Today's edition of TechWeb poses an interesting question.
With digital movie rentals coming on strong, is Netflix in a good position to grab a big slice of market share? The mail-a-movie giant hasn't impressed Wall Street with its efforts so far, although it does have a box-top digital set that feeds films electronically to televisions sets ready to roll.
Online movie rentals could be a $1 billion business this year, and shows signs of growing larger going forward. The premise is too juicy not to work - order a movie from a huge catalog of film faves for a few bucks and have the bill electronically added to your cable TV account (or Netflix account, if you're a subscriber). I'm a long-time Direct TV customer and, besides its lousy customer service, the satellite TV company has offered on-line movie rentals from a limited menu of recent cinema offerings. Some are even in high-def, which is nice.
Certainly, Netflix feels it can elbow competitors like Apple and Amazon.com aside and dominate the digital rental market. "Netflix is betting that during this time, we can establish ourselves as a leader in the space," Barry McCarthy, Netflix's chief financial officer, told investors last week.
Working in Netflix's favor is a subscription base of eight million customers. Also boosting Netflix's chances is the fact that would-be competitors like Blockbuster and Movie Gallery (now defunct) have pretty much fumbled in their own end zone with digital rentals and have suffered accordingly (try to convince a Wall Street trader that Blockbuster is a long-term hot commodity (not happening).
But nay-sayers abound - especially on Wall Street. Techweb cites Michael Pachter, an analyst with Wedbush Morgan Securities who says that Netflix should stick to its knitting and keep renting movies via snail-mail (I wonder if he sent that dispatch by Pony Express) "I would prefer that Netflix stick to selling movie-rental subscriptions," said Pachter. "I would say they're crazy; it's not worth it," He added that he only likes the deal if most of Netflix's customers switch from receiving DVDs through the mail and start getting their flicks via the Web.
Techweb hits the analyst right between the eyes: "Like many on Wall Street, Pachter can't see past the next quarter. He crunched the numbers and argues that Netflix is spending too much on building a digital-delivery service that enables users to download movies."
I don't think Pachter gets it. Sure, the short-term hit from having to pay Hollywood studios $40 million for the rights to 10,000 that Netflix plans on offering online is a bit of a risky investment, I guess. But the payoff should be big, especially with so many Americans hunkering down, staying in, and avoiding movie theaters and restaurants. To a debt-focused household, ordering in a pizza and ordering "Blades of Glory" online sounds like a pretty good deal.
Techweb also points to the new set-top box that Netflix is rolling out as proof of its commitment. "The $99 device enables Netflix users to watch downloadable movies on their TV sets. Most Netflix subscriptions allow for the viewing of any movie at no extra charge. Netflix streams the films, which means no extended download times. The major flaw is that there isn't enough titles to choose from."
But you can always buy more movies, which Netflix is already doing. So count me among the believers - and pass the pop corn.