow, why don't you respond to what the other person says instead of making dumb comments with no relevance? It doesn't matter if BB spent more money TOTAL. It matters what they spent as a percentage of their total wealth. And that they grew 2.4 times faster than NF did is also indisputable. You can't dispute the facts, so you just throw in red herrings about advertising and so forth. The truth is that Netflix has run major ads too, yet they didn't grow as fast as BBO is growing.

{"Even still, BB has spent more to acquire it's first million customers than Netflix, period."}

this is factually incorrect! Netflix took almost three times as long.

["BBI is unable to add new customers at their previously predicted rates,'}

Blockbuster's rate is faster than Netflix during comperable perioods in growth as others have noted. As far as their predictions, Netflix also fell short on some of theirs at the comperble time. anyway you are talking 6% short of the goal, not 30% or something significant for the long term. blockbuster's growth is still quite strong.