ig, If you're convinced BBI will lose, then you must be convinced NFLX will win by proxy. Viable downloads for the masses are 5-7 years away at a minimum. NFLX will be in that market by the time it opens up. Also, there will always be non-computer people who prefer holding the DVD in their hand and who don't want the hassle of logging on, waiting for the download, hoping the download isn't corrupt, etc. BBI's death spiral pricing is the only thing that is holding NFLX back at this point, and NFLX is still turning a handsome profit. Remove BBI and NFLX will be romping in the fields. Which is why I am long on NFLX.
Just because I believe NFLX will emerge as the dominant DVD-by-mail business doesn't mean that I want to tie up funds in it right now. NFLX doesn't seem to have the support of the market the way BBI does and so it will take a while for the value of NFLX to begin to move in any meaningful way (unless they get bought, which is why I holding what I have).
And for what it's worth, I agree with you that downloads are a ways out yet. I have a nice big screen TV that I watch my DVDs on and only occasionaly will watch movies on my laptop.
I also happen to think the next major step is the TV-top box that will allow you to download movies and have up to the number of movies on your box that your plan allows. The folks who are betting on downloads to computers are ignoring the weakened eyes and ears of the boomers who are now set to (or about to) retire. This also happens to be the same group who is being well groomed to order their prescriptions by mail to cut down on costs. Without knowing for sure, I'm betting this is one demographic largely ignored.
But regardless of which way it goes, the idea of going to a store to pick up a movie will eventually be as popular as going to a record store to buy a CD.
Ig, thanks for being one of the very few people on this board to actually engage in an intelligent discussion rather than simply hyping (or more often shorting) NFLX with a post that goes something like "Only losers invest in NFLX! It's goin' down! HAHAHAHAHA."
I agree with you that NFLX in the short term has to fight the desperately (suicidally?) low price structure of BBI and will probably feel some short term pain either by matching BBI's price and losing out on some profits or ignoring the decrease and concentrating on superior service and delivery time. But then, that is what is priced into the big drop NFLX has taken in the last week. I wouldn't expect NFLX to continue to fall much further, though, because the value players have been licking their lips for a long time, waiting for NFLX to drop below 20. Indeed, NFLX was up sharply today.
Either way, NFLX customers are incredibly loyal and the vast majority won't be switching based on a dollar when they will get more selection and more total movies a month than the BBI plan (plus 15 or more hours of free on demand movie viewings online, something nobody's talking about, but which I don't believe BBI offers at all, which is a significant advantage for NFLX). So, worst case scenario and NFLX loses some of their potential new customers during the BBI shakeout, they will not be losing their old customers, and they will continue to gain new customers at a decent pace. NFLX is already turning a nice profit with it's six million plus customers, and it will still gain hundreds of thousands or more (I think they are forecasting closer to seven million by year's end) So, their growth this year may be moderated, but they don't need to get every new sub in order to continue to turn a nice profit.
However, every sub BBI gains is costing them MORE money since their price structure loses money on almost every delivery service they offer. Once BBI goes bankrupt, NFLX is basically unstoppable. Incredible branding, fierce customer loyalty, and a several year headstart on any other potential new players in the DVD-by-mail arena essentially build a big moat around NFLX. Downloads are off in the distance, and with NFLX's cash horde, you can be sure they will be buying into this technology when it becomes viable (or joining forces with another provider). NFLX management is not stupid. They also have already embraced technology with the on demand video streaming.
In the short term, NFLX may not skyrocket, but I would say as soon as BBI's next quarter numbers come out and people realize they are burning through cash at a ridiculous, unsustainable pace and NFLX's next quarter numbers show a continued healthy profit, you're going to see a lot of movement. It may take months, but it is as inevitable as the tides.