Some interesting developments in Netflix’s world over the last few days.
Yesterday, there was an announcement that Blockbuster was testing a $17.99 price [Yahoo News link which will rot] for its core 3-out service (up from its current price of $14.99, and slightly higher than Netflix’s comparable offering at $17.49).
This morning, Wal-mart announced that it was withdrawing from the online DVD rental business. Rather, it will refer its existing customers to Netflix, and will promote Netflix on its website on an on-going basis; in exchange, Netflix will promote Wal-mart as the best source for DVD purchases.
On the analysis front… It’s not clear that a repricing by BlockBuster creates a margin expansion opportunity for Netflix near term. BB is still differentiated via its coupons, and should be able to roll-out online-driven in-store pick-up (and likely returns) “soon”. Regarding Wal-mart, Netflix has already announced that the deal will be non-material to its financial results… though the 20% stock gain (so far this morning) on top of a recent run on other news certainly can’t hurt employee morale. Most importantly, none of this addresses the looming threat of Amazon’s entry, nor a solid answer of why Netflix wins when distribution eventually goes digital.
It’s hard to say who will win when content goes fully digital, but Netflix seems to have a leg up in that arena, thanks to their deal with Tivo.
Work is already under way to digitize the entire Netflix catalog, which will eventually be available through your Tivo box. You’ll be able to have as many movies stored on your Tivo as your Netflix plan allows (3 at a time, for example), and new movies will be downloaded overnight. Delete/”return” a movie tonight, and you’ll have a new one in the morning.
I would imagine Netflix will be looking for other partners for this service, including the cable companies. It would make sense for the cable companies to partner with Netflix, given their already large catalog.