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Netflix, look elsewhere!

Posted on Thursday, May 19th 2005

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!

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Don’t you think they already do that? Their success lies in the fact that many if not most of their subscribers use Netflix (I know we do) because we can easily find every DVD available in certain niche categories that we would not easily find at Blockbuster. As Chris Anderson wrote in his now too often quoted Wired article titled “The Long Tail”, that is what makes Netflix so useful just as it makes eBay valuable. And even though Netflix may not have marketed to us as providing that benefit we only adopted them primarily because of that reason (besides the convenience and despising Blockbuster for so many years of charging us extravagant late fees).

Mihail Lari Friday, May 20, 2005 at 10:25 PM PT

Hi Mihail,

When I first started using it, a few years back, I used to think so, but they’ve not kept up. Example: I saw a beautiful movie from Cameroon at the San Francisco film festival last year called Forest, but Dominique missed it. We’ve been looking for it ever since. That’s the film festival story. Numerous other examples. B- execution at best on that.

Now, I have frantically looked for the minimum Bengali movies … like the entire body of work by Satyajit Ray who won the lifetime achievement award from the Academy. Only 3-4 are available.

I am not a big consumer of Bollywood films, but most Indians are. Netflix has a pretty poor Bollywood selection. That is a humongous ethnic segment that is minimally served. Unpardonable missed opportunity so far.

Not to mention their pathetic job in the special interest categories. Most of the Dance classics are not on the catalogue.

Well!

Sramana Mitra Saturday, May 21, 2005 at 1:22 AM PT

I can only speak to the categories that we find of interest. Netflix, besides providing much convenience, even more so than pay-per-view, has been awesome in providing one of the best collection of movies in the categories we’re interested in. So our experience has been very different and good. Of course, with Wal-Mart and Netflix joining forces, it is going to be interesting to see where Blockbuster’s service ends up.

I would hate to have Wal-Mart buy Netflix any time soon since, if I remember correctly, Wal-Mart already requires content producers to produce tamed-down (censored?) versions of their CDs and probably DVDs. This trend can be seen in Oliver Stone’s Director’s Cut of Alexander which will be released as two different versions according to this GLAAD media alert:

“The new version is shorter by an estimated eight minutes, and Stone told Entertainment Weekly that he removed some references to Alexander the Great’s bisexuality to make the film “more accessible” to viewers.”

Mihail Lari Thursday, May 26, 2005 at 7:36 PM PT