Showtime for Netflix.

Essay by royalinxUniversity, Bachelor'sA-, October 2005

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Showtime for Netflix

(Business 2.0 magazine, March 2005 issue)

Netflix is the pioneering Web-based DVD-rental firm. For a flat monthly fee, subscribers can order as many movies as they want, up to four at a time, and keep them as long as they want. Netflix doesn't have due dates, late fees, or titles out of stock; and movies usually arrive by mail in a day. As well, the Netflix service is more superior to in-store rentals. In 2004, subscribers grew from 1.5 million to 2.6 million. The $500 million market is growing 100% per year. Any market that big and growing that fast will attract competitors. As a result, Netflix is suddenly facing alarming rivals such as Blockbuster, Wal-Mart, and Netflix's competitors are the biggest rental company - Blockbuster, the biggest e-commerce company -, and the biggest company, period - Wal-Mart. If judged by the quality of its competitors, Netflix must be doing well.

The first to take on Netflix was Wal-Mart, which began offering online DVD rentals in June 2003. Then, came Blockbuster dropping a massive $100 million into its service. Now, finally, comes Amazon testing U.K. market and American service will begin midyear. Likely, the competitors are going to engage in a price war. In November, Netflix cut the price of its primary subscription plan by $4 to $17.99. A few weeks after, Blockbuster slashed the price of its main plan by $2.50 to $14.99, and eliminated in-store late fees that drove many customers to Netflix in the first place. Netflix doesn't like price wars with bigger and better capitalized companies. Its competitors have size but Netflix has focus, and the asset behind that advantage is the Netflix subscriber base, and word-of-mouth-driven industry. The more satisfied customers Netflix has the more new...