Netflix Signals Price War with Movie Rental Stores (3Q05 NFLX Conf Call Quotes, Also BBI, MOVI)

Netflix CEO Reed Hastings signalled his intention to launch a price war in the DVD rental market on his October 19th earnings conference call. Key extracts:

...we drove a nice increase in gross margin in Q3. This is partially due to the increased acceptance of our lower priced programs which have higher margins than our standard program... One of the reasons our last year has been so successful is the market's elasticity in response to our price cuts one year ago. And to our offering of lower priced one and two out plans this year. So naturally we want to test this elasticity further as we continue to realize cost efficiencies in the business. As we said at our analyst conference last month, we expect to run a number of pricing tests over the next six months to determine if, at lower prices we can deliver faster subscriber growth, lower SAC, lower churn, higher competitive barriers, and still deliver on our earnings commitment. Obviously, if there's enough elasticity to make additional price cuts work, this would increase the economic pressure on video stores, and the additional store closures would further increase Netflix growth for many years ahead. This positive feedback loop between Netflix growth and video store closures is the tipping point for on-line rental.

(Quotes are from the CCBN StreetEvents transcript.)

Related:

• A list of full conference call transcripts available on the Seeking Alpha Network.
• All Internet Stock Blog articles on Netflix.
• The complete list of Internet stocks (and links to articles about them) covered by The Internet Stock Blog.

« Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of SeekingAlpha or its management. »