Red Envelope Madness!

Friday, October 15, 2004

Hacking NetFlix : Major Netflix Announcements!

I was out sick yesterday, so I'm a bit slow with the news. Hacking NetFlix reports several big ones:
1. Netflix is lowering the price of the 3-out subscription plan to $17.99 per month, starting in November.
2. Amazon is entering the DVD rental maket, according to Netflix.
3. Netflix announces GAAP Net Income of $18.9 million for Q3 2004, based on revenue of $141.6 million for the quarter.
4. Netflix has postponed European expansion plans to focus on the increasing U.S. competition.
5. The churn rate remained constant at 5.6% since last quarter.
6. The stock dropped from $17.43 per share to $10.99 in after-hours trading tonight.
7. Netflix is expecting to break even over the next year instead of being profitable.
Read more.

Mike says Netflix is on the defensive, trying to deal with increased threats from competition with Amazon, Blockbuster, Walmart, Greencine; hence the price change and the more conservative strategies. Sounds about right to me. He has a list of links to news reports around the Web.


  • At 10/15/2004 2:06 PM, Anonymous Anonymous said…

    I just got 15.99 with a three month minimum

  • At 10/17/2004 5:08 AM, Anonymous Anonymous said…

    Blockbuster said Friday after trading hours that they will lower their online price to $17.49
    per month to compete with Netflix. They also stated that they will not be undercut on price no
    matter what it takes!
    Now I look at this two ways: 1. Blockbuster is desperate and if they don't establish their base
    online customers in vast numbers very quickly, they will go under. 2. They are going to go all the
    way with this online model and make a huge business transistion in 2005. Costing them a lot of
    money and while attempting to balance their thousands of stores along with the online rentals that
    will ultimatly be hurting their stores at the same time. I read below in the article that a very
    large chunck of Blockbusters cash comes from late fees from lazy customers, so with all of their
    current customers switching to their online service I belive their stores will do less revenue
    because of this. I mean how could the stores do better than they have done before Netflix?
    Especially when Blockbuster is hurting themselves now too. I think they will have to lower their
    in-store price for a DVD or something.....something has got to give for Blockbuster just as well
    as it did for Netflix this month! Especially since both stock prices are now very close and also
    because now each company has a $17.00 price for monthy subscription. I think maybe if the online
    rental model is not profitable for Blockbuster in the next year then they will have to close
    stores or slash prices.
    Besides, Blockbuster is owned by Viacom and Netflix is owned by Netflix.....meaning that if
    Netflix is aquired by TimeWarner or Verizon as I've read in rumors, then Netflix will be solid for
    sure and that is always an option that Blockbuster doesn't have. Either way I am confident that
    Netflix is going to be allright expecially since they are now competitive with thier new low
    monthly prices.
    I also read an article I wanted to send you but I lost it, anyway it said that what Netflix is
    doing the smart thing now because when E*Trade was new a few years ago it didn't take competition
    seriously and took all of it's profits every quarter and it led to the competition gaining
    customers. Those customers became loyal to another company back then and never left. Same with the
    trades, meaning E*Trade kept their trade price at $20.00 while newcomer Ameritrade was doing a
    trade at $7.00. The article said that if E*Trade would have gone for customers instead of profits
    they would have nearly double the customers they have today. Also they would have fended off a lot
    of the competition that they have today by lowering prices early. Now those customers they lost in
    those years are forever with another company.
    Also I read that the massive advertising caimpaign that both Netflix and Blockbuster has in
    store for the holidays will boost consumer registration by a lot. They said that this may be the
    plan and then they will steadily raise the price as they gain the right amount of customers etc.
    By the way I read that in mid summer Wal-Mart only had 40,000 subscribers compared to the two
    million something that Netflix has. Also I read that Blockbusters claims that they will gain more
    subscribers before 05' than Netflix had in it's first year and a half is highly misleading. The
    reason is because Netflix didn't get it's large jump in subscribers until 2002 and they were
    already public by that time with nearly 600,000 subscribers. Netflix started in 1998 so they had
    ben around for nearly four years before they had gone public with nearly 600,000 subscribers, so
    it's no great feat that Blockbuster is boasting on those numbers. I think blockbuster is in
    trouble more than they are telling us. And maybe Wal-Mart will quit after it sees that they just
    can't get the subscribers compared to the others after the holidays. Have you ever even seen an
    advertisment for Wal-Mart rentals? Not me.

  • At 10/17/2004 4:28 PM, Anonymous Anonymous said…

    I doubt they are going to be able to put blockbuster out for a very ong time. blockbuster is not just going to give up they are considerably bigger and hav viacom's cash.

    I think netflix problem is that once we get into VOD they are not going to have much of a competative model. why are the content producers/owners and the broadband pipline companies going to want or need a third player as a middleman? netflix won't have anything to add to the mix.

    I think their real worryfor the time being is that blockbuste and amazon could easily afford to destry their hpes for profitability. they are trying to scare amazon, but can't keep prices this low for long. remember blockbuster will be drastically incrasing its selection for mail order, which is its only neflix's only advantage. combine that with some coupons for in store byblockbuster and you have a very competative and cash draining situation for netflix

  • At 10/17/2004 8:36 PM, Blogger Becky said…

    I think Netflix wanted to lower their prices last July, after all the backlash from the price increase, but they couldn't. Now is a great time, because they can blame it on Amazon, rather than admitting they'd made a mistake back in May.

    I think the thing that scares Netflix about Amazon is that Amazon has the network, databases, and shipping infrastructure to handle an almost overnight implementation if they decide to go with DVD rentals, whereas Blockbuster and Walmart had to start from scratch with distribution centers and databases, etc.


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