Netflix Earnings No Surprise

NetflixNFLX lowered forecasts for the year and said it lost subscribers for the first time ever (down around 55,000 while last year they added around 300,000). This should come as no surprise because Netflix did absolutely nothing to compete with Blockbuster Total Access. They just sat and waited for Blockbuster to raise prices. Instead Blockbuster responded by offering the same plan as Netflix (i.e. without Total Access) for a dollar less than Netflix. This has forced Netflix to lower prices too!

In the words of analyst Michael Pachter of Wedbush Morgan, “Blockbuster is kicking their butts, and they’re not used to that.” Not that Blockbuster is doing great financially, but unless Netflix comes up with something to compete with Total Access, Blockbuster has the upper hand.

What can Netflix do? As I have mentioned before, Netflix could open Kiosks. Or they could buy RedBox or just partner with Redbox to allow Netflix subscribers to return and rent DVDs like Blockbuster does with it’s stores instead of just waiting it out. On a positive note, at least Netflix makes money – unlike Blockbuster. However if the trend continues, the tides may turn especially if Blockbuster does something to improve their (IMHO fancy but not extremely useful website).

Update: I just discovered that RedBox is a joint venture by McDonald’s and Coinstar! Redbox used to use (now they use their own?) rebranded machines from DVD Play, who also operate Kiosks. We have some of these at most of our local grocery stores (Kroger, Giant, Harris Teeter). Now either or both of those would be a great partner for Netflix and DVDPlay could be an acquisition target for them.

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