Online DVD service hits million mark
By Michael Liedtke
Associated Press
SAN FRANCISCO — Online DVD rental service Netflix Inc. surpassed a million subscribers this week, providing another measure of the fast-growing company's impact on the home entertainment business.
Associated Press
Netflix reached the milestone 3 1/2 years after it came up with what seemed like another quirky dot-com idea: mailing out DVD rentals to customers who placed orders on a Web site.
Bosiljka Topalovic sorts DVDs at Netflix Inc. in San Jose, Calif. The online DVD rental service surpassed a million subscribers last week, providing a measure of the fast-growing company's impact on the home entertainment business.
For a $19.95 monthly fee, Netflix subscribers who sign up at netflix.com can keep up to three DVDs at a time without paying late fees.
When a subscriber returns a DVD in a postage-paid envelope, Netflix mails out another movie from the distribution center nearest the customer's address.
The concept quickly struck a nerve among time-pressed consumers exasperated with the late-return fees charged by Blockbuster Entertainment and other rental stores.
As more households have bought DVD players, Netflix growth has accelerated, helping the company hit a million subscribers faster than other popular online services such as AOL, which took nearly six years to hit a million subscribers for its online access service.
"This shows we aren't just a flash in the pan," said Reed Hastings, Netflix's chief executive. "Virtually all the other services that have reached 1 million subscribers have gone on to become an enduring part of the consumer landscape."
Netflix gets more than a psychological boost from its swelling size. More subscribers give the company negotiating clout for better deals with movie studios, and operating scale to boost profits.
The company says it is profitable already, excluding charges it has to absorb to account for fluctuations in its stock price.
Netflix remains in the red under Generally Accepted Accounting Principles, with a 2002 loss of $21.9 million, an improvement from its 2001 loss of $38.6 million.
Investors remain uncertain. The company's stock swung yesterday from a low of $16.30 to a high of $17.20 — above its May 2002 initial public offering price of $15. The stock has rebounded from a low of $4.85 in October.
Netflix's popularity has spawned formidable competitors, including Blockbuster and the nation's largest retailer, Wal-Mart.
Blockbuster offers a special in-store subscription service and owns an online DVD rental service called Filmcaddy.com. Meanwhile, Wal-Mart is offering an online service identical to Netflix at a lower monthly price of $18.86.
The competition hasn't derailed Netflix yet, Hastings said, though he acknowledged: "We will have a long fight with Wal-Mart. You always have to worry about them."
Wal-Mart hasn't disclosed how its DVD rental service, launched in October, has fared.
With Netflix proving that consumers are receptive to different ways of renting DVDs, other corporate giants are experimenting with unconventional concepts.
Fast-food giant McDonald's recently began renting DVDs for $1.59 each at automated booths outside some of its restaurants.
The onslaught of new competition and anticipated growth of video-on-demand services will make it difficult for Netflix to deliver a happy ending to its early success story, said analyst Raymond Jones of Delafield Hambrecht.
"Netflix has changed the way that consumers rent movies and has created some real upheaval in the industry. But I think they will turn out to be just an interesting moment in history," Jones said.
"Five years from now, I don't think they will be talking about signing up their ten millionth subscriber."
