Netflix, look elsewhere!

Netflix and Walmart have decided to partner, turning over all of 100,000 Walmart DVD rental customers to Netflix. Not bad, but probably, also, not great!

This is a good block and tackle strategy for Netflix, and it IS good news that at least one of the competitors becomes an ally. But the threats of the other reach-intensive commodity players like Amazon and Blockbuster still loom large over Netflix. My instinct would be to move OUT of the commodity positioning, and find the niche in Independent films, Festival films, Foreign Films, Special Interest categories, and create ethnically / psychographically segmented “groups” of user populations that come to Netflix because what they find at Netflix cannot be found at Blockbuster and Amazon.

It is quite critical for Netflix to be able to preserve the $17.99 / month price-point for 3 DVDs, or else a business model already plagued by low operating margins will trend further down, and may even start losing money. Differentiation is essential.

Netflix needs to think about other revenue streams that brand them better, as well as have higher margins. Such opportunities exist. Netflix, however, doesn’t seem to be finding them. Could it be, that the nerdy DNA comes on the way? Netflix also needs to mix online and offline experiences to create this superior brand experience, but the answer, and here’s a clue, is NOT brick-n-mortar stores!