BBI: Key quotes from NFLX's conf call

Includes: BBI, NFLX
by: David Strahlberg

Below are some quotes and thoughts about Blockbuster (BBI) from NFLX's conf call. For more commentary on NFLX, go to The Internet Stock Blog.

NFLX has assumed the following about Blockbuster Online (Warning: these assumptions may be completely wrong):

  • Reached its year end goal of 500,000 subs
  • Invested $100M in the business during past six months
  • Opened 23 distribution centers
  • Subscriber Acquisition Cost of $50 (vs. $36 for NFLX)
  • Churn rate of 13% (vs. 4% for NFLX)
  • Gross margin below 30% (vs. 45% for NFLX)
  • Operating loss of $50 during 3Q03 and 4Q03 (vs. $27M gain for NFLX)

On BBI's $15 Pricing: the $15 price point....we expect their online business to lose money on every subscriber indefinitely unless they slash their marketing spending, which will slow their growth.

On A Price War With BBI:

...if we have to match Blockbuster's pricing...I believe we are better positioned to survive the battle than Blockbuster...the more aggressively they compete with us for market share and the lower they price their service, the faster they drain their stores of customers and the more money they lose online

On BBI's Fixed Costs

...they have more debt than we do, $1 billion more...and they have large fixed expenses associated with operating their rental stores, which has steadily declining same-store sales and profit margins. And that I think is Blockbuster's Achilles heel....If we are right, then aggressive price competition and margin erosion will end sometime this year.

(Quotes from the CCBN StreetEvents transcript.)