Netflix Stirs the Sleeping Giant

Jun 11, 2003
Rick Moss

Netflix Stirs the Sleeping Giant

Rick Moss

Events developed quickly this week with DVD-by-mail operation Netflix, a dot-com
survivor that has seen stock prices quintuple since last fall on the strength
of their (once unique) $20 per-month-for-unlimited-rentals offering.

First came Netflix’ celebratory announcement Monday evening that they were
boosting their second-quarter earnings outlook to between $3 million and $4
million from a prior loss view of $600,000. Shares jumped 6 percent to $24.50
in after-hours trading. Then Tuesday morning, Wal-Mart released news that they
would change the tiered pricing on their competitive rental plan: $15.54 per
month for renters who only desire two discs at a time; $18.76 for three DVD’s;
$21.94 for customers who want four. Netflix’ stock fell back, settling at $22.70
at end of session yesterday.

Netflix has certainly been on a roll. In 2002, they doubled their sales to
$153 million, and cut losses by 43 percent to $22 million. But, as notes Forbes’
columnist Christopher Helman, it costs Netflix “$32 to attract a customer. Wal-Mart
and Blockbuster can promote their services in their own stores, largely for

Moderator’s Comment: Is there truly hope for Netflix
and other channel innovators when category-killers are just one step behind?

Netflix has beaten the odds, so far. But their first-to-market
head start is quickly dissipating. At a point in the not-too-distant future,
I fear no one will remember who thought of this idea first. (By the way…are
you reading this on Microsoft Explorer or that other browser…Now, what
was that called?) [Rick
Moss – Moderator

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