UPDATE - Netflix says granted patent on DVD rental service
Tuesday June 24, 11:40 am ET
biz.yahoo.com
Adds analyst comment, background, stock action throughout)
CHICAGO, June 24 (Reuters) - Netflix Inc. (NasdaqNM:NFLX - News) said on Tuesday the U.S. Patent & Trademark Office issued the company a patent that covers its online subscription-based DVD rental service.
Shares in the Los Gatos, California-based company, which competes with Wal-Mart Stores Inc. (NYSE:WMT - News) and Blockbuster Inc. (NYSE:BBI - News), rose as much as 11.5 percent in early trading on the Nasdaq. Analysts said the increase was likely due to eased investor concerns about the sustainability of Netflix's business in light of the patent.
"This would give everybody the impression that there's ... some level of protection of future cash flows to the company," said Delafield Hambrecht analyst R.J. Jones, who has a "hold" rating on Netflix stock. "For the near term, this provides a way for them to defend against competition."
Jones, who does not own stock in the Netflix and whose firm does not do banking for the company, said Netflix will likely take come action against competitors, whether it be lawsuits to drive them out of business or seeking royalties. Netflix filed its request for a patent for its business process in 2000, he said.
A likely defense of any rival would be the obviousness of the process, Jones said. Netflix also could pursue action against small rivals first before turning to Wal-Mart and Blockbuster, he added.
Netflix officials were not immediately available to comment.
Netflix is the leading U.S. online DVD renter, commanding about a 95 percent share of the market. It makes its money by charging a monthly fee and directly shipping DVDs to customers, who make their choices on the Internet.
A Wal-Mart spokesman said the Bentonville, Arkansas-based company was unfamiliar with the patent grant. It first outlined its push into the hotly contested DVD segment last fall.
Analysts have seen Netflix as particularly vulnerable to the world's largest retailer, whose size and scale could give it more clout. It charges almost $19 a month to rent as many DVDs as customers like but no more than three at once.
Netflix, launched in 1998 and sporting more than 1 million subscribers, allows customers to rent as many DVDs as they want for the monthly fee, with three movies out at a time. Customers can keep the DVDs as long as they like and they are delivered directly to the subscriber's address via first-class mail.
A spokesman for video rental chain Blockbuster said the Dallas-based company had not seen the patent and declined to comment immediately. It purchased a DVD rental company last year and relaunched it as filmcaddy.com in the fourth quarter.
Stock in Netflix rose as high as $23.98 in early trading and was still up $1.19, or 5.5 percent, at $22.69 in trading on the Nasdaq. |
