The future of rentals
It turns out Netflix is kicking Blockbuster’s ass according to USA Today — In a sea of copycats and me-too services, Netflix is still managing an 80% yearly growth and holds the largest brand-recognition of the bunch, whereas Blockbuster has said they expect to lose 10% of their earnings in 2004. Considering the problematic service I’ve gotten at every Blockbuster I’ve been a member at, I’m not surprised.
What Netflix did that was significant was remove the late-fee model of renting. Blockbuster needs to bring bodies into stores to make their money. Netflix, with extremely low overhead on location and staffing (only a couple of fulfillment centers needed), means they can safely use a subscription model — and that means they still make money on a client even if they rent nothing for the month. Couple this with a good pricing structure to include mail costs and systems maintenance, and you’ve got a predictable business model that’s easy to build on.
This synchronized perfectly with emerging movie-on-demand technology like digital cable boxes. Now, if you must have a movie on the spot, you can have that need fulfilled, all the while still using Netflix as a watch-it-when-it-gets-here solution. Even TiVos have helped in this regard, although it often sits in between the two models in practice.
So where does that leave Blockbuster? Out in the cold. DVDs are notoriously sensitive when it comes to mishandling — even just the make and model of the DVD player can expose problems. I stopped using Blockbuster outright when disc after disc was scratched or unplayable on my player. I’ve witnessed many a frustrated employee complain that if it plays in the store, they can’t offer a refund. Unfortunately, testing DVDs like that is a real-world impossibility — I’ve been behind the scenes of that, having worked at Palm Pictures for a while… facilities that master DVDs test on hundreds of DVD players to look for errors. While sending a Netflix disc back for a replacement still costs money (in time spent returning it, since it is a monthly service), it is generally hassle-free.
That doesn’t mean Netflix is in the clear. As the article points out, movie-on-demand features will be competing with Netflix very soon. While there may be plenty of advantages to physical discs over any downloadable content (including planned services from TiVo, and internet-based download sites like Movielink), the question hangs on which direction the movie industry itself puts its energy behind.
Users always side with content and convenience.
