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Technology Stocks : Netflix (NFLX) and the Streaming Wars -- Ignore unavailable to you. Want to Upgrade?

To: EdR who wrote (200)	3/9/2005 4:45:43 PM
From: CFA	Read Replies (1) \| Respond to of 2280

Dave and Ed, I'm pleased with BBI's overall results, although I expected better results from DVD and merchandise sales given that MoviePass has been gaining ground. Blockbuster has grown at roughly 100K subs/month since its inception in mid-July, 2004 and expects this trend to continue through March, 2006. In other words, Blockbuster Online is capturing 2 out of every 5 people who choose to rent online. In addition, by introducing an in-store subscription model and eliminating late-fees, Blockbuster has taken away the main rationale for switching to online. Given this climate, I maintain that NFLX will have to either cut prices or lower guidance in the next few months. Regarding "Shipping Tomorrow" and other shipping delay schemes that Netflix is using, it's well documented by a site called Hacking Netflix: hackingnetflix.com Herb Greenberg nailed the Netflix dilemma: The more that people use its 1-dimensional service (online only, rental only, DVDs only), the worse off Netflix is. Consequently, Netflix has apparently resorted to shipping delays. Longer term, unless online plans can generate a secondary revenue stream (Pizza Hut ads/coupons enclosed in the envelopes, for example), unlimited plans will likely give way to capped plans (limit of 8/month, for example). In any event, I'm not sure what Netflix's options are. It's already projecting to lose money this year. It can't match Blockbuster's pricing without losing even more money. It can't satisfy high-volume users without losing money and has therefore resorted to using "Shipping Tomorrow" and other schemes. And if it launches a capped service that limits users to, say, 12 DVDs/month, then its plans will look far less attractive than Blockbuster's unlimited plans.