<<first of all.....blockbuster is $20.00 per month up to 3>>
Actually, Blockbuster's price is $17.50/month vs. $18/month for Netflix. Blockbuster's monthly plan includes 2 free in-store rentals each month.
<<second of all amazon isn't renting movies yet.....the whole thing doesn't make sense>>
According to Monday's New York Times, Blockbuster is stating that it's on track to have 500,000 online subscribers by year end.
I guess we know the real reason why Netflix dropped prices.
nytimes.com
Considering that Blockbuster's online site has only been around for 3 months, I think that Blockbuster is making amazing progress. It took Netflix more than 3 years to get this many subs.
Also according to the NY Times article, beginning next year Blockbuster will ship titles from local Blockbuster stores, which should ensure 1-day delivery to basically anywhere.
I again ask: How will Netflix be able to compete with Blockbuster's value proposition once local Blockbuster stores are integrated with its online site?
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Amazon Rumor Ruffles DVD Rivals
By BOB TEDESCHI
Published: October 25, 2004
To match the services of competitors, though, Amazon would likely have to open distribution centers throughout the United States - a strategy it has largely eschewed since early 2001, when it began shutting huge warehouses filled with goods it owned and started relying more on retailers and distributors to ship products on its behalf. The company maintains six regional shipping warehouses.
Mr. Szkutak said the company did not expect to open any new distribution centers in the coming months. Still, Amazon could rely on a network of vendors for DVD distribution, much as Wal-Mart has done to supplement its 14 DVD warehouses.
The cost of building a movie rental library alone could daunt some investors, said Mark S. Mahaney, an analyst with American Technology Research, a San Francisco investment firm. Mr. Mahaney noted that Netflix spent $80 million in the first nine months of this year simply acquiring DVD's - $10 million more than Amazon's capital expenditures for the past year. Netflix has about 25,000 movie titles.
"If you're talking about doubling Amazon's capital expenditures, that's something I'd have to think about," Mr. Mahaney said when asked if he thought the idea made sense for Amazon. "It'd obviously benefit them from a gross margin perspective, though."
Amazon's gross profit margins have decreased steadily in recent years, to about 24 percent, as the company has cut shipping costs and dropped prices. By contrast, Mr. Mahaney said, gross margins for online DVD rentals are 40 percent to 50 percent.
Even if Amazon enters the market, however, Netflix may have time to add customers. Mr. Hastings said one crucial aspect of the online DVD rental business was widespread distribution of warehouses, which makes overnight delivery possible.
It has taken Netflix six years to build 29 distribution centers - enough to offer overnight delivery to nearly 90 percent of the country's prospective customers.
But Blockbuster has thrived even without such broad capability for overnight delivery. The company has 10 distribution centers, covering about half of the nation for overnight shipment, yet it says it is on track to reach 500,000 rental subscribers by the end of the year. Netflix took more than three years to reach that number of customers.
Shane Evangelist, senior vice president of Blockbuster Online, said that like Netflix, his operation could remain profitable at the lower price, particularly next year when Blockbuster stores begin shipping videos to customers who rent online.
"We've got 'Top Gun' in 6,000 stores," Mr. Evangelist said. "We bought it, we've rented it, it's fully amortized, but it's not sold out every week. We can ship it from the store, but also rent it online."
Mr. Evangelist said the company would be able to route the customer's online order to a store in a given region that has the requested title available. "So you start to see how this becomes pretty big in optimizing our inventory," he said.
nytimes.com |
