The Stalwart submits: Many have speculated, including this blog, that Netflix (ticker: NFLX) is a likely buyout candidate. There have been rumors as to the identity of potential suitors, and the filing of an SEC document updating the severance agreements of the executives only adds fuel to the fire. But all this doesn't quite fit with the fact that the company continues to present an ambitious long-term plan. It could be a decoy, but if I buyout were imminent, you'd think they wouldn't want to jawbone their share-price up--or maybe they would.
That being said, Davis Freeberg has covered Netflix's recent presentation at the Lehman Brothers Small Cap Conference and was quite impressed:
Barry McCarthy, the Chief Financial Officer of Netflix gave one of the best investor presentations I've ever heard at the Lehman Small Cap conference earlier today. If you've never listened to a conference call or an investor presentation, this is the one to catch. In the call, he made a strong argument for why Netflix will make it to 20 million subscribers by 2010 - 2012.
During the presentation he gave great statistics about past growth and indicated that they believe they will hit 4 - 4.2 million subscribers by the end of this year. He also said that "our objective through the end of next year is to finish with at least 5.65 million subscribers." An amazing accomplishment considering that they had less then 2.6 million subscribers a year ago.
He pointed out that a key driver to their growth will be the superiority of their website design and proprietary algorithms. In the presentation he points out that "among online retail businesses we have been rated the best website on the internet and as we grow, our objective is to become an iconic brand." He sees brand loyalty, strong customer satisfaction and personalization as being key components to their growth.
He also quotes the CEO, who offers some read-meat for the long-tail crowd:
"Historically Blockbuster has reported that about 90% of the movies they rent are new theatrical releases. They do a great job of fulfilling demand, created by the studios who spend $4 billion per year marketing new theatrical releases and the studios own the gross margins associated with creating that demand . . . Now they have a slightly different mix online. A couple of quarters ago they said that about 70% of what they rent online is new releases and about 30% is back catalog. That's not true in our business and it's never been true in our business. The day we came public and in the most recent quarter about 30% of what we rent is new releases and about 70% is back catalog and it's not because we have a different subscriber. It's because we create demand for content and we help you find great movies that you'll really like, we do it algorithmically and we do it with recommendations and ratings."
If you're interested in this company, read the whole thing.
On a related note, much of the discussion about the "long tail" revolves around floorspace; i.e. retail operations with scarce floorspace must flog the new releases and best sellers in order to maximize sales per square foot. Online sellers, obviously, don't have to worry about this limitation. But what if physical retailers could solve the floorspace problem? Yesterday, The Financial Times reported that Wal-Mart would be experimenting with downloadable DVD kiosks in stores. In other words, the convenience of a store with the unlimited selection of an online retailer. One could even see Blockbuster experimenting with some sort of microformat store for urban areas--a few kiosks and then a little space devoted to popcorn and candy. Or what about being able to rent any DVD from your ATM machine? Simply pick the movie, wait two minutes for it to burn onto a disc, and take it home. Perhaps this could finally be a boon for the disposable DVD, an unfairly maligned innovation, in our opinion.
While Netflix is still the one to beat, the other players won't go down without a fight. Furthermore, Hollywood having seen the battling between iTunes and the record-labels, won't want one company to become too powerful when it comes to distribution.
Related:
- DVD Kiosks at Soon at Wal-Mart? Threat to Netflix and the Knockout Blow to Blockbuster and Movie Gallery?
- All Seeking Alpha Network articles on DVDs and on Movie Distribution.
- Netflix 3Q05 Conference Call Full Transcript: Prepared Remarks and Q & A
Is Amazon Attempting a Buyout of Netflix? (NFLX, AMZN)
