The DVD Rental Race Analyzed

Thomas Hawk writes "Netflix and Blockbuster have been locked in a price war with regards to the DVD rental space. Wedbush Morgan Equity Analyst Michael Pachter has a $3 dollar price target on Netflix and is in contrast bullish on Blockbuster. Davis Freeberg challenges Pachter's thinking that Netflix will be the loser in the DVD rental battle and Pachter himself responds back on his rationale on why he thinks Blockbuster has the advantage." From the article: "Irrespective of what Pachter thinks about the overall DVD rental business, Pachter's seemingly obvious prediction would appear pretty dire for Netflix. Pacther updated his price target for Netflix On 4/22/05 with the new $3 price. If Pachter is right, then we should expect to see Netflix's stock fall by approximately 75% over the next 12 months."

Comments

Re:The Other Kind of DVD Rental Race

[jfengel]

Of course that has more to do with the post office than with Netflix or Blockbuster. I use Netflix, and they generally put a movie out in the afternoon mail if they get it in the morning mail. That's about as fast as one can ask.

I assume that Blockbuster is the same way. If not, then they're in serious trouble. I'm not going to say it's easy to achieve on a large scale, but they'd better not be any slower and I bet they can't be any faster.

I don't usually get 48 hour return time, even thoug my local distributor is only an hour's drive from here. But that's mostly the post office adding an extra travel day on one end or the other.

One could choose to alter their model to allow even faster service; say, the ability to request that a movie be sent when you put it in the mail, rather than when they get it, and trust you to be honest (and drop you if you're not). But that would involve them letting out more movies at once, which would cost them more.

Blockbuster could add service whereby you could exchange either by mail or at their place. That might work well for them, since it would mean that they could batch up returns. Mailing costs have got to be a huge chunk of Netflix's cost, since those recipient-pays envelopes have a significant surcharge. A big box of returns would cost only a few dollars. But that would mean making more copies available at the individual stores...

Beating the Street, a good read

[John Seminal]

These are the same people that predicted that Enron and Worldcom were the companies of the future, that Lucent was going to grow forever, that QQQ was the ticket to retiring at 30. Who gives a shit about their opinion? Listen to successful investors: W. Buffett, Peter Lynch, they'll tell you that the best thing to do about analysts is to ignore their predictions. So what does this guy know about Netflix? Has he actually even tried their service?

I took Peter Lynchs advice as the best. His whole opinion of stocks boils down to one question: "Do I like their product, their service, the way they treat me", "Will I be buying from them again, and like it", "Will other people like them". He says, if you anwser yes to these questions, chances are you have a good company. Lynch said the best companies he invested in, the big ten-bangers, were companies he really liked, or noticed other people liked.

People can read all about P/E ratio, how fast a company is growing, and the rest. But this will not tell you who will suceed. These numbers should just tell you if there is a red flag, if a company could collapse on itself.

It all boils down to a good product. Price is very important, but if someone sells you crap, or bad service, people will not buy from them, and their buisness is doomed.

Re:First Post

[anagama]

I think the price is fine right now. I suspect that if it became too low, the good service I get with Netflix would suffer. Realistically, the cost is about what I'd expect to pay to rent 4 or 5 movies per month. It's easy to get 3 movies a week if you watch and return quickly so the price can be roughtly 4x cheaper than renting at a store. That's a bargain.

But the real value is in the selection. Netflix stocks a lot of things that aren't easily found locally. If the price becomes too low, they won't be able to afford buying anything but the most in demand titles. That would suck.

Finally, I did a free trial w/ Blockbuster. They were missing an entire season of one of the Star Treks (a middle season like season three or four -- I can understand not having the last season, but why have 1,2,3,__,5 ... crazy!). The selection wasn't as diverse as netflix's. And finally, Blockbuster's website was annoying and ugly -- it looked like a WinAmp skin designer had made it up after huffing glue. In contrast, Netflix websitte is very useable, very simple. It isn't gaudy and flashy, but conveys information efficiently and accepts user input efficiently. I really like it.

So, while I don't think of myself as Netflix zealot -- I will become one if it means keeping Blockbuster from dominating the DVD by mail rental market.

Yeah I worked there too

[CiXeL]

store #06516 hermosa beach,ca back in '97

and yes it really REALLY sucked working there. The number one thing i couldnt figure out was why they would try to sell all that movie merchandising crap but it was a loss every damn month when they would put it at 99 cents clearance just to get rid of it piling up. also i hated how they would have us specifically mislead the customers for their rewards cards and return times.