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Nantucket

And all this *despite* my renting 40-45 films a month ...

CashForFlow

"They believe Amazon will enter the U.S. DVD-by-mail market sometime this year."

From Netflix's statements and actions, it seems unlikely that Amazon and Netflix will partner. It's clear that Netflix views Amazon as more of a threat than a partner.

Given the tax implications that Amazon would face, as well the hundreds of millions it would cost to open DCs and stock DVD libraries, I think that Amazon will partner with an established player rather than build from scratch.

If the partner isn't Netflix, then the only other possiblility is Blockbuster.

Netflix is a dead company walking. It smacks of desperation when a CEO and CFO spend substantial time on a CC bashing a competitor. They've ackknowledged that they underestimated Blockbuster and are now trying to talk Blockbuster down since they have no other arsenal at their disposal.

one_killerbee

Record low churn is interesting in the face of throttling.

I know that in my case I'm going to cancel Netflix once my current subscription runs out. Too many delayed shipments.

At least with Blockbuster, I get 2 store coupons and pay $3 less.

Siggyboss

What an amazing quarter for this company. I'm surprised Netflix explicitly explained why Blockbuster is so handicapped in their online operations which incur losses with each additional sub. It could be a ploy to bring out any information from Blockbuster that it doesn’t already know.

Aron

Well, as the after market reaction supports, the results were about equal or slightly better then expectations pretty much across the board. I don't think the key has fully turned for liftoff yet though because the postive news today is fairly contained to Q4 results, with many forward looking questions still remaining.

The fact that after 5 weeks of competition at the 15$ price point they still believe they can hit 4M subs is impressive. I think the likelihood of Blockbuster increasing prices is higher then the odds of them decreasing so that would bode well for Netflix. Though it is still possible that word of mouth is still ramping up for Blockbuster in a currently immeasurable way.

Netflix management definately gives the impression of knowing very little about Amazon's plans. Whatever birdie tipped them off is either not high ranking or has since shut his tweeter.

I like the hardball approach they are taking. If nothing else, its a good bluff. They are basically saying that they are on course for 4M subs, if a competitor decides to ramp spending up further, Netflix will fight them even if it requires bleeding cash. In other words, they are willing to re-enter a price war. How true they actually are to this intent is somewhat irrelevant, Netflix wants their competitors to believe they are serious. They want to make Amazon and Blockbuster invest in half-measures and risk aversion rather then a full out blitz.

I look forward to seeing some discrepancies resolved. Namely, Netflix's belief that Blockbuster is sealing its fate with its online operation and that its debt will haunt it. This, of course, is in opposition to Blockbuster's opinion. And each opinion is self-suiting. I have yet to see an elaborate, and credible case made online for either direction that didn't involve a lot of hand waving and non-numerical argumentation. I haven't been able to pull it off either so not criticising anyone..

All signs point to a huge market(15M+ subs), the pieces are being moved on the board now with that in mind.

RAYMOND KNIGHT

I guess that throttling is really paying off in their earning statements.

Aron

The throttling policy that Netflix executes (undersupplying the demand for movies and then preferentially serving light users what they do have) does help the earnings statement. Which is, of course, why they do it. It elevates cancellations but increases overall profitability.

5 years of filtering through the American public looking for people who love to rent 9 or less movies via mail for 18$ a month and discarding the rest is what gives them a significant competitive advantage.

If you cancelled because you were a high volume user dissatisfied with long waits, then you are a well-behaving number in their model. Welcome my son. Welcome to the machine.

"I look forward to seeing some discrepancies resolved. Namely, Netflix's belief that Blockbuster is sealing its fate with its online operation and that its debt will haunt it. This, of course, is in opposition to Blockbuster's opinion. And each opinion is self-suiting."

"If you cancelled because you were a high volume user dissatisfied with long waits, then you are a well-behaving number in their model. Welcome my son. Welcome to the machine."

Wow, you really have a penchant for stating the obvious. What great point will you make next, that the sun rises in the morning and sets in the evening?

"The fact that after 5 weeks of competition at the 15$ price point they still believe they can hit 4M subs is impressive"

What Netflix publicly states and what it privately believes are completely different. Anybody can give guidance.

If Netflix came out and said, "We underestimated Blockbuster, and unless we cut prices soon we will likely not hit 4MM subs" how do you think the market would have reacted.

Clearly, Netflix has an incentive to give rosy guidance. They'll face reality as it comes. Until then, 4MM subs is cake.

cashforflow

Aaron,

I think there is reasonable evidence supporting Netflix's competitive advantage. The real issue is if they can fully exploit it or will other parties unknowingly assist. Although Blockbuster may suffer attrition to their online operation, which is unprofitable, the current store base is generating the necessary cash flows for online and offline operations. Whether this company can make such a transformation is unknown and unlikely due to the logistics. This is all very similar to Kodak's effort to win in the digital photography industry while film profits continually decline. Kodak was also well aware of its approach and decided to ignore it due to hubris.

Thanks for reading my opinion.

cashforflow

Netflix has no competitive advantage and its days are numbered.

What's the competitive advantage? Faster shipping? Yeah, that's sustainable.

What's the competitive advantage? "Better" recommendations? Also not sustainable.

What's the competitive advatage? More user friendly website? Yeah, really sustainable.

The problem for Netflix is that its so-called advantages will slowly disappear.

Blockbuster online didn't even exist in June, 2004. 3 months ago, Blockbuster had only around 12 DCs. As of the end of this month, Blockbuster will have 23 DCs.

Blockbuster will continue to gain ground. The reality is that none of Netflix's so-called advantages are SUSTAINABLE.

Again, to obsess over a competitor during a CC smacks of desperation. Since Netflix has no real ammunition, it is attempting to talk Blockbuster down.

Netflix will destroy BBI this year, I promise.

cashforflow

"Netflix will destroy BBI this year, I promise. "

That's still an unknown. Albeit, Blockbuster doesn't have many options other than attempting to drain Netflix of cash via making the entire online industry unprofitable – the current strategy. The problem of course is store based customers would decline significantly choosing Netflix or even worse Blockbuster. A profitable ($X) customer turns into an online loss ($Y) leads to a larger total loss ($X+$Y) for Blockbuster. The high volume Netflix customers defect to Blockbuster, which actually improves the formers results and tarnishes the latter.

Thanks for reading my opinion.

"Netflix will destroy BBI this year, I promise."

Wow. spoken like a true imbecile. Ordinarily I would not believe you, but since you promise that's completely different.

There is no "throttling." NF sends a disc out the same day it is received unless the next disc ships from a different hub. You get an e-mail the day your returned disc is received, and you get another one the day your next movie ships. NF has no way to influence the post office to "slow boat" a piece of mail.

The only way high volume customers get a different experience than low volume customers is in tie-breaking for movies in short supply (compared to demand) - that is, in how frequently they get waits. I can assure you all of that.

cashforflow

Can anyone elaborate on a single competitive advantage that Netflix has that's actually sustainable?

The morons here continue to compare Netflix to a 6 month old Blockbuster and extrapolate based on this false comparison. Blockbuster is improving by leaps and bounds, adding a dozen distribution centers in just the past month.

Looking 1 year out, do you really believe that Netflix's "advantages" will be sustained?

Do you really think that Netflix can achieve 4 Million subs without lowering prices?

Do you really think that Netflix can survive a price war longer than Blockbuster, a company that generates 10 times the revenue and cash flow that Netflix does.

Anyone with at least half a brain should be able to see the writing on the wall.

Another question: What happens if Amazon enters the online DVD space via a Blockbuster partnership?

Let's turn that around. Can YOU elaborate on a single competitive advantage that BB has that's actually sustainable?

The stores? They're actually *not* sustainable in the face of dramatic growth in the online rental market.

So if it really is 6 of one, half-dozen of another, the differences boil down to:

1. <Dr. Evil>One Billion Dollars</Dr. Evil> worth of debt.
2. NF has 5 years of experience in the market, which they created. 5 years of working with the post office to tune everything about that interface. More of that goes on than anyone can guess.
3. NF, overall, has a higher level of customer satisfaction and consumer image than BB does. That means more word of mouth marketing, which is, of course, free.
4. NF has more sustainable numbers: lower SAC, lower churn, higher margins. BB has the afterburners on, but the tank is empty.

cashforflow

"The stores? They're actually *not* sustainable in the face of dramatic growth in the online rental market."

Wow. The stores are going away? You show your true stupidity with that one.

The stores are not going away and provide a sustainable advantage that nobody can touch. Lots of people on this site have commented that they like the e-coupons as it gets them a title immediately.

One billion of debt? Again, stupidity. The debt was a 1-time event caused by the Viacom split. Blockbuster generates 1 Billion of free cash each year and can easily pay this down.

Based on your answers, let me rephrase my earlier question: can anyone with at least half a brain respond.

Come on Aron, think harder.

cashforflow

Don't worry about the other 'cashforflow'. This is a user on the Yahoo! messageboards that I displeased by pointing out his or her multiple deceptions. The user has a short interest in the stock and little ethics. At times I post there under this username too.

J-Bird

It's pretty funny that I can pretty quickly spot a CFF fake. He's the one that's actually polite... LOL

Bryan

Throttling DOES exist, there's no other way to explain it, unless my local post office got three times lazier overnight and has stayed that way.

When this issue is acknowledged, the first company to "blink" will be the one that institutes transparent rental limits. And that will be the company I stick with, because I can't stand the ambiguity of changing ship and receiving dates.

badass

cashforflow thinks he is so smart......not so I say. Blockbuster sucks, everyone knows it. Netflix has 1.better website 2. better selection 3. better name recognition 4. streamlined structure 5. new ideas "friends" "profiles" etc. (remember who came up with the entire online model idea?) 6. more dist. centers running on all cylinders all the time.
I predict that many thousands of current BB subscribers will defect to Netflix during this year because they want better service all around. BB has more money and that's about it. I doubt the millions of customers they have pissed off over the last 15 years are going to just forget about their bad blood. It's a close race but I choose NFLX everyday of the week.

RAYMOND KNIGHT

I believe that in the future BLOCKBUSTER will close some of it "BRICK AND MORTAR" stores but will keep a decent number of them open. I can see a strategy in this and will muse on their possible plans in a few sentences. Over the last several months I have seen significant improvement in BLOCKBUSTER's service while I have also seen significant deterioration in NETFLIX's service (longer return times, "shipping the next day" status. I haven't had a DVD shipped on the same day that it goes into my queue in months. As an example, of NETFLIX's versus BLOCKBUSTER's customer service. BLOCKBUSTER sent me the wrong DVD so I called them an complained. BLOCKBUSTER offered me 2 e-coupons for my time and trouble. I used one of these coupons to get a new release after NETFLIX passed over my new release on a Monday. Whenever, I call NETFLIX they offer platitudes and ocassionly offer me one of those fake extra queue spots which aren't real anyway the way they do it. BLOCKBUSTER to keep these stores open only have to cover operation costs which they should be able to do into forseeable future. From what I see, they are now attempting to incorporate these "Company stores" into their network. You will be able to return your DVD to the store and have it logged thus eliminating lost returned DVDs, reducing shipping costs back to BLOCKBUSTER because they can have them shipped back as a group, and less damage to the DVD on return. If they do it right you could go to the store itself and pickup the DVD yourself thus eliminating shipping costs for them and increasing satisfaction to you. This would also reduce wear on the DVD through shipping. I can tell you right now that if BLOCKBUSTER allows you to return a DVD to their store I will cancel my subscription to NETFLIX. Right now the average shipping time for BLOCKBUSTER is two days. With the "shipping the next day" status from NETFLIX they have raised my shipping time to 2 or more days. The stores will provide the customer with immediate gratification. Also, it is a good advertising tool to get new people to sign-up for their online service. I believe the stores that will go out of business will be the franchise stores.

cashforflow

Raymond Knight,

Your experience may be individual. Do you have any other sources that are broader? Nevertheless, I agree there will be a decent number of Blockbuster stores to remain open in a mail-order service era.

cashforflow

"Netflix has 1.better website 2. better selection 3. better name recognition 4. streamlined structure 5. new ideas "friends" "profiles" etc. (remember who came up with the entire online model idea?) 6. more dist. centers running on all cylinders all the time."

Hey moron, every instance that you cited is merely a temporary advantage.

You think that "more dist. centers" is a sustainable advantage? Just this month Blockbuster added a dozen new centers.

I again point out to the morons on this site that you're making a false comparison when you compare Netflix to a 6 month old Blockbuster. You continue the bad analysis when you extrapolate this false comparison into the future.

Blockbuster is gaining ground quickly. Netflix acknowledged this, as well as that it underestimated Blockbuster.

Blockbuster has gained 500K subs in 6 months. Blockbuster has added 23 dist centers in 6 months.

You really think that after everything that Blockbuster has been able to accomplish over the past 6 months that it's not going to improve further?

cashforflow

Wow, after such an "impressive" quarter, Netflix's stock seems to have reacted rather unimpressively.

Market up 1%. Netflix up 1%.

Keep on yapping about sustainable competitive advantages like fast shipping.

See all of you a-holes at $3.

J-Bird

CFF, I think you have become my favorite blog poster of all time. :)

Thanks for once again bringing levity to an otherwise long & boring day. Your dry wit and classic one-liners ("See all of you a-holes at $3") are the best around!!


J-Bird

Real quick... just so there's no confusion...

BBI -
Last Trade: 9.00
Trade Time: 4:00PM ET
Change: -0.15 (-1.64%)

NFLX -
Last Trade: 11.33
Trade Time: 4:00PM ET
Change: +0.19 (+1.71%)

cashforflow

J-Bird,

let's perk up the brain, jackhole.

Blockbuster online launched in July, 2004.

From July 1 to today, BBI is flat, from 9.11 (adjusted for $5 div payment) to $9 today.

Fron July 1 to today, NFLX is down almost 70% (from $35.95 to $11.33).

Do you understand that, retard?

Apparently, the market gives much more credit to Blockbuster's competitive threat than do the mental midgets on this site.

J-Bird

I was only putting out the FULL info from your previous post, just for fairness' sake. If you're going to drag the NFLX current stock price thru the mud I wanted to show the comparison. I never said anything about NFLX dropping big time over the last 6 months. I'm sure that's not a big surprise though, as before that they were the only legit company offering online rental services. It only makes sense that as their market share went down so did their stock price.

Again, another CLASSIC one-liner. Seriously, this one made me laugh out loud in my office.

"let's perk up the brain, jackhole." LMAO

Can I use that in my sig thread? Please? I'll make sure to credit you on it. I love you, maN! keep up the good work!!

RAYMOND KNIGHT

I have a couple of comments to make. All the extras that NETFLIX puts on their webpage is great but ultimately the factors that matter are listed below:

(1) Movies available for selection.
(2) Turnaround time (Yes, "shipping the next day" does count towards turn-around time.
(3) Price (a distant third within reason).

All these extras only matter if the above conditions are met in the customers mind.

roror

"The throttling policy that Netflix executes (undersupplying the demand for movies and then preferentially serving light users what they do have) does help the earnings statement. Which is, of course, why they do it. It elevates cancellations but increases overall profitability.

5 years of filtering through the American public looking for people who love to rent 9 or less movies via mail for 18$ a month and discarding the rest is what gives them a significant competitive advantage.

If you cancelled because you were a high volume user dissatisfied with long waits, then you are a well-behaving number in their model. Welcome my son. Welcome to the machine."

Your explaination is certainly plausible. But, I was wondering if the machine took into account the cost of those people bad mouthing NF and dissuading others from subscribing to NF. A few days back I read a comment from the machine's spokesperson that its heaviest users are its best evangelists, i.e. they heavily promote NF among their friends and relatives. With cost of acquiring a new customers at a staggering $35 (estimated), a little help from such evangalists won't hurt.

Has the machine taken into account that the process can certainly be reversed in no time (read a few months).

cashforflow

roror,

excellent points. Aron is a half-wit NFLX cheerleader.

First of all, Aron talks about the logic of throttling as if the logic wasn't already obvious. Of course the intent of throttling is to slow down or eliminate high use (i.e., unprofitable) customers.

Second, Aron talks about throttling as if its a competitive advantage--i.e., a filtering process that took 5 years to develop. Perhaps it takes NFLX and Aron this long, but normal people can identify high use customers in a matter of weeks. So this is not a comp advantage.

Third, NFLX could accomplish the same objective by capping monthly rentals. Doing this would be the honest way to go, since consumers would know what they're getting into. Consequently, there'd be no bad PR (pissed off consumers).

Instead of being honest, NFLX has chosen to throttle. Not only has throttling pissed off previosly loyal customers, but it will cause horrendous PR as NFLX customers defect and bitch about it. In addition, I think that NFLX has opened itself up to class action lawsuits based on this false and deceptive practice.

Damned Blockbuster shills.

If Blockbuster is doing such a great job, or if they're improving, why cant they get their movies to me in a reasonable amount of time or at all?

Been a member for a month and a half and I've gotten only 12 movies shipped to me so far. The usual time it takes for a movie to get to me from their stated shipping date is about 5-6 days (even more). That is, IF a movie ever gets to me.

For example, one movie they shipped to me. About 7 days went by and I was still waiting. So I reported that to BB who offered me the choice of them resending me the same movie or the next one in my queue. I chose for them to send me the same movie. A whole 7 days goes by and I dont get the replacement too! So I go to the BB website again to report this problem as well (last night, on Monday). They give me the same choice as before, replacment of same movie or next item. Instead of a replacement, I ask for them to send me the next item in my queue, which I am waiting for as I speak. We'll see if that one comes in.

Someone, a postal worker or a employee of BB, is stealing BB's discs and/or holding up shipments of same.

I know its none of the postal workers on my end because I always get my Netflix discs in, no problem.

It seems as if I had a better chance of getting movies shipped to me from BB in my free trial first two weeks, than I am now.

Blockbuster is an exercise in frustration.

poster above me:

I have both Netflix and Blockbuster. If search various blogs and find comments from people who have both you see a constant: Blockbuster is getting better every week, Netflix is getting worse. Very very few people find Blockbuster slower than Netflix and the vaste majority get equal turnaround times. Equal turnaround times, equal selection, combined with blockbuster's coupons do not bode well for Netflix.

Chris

Two Posters Above:

Did you ever check your address?
Shipping times are now equal for me which is new.

CashForFlow

The issues as I see them:

1) Price difference is insignificant to current Netflix subscribers. Still, the lower price at Blockbuster is enticing to new subscribers.

2) Turnarounds times for Netflix are still the best. Blockbuster's service should improve over time, but currently is inadequate.

3) Website interface is almost irrelevant. Recommendation system and movie previews give Netflix a temporary advantage here.

Overall, people are concerned about one issue - turnaround times. Only word of mouth will convince them thoroughly. Netflix has a solid advantage in this area currently.

RAYMOND KNIGHT

I have to say I have never had a disk take seven days to get to me. The worst I have had is 4-days. Also, with the new Philadelphia distribution center I expect to see a change in the time it takes to return a DVD and eventually I should start seeing DVDs come from BLOCKBUSTER. After three days under BLOCKBUSTER rules you can report a DVD as not being received so I don't know why you don't use that option. NETFLIX uses 7-days from the expected arrival date which is unreasonable. Also, NETFLIX had a significant advantage in delivery times before they went to "shipping the next day" shipping. Also, when I call to complain about something to NETFLIX it is like talking to a robot. They don't deviate from the script and at best they give you that misleading "extra queue" position. I have had two problems with BLOCKBUSTER and both times I have asked and received 4 e-coupons from them. These coupons are real unlike NETFLIX's offers. I use them to get the new releases which NETFLIX through their manipulation of my queue no longer seem to be able to give me. On Monday, I asked for three new releases and received one. If BLOCKBUSTER allows you to go to a BLOCKBUSTER store and return your DVDs and have them logged in right there I think NETFLIX is going to suffer some serious problems. No more lost DVDs upon return which I think would be a major incentive to go with BLOCKBUSTER. With the exception of Monday, I have not had a day where when a DVD was logged in that the new one didn't say "shipping the next day". There is one exception to this rule, generally on Fridays they will be shipped to me without the "shipping the next day" status.

RAYMOND KNIGHT

In the previous post, I meant to say Friday not Monday.

J-Bird

Hey, anyone know if the BBI Depot has opened up in San Jose yet? I have a buddy that was on the BBI trial thru the beginning of this month (he lives in San Jose) and the shipping times were still pretty bad.

I'd like to try it out, but not until I know for sure that the BBI depot in San Jose is open.

Also, does anyone know which branch houses the NFLX PO box in San Jose? I typically drop off my returns at the branch on Cahalan (off of Blossom Hill, by Hwy85) and they get there in a day. I'd like to drop them off at the same branch they use before 8am and see if they show received on the same day.

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