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  • athmscout athmscout Jul 14, 2003 10:31 PM Flag

    Netflix getting more competition part 1



    Netflix getting more competition
    (Original publication: July 14, 2003)

    When Stephen Berger bought a DVD player at The Wiz, the machine came with a coupon for a dozen free movie rentals from a little-known outfit called Netflix.

    Berger simply had to log onto on the Web, choose the movies and Netflix would mail the discs directly to his home.

    Almost four years later, the Yonkers teacher is still a customer. He pays $19.95 a month to rent as many movies as he likes, with up to three at home at a time. There are no due dates, late fees or shipping charges. Plus, the Netflix library of 15,000 movies includes just about all of the DVD titles ever released � including the sci-fi flicks Berger loves.

    "I've been more than pleased with the company," he said.

    Berger's not alone. Netflix had more than 1.1 million subscribers at the end of June � 71 percent more than last year at the same time.

    This Thursday, the Silicon Valley dot-com is planning to announce its first profitable quarter since its founding five years ago.

    Reed Hastings, the 42-year-old chairman, chief executive and president of Netflix, said the company's profits are catching up with its revenues, which have increased from $1.3 million in 1998 to $152.8 million last year.

    "It's a very strong business if you've got a lot of subscribers. If you've only got a few, it doesn't work so well," Hastings said.

    Netflix has 90.9 percent of the market for online movie rentals and 5.5 percent of the total DVD rental trade, according to Alexander & Associates, a media industry research firm in New York.

    With about 55 percent of U.S. households boasting a standalone DVD player, Netflix sees plenty of room for growth as DVDs replace VHS tapes as the standard for home movie viewing.

    "Our goal is to get to $1 billion in revenue and 5 million subscribers in seven years," Hastings said.

    Netflix will have to vanquish some tough challengers to get there.

    Netflix's biggest rival, Blockbuster, is testing a subscription model for DVDs and game rentals through its stores. In addition, the No. 1 movie rental chain is sampling the online waters with its subsidiary. Blockbuster plans to merge the pilot programs in 2004.

    Compounding the threat, the world's biggest retailer, Wal-Mart, introduced an online DVD rental service last year. Wal-Mart has grabbed just 2.4 percent of the online DVD rental market as of the first quarter, but that's without advertising or promotions in its stores.

    Stock analyst R.J. Jones, who follows Netflix for Delafield Hambrecht of Seattle, said Wal-Mart's entry is bad news for Hastings' billion-dollar ambitions.

    "I feel that that goal is in serious jeopardy of not being attained with the entry of a consumer-savvy company like Wal-Mart, which is going to find ways to pick up market share," Jones said.

    The fact that such behemoths are nipping at the heels of a relatively small startup shows that Hastings was on to something when he founded Netflix, Jones said.

    "What Netflix has done is pioneered a new way to get movies in your home," he said. "They just changed the dynamics for all the businesses. That's why Blockbuster and Hollywood and the others are really in the fight of their lives for how they are going to capture rental revenues in the future."

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