In the old movie rental days I always knew my family was paying a lot in late fees. Apparently, we weren't alone. Netflix, highlighted in Businessweek as number 29 on their Hot Growth list, changed all of that. Here's another great story about an innovative company not only competing with the big boys, but completely changing the rules.
How well is it working? Last year Netflix's profits doubled to $41 million while Blockbuster and Movie Gallery lost a combined $1 Billion! Now get this, $400 million of that billion was due to late fees that Blockbuster had to give up in order to compete with Netflix. Netflix is getting close to 5 million customers and is expected to do nearly a billion in revenue this year. Not bad for a company that many thought would never succeed because we all want "instant gratification" when we rent movies. Apparently, some of us are willing to plan ahead a little.
Perhaps even more important than dropping late fees, Netflix competes by understanding its customers and their tastes and building customer loyalty. Seventy percent of Blockbuster's rentals are new releases. For Netflix the number is only 30 percent. Instead of pushing whatever Hollywood's latest offering is, Netflix actively looks for films that it's customers want (what a concept). The average user on Netflix rates over 200 films (talk about customer feedback). Combine that with rental history and Netflix can predict pretty well what will rent and what won't. This information allows it to actively pursue films from independents that others won't take a chance on.
Of course the future of movie rental is sure to change. While there is plenty of debate on the timing, it is almost certain that web distribution of movies will grow. Netflix plans to be there and will bring along its 5 million loyal customers...