NetFlix: The Tide Has Turned

September 9, 2005 By Geoff Duncan

Online DVD rental firm NetFlix is forecasting substantial profit increases over the next several years as the company adds subscribers and video rental stores shut down.

Is it any surprise people prefer to have DVD rentals painlessly delivered to their doorstep rather than shovelling through the racks at Blockbuster? At a meeting with industry analysts yesterday, Netflix CEO Reed Hastings said the company expects its annual revenue to increase dramatically and that the DVD rental firm may reach 20 million subscribers by 2010 to 2012. Going further, Chief Marketing Officer Leslie Kilgore estimated the DVD rental firm’s market penetration might grow as large as 30 percent of U.S. homes with Internet connections and DVD players.

Hastings reaffirmed guidance for revenue between $172 and $176 million for its third and fourth quarters of 2005 with net income of $4.5 to $8 million for its third quarter. However, Hastings said the company expects to clear $50 million in profit in its 2006 fiscal year, and confidently projected earnings-per-share to grow at 50 percent annually for years to come.

The company’s current goals are to reach 4 million subscribers by the end of 2005 and 5 million by the end of 2006, subscriber numbers substantially ahead of the company’s previous forecasts. To date, NetFlix has been battling Blockbuster for share of the DVD rental market, estimated to account for over $9 billion annually. But Blockbuster is now confessing revenue weakness and shuttering stores while NetFlix subscribers are increasing steadily

Showing 6 comments

Vic at 11:04am 18th March 2006 Just found this story. Have used both services and each have weaknesses. Netflix has a better web site, better selection, and generally faster turn around. Blockbuster provides better availability of new releases and coupons for free rentals at a retail outlet. The coupons are nice for a last minute impulse movie. Except for new releases Netflix seems to do a better job of delivering based on the sequence of your queue. Netflix does a horrible job of supplying new release movies---they sit in your queue for many many months. Blockbuster does poorly with less common titles---they can sit in your queue for a long time. I started with Netflix for a year or so, switched to Blockbuster for 6-8 months, and now am back with Netflix. Although we enjoy a lot of different movies our taste tends towards independents, documentaries, special interest, and classics. Netflix is a good resource for us. We just wish it didn't take so long for new releases to get to us when we are interested in them (as of today Cinderella Man has been at the top of my queue for over four months!).
Ian Bell and Dan Gaul at 10:40am 13th September 2005 Martin, you should try Netflix. I found the netflix service to get the movie to me two days earlier than Blockbuster.
martin at 9:46am 13th September 2005 I've been a subscriber of Blockbuster's online service for about 6 or 7 month and it's a great service. I've only had problems with messed up DVDs once, and they sent me a new copy the next day. I've also never had to worry about waiting for movies, so I recommend it. It's cheap and it works.
Ian Bell and Dan Gaul at 7:00am 12th September 2005 I am happy to see Netflix prevail in a market with relatively low margins. I guess the question is whether there is room enough for two players. And if there is, then they need to work together for some sort of MAP pricing model so they do not cannibalize the market.
ECA at 11:24pm 11th September 2005 WELL, Iv seen ALOt of sites try it.
Heard from a friend that tried BB, and didnt like it.
Netflix is Good, but could be better.
Where most have problems with the mail system, netflix has the least. When they send something it GETS to you within 2 days.
fungku at 10:15am 9th September 2005 I'm not surprised by this, but I am surprised that Blockbuster and other traditional stores have not had more success in the online rental space. I know blockbuster was trying to do it, has anyone tried theirs? Any other brick & mortar stores following NetFlix's example?