Netflix, Blockbuster: Time for the Online Rental Wars?

Netflix (NFLX) came in at the low end of their guidance this quarter (see conference call transcript), pointing at competition from Blockbuster (BBI) for a lot of the shortfall.

However, a brief look at their website traffic over at compete.com reveals monthly unique visits down from 12M to 10M in Q1.

Last month alone saw a decline of 4.8%.

click to enlarge

Blockbuster is not picking up this shortfall; their traffic is roughly even over the period.

Net subscriber additions for NFLX in the quarter were 481,000, compared to 687,000 for the same period of 2006 and 654,000 for the fourth quarter of 2006. BBI has previously stated they are expecting to add 800,000 subscribers in the first quarter, which puts them ahead of NFLX from a growth perspective.

NFLX's subscriber acquisition cost of $47.46 is now equal to BBI's $47

BBI is clearly 'investing' a lot of money in Total Access; they have stated that 70% of online customers are exchanging movies in store 3 times per month at a net cost to BBI of $2 per visit.

With average customer revenue per month of $12, this leaves a paltry $5 to cover the cost of the 5-10 movies per month TA subscribers view.

So, BBI may be very successful this year at 'killing' NFLX, but at a massive cost to the business and a risk of commoditizing the DVD rental market.

If I were a company with $2bn in fixed costs (35,000 staff and 8.500 stores) I would not be attempting to commoditize my industry.

Does anyone at BBI remember the rental wars of the 90s? Are we ready for the online rental wars?

Disclosure: none

Comments

[gstewartjr:]

I switched from netflix (and sold my nflx) to sign up for blockbuster (and buy bbi).
Rental terms are the same price and I do return 1 or 2 movies a month at the store.
Why BBI will dominate.
1)Dad refuses to pay late fees, and constantly bug everyone to watch/return the movie and so opts for online.
2)Mom and kids want immediate gratification when a big release comes out - thus the ocassional store run.

I actually can't believe netflix doesn't partner with Hollywood or some other video chain. They will hang around, but they are making a big mistake.

2007 Apr 25 08:55 PM