Netflix Takes Over Wal-Mart in the DVD Rental Arena

No word on how much money the deal is worth, but Netflix will feature promotional Wal-Mart links for the 100K customers it gets from the retail chain. So, Wal-Mart’s master plan to bankrupt Netflix didn’t quite turn outâÂ?¦the world’s largest retailer is now essentially surrendering to the much smaller internet startup and turning over their DVD rental business.

The agreement specifies that Wal-Mart will offer its existing online rental customers the chance to continue their subscriptions under Netflix at their current price for the next year, and begin promoting the Netflix service in its website.

In turn, Netflix will remind its customers that they can purchase DVDs from Walmart.com. Lovely, is it not? Of course, Netflix still has Blockbuster to contend with, but it is a major victory to have at least knocked Wal-Mart out of the running.

*Actual Bills

Promotional this and “for the limited time” that. How much are your actual bills?

�Netflix $15.99 a month plan for three movies actually costs me $19.52 with all the taxes and fees factored in.
�Vonage $14.99 a month for 500 long-distance minutes actually costs me $16.94 with taxes and all.

*Is Netflix still worth it?

What started out as a good unlimited movie rental service may be turning into a cause of frustration. Many people call this a conspiracy theory, but Netflix throttle did swing into full effect on my account. There is only one Netflix distribution center in Georgia.

It is in Duluth, GA. Unfortunately, the Atlanta Metropolitan area is huge. I am an hour going north, outside of the city in the opposite direction as Duluth. I live in Cartersville, GA. The Duluth, GA distribution center is well over an hour away from me. Should I expect the wait time to be longer for me than for everyone else that lives in Duluth, GA and closer? I suppose so.

Generally, allot of movies (usually 2) arrives each Monday, with another one on Tuesday, so if I find enough time to watch both movies Monday evening, they are back in the mail by Tuesday morning and by Wednesday are at Netflix, which would ship me two more titles off the queue and arrive on Thursday.

Theoretically, with this set-up, one should be able to get roughly 5-6 movies a week without additional hassles, especially if the Netflix distribution center is within a half an hour drive.

However, as soon as I started sending my movies back to Netflix right away, the process was interrupted by allot of hiccups. Sometimes, they would lose a movie for seven calendar days, recovering it all of a sudden after I reported it lost in the mail. Sometimes, I would get a confirmation of the received movie and then my next one would ship the next day.

Netflix explains that such problems might be caused when the movie is not available at the distribution center, so they have to order it from somewhere else. I am not sure from where? I find this reasonable, but not for several weeks in a row consistently, with the titles varying from new releases to some popular 4-5-year old movies.

Netflix does not like you if you are trying to rent more than three movies a week. They might oblige you with a 4th one coming during the given week on a 3-disc-at-a-time plan, but as soon as you prove to be a fast movie watcher, you’re on their blacklist for constant shipping problems, “Shipping Tomorrow” messages, and the discs being reported as not received.

Throttling is when Netflix delays shipping videos to you because you are a heavy user. They do this to prevent shipping you too many titles each month, which costs them money in mailing fees. This angers loyal and long time customers who signed up for the service because it is heavily advertised as “unlimited.”

Reed Hastings, Netflix CEO, had a few things to say about Netflix competitors. Here is Reed Hastings in an interview with Business 2.0 talking about Blockbuster, Amazon and Wal-Mart entering the DVD-by-mail rental business:

“You’ve got the biggest rental company, the biggest e-commerce company, and the biggest company, period,” Hastings observes. “So if it’s true that you should be judged by the quality of your competitors, we must be doing pretty well.”

The same article has info about the online DVD rental market: Netflix boasts 2.6 million users, Blockbuster has estimated half a million, and Wal-Mart has 50,000 users.

*NYT on Netflix business history

The New York Times profiles Netflix, a company that pioneered subscription-based DVD plans where a disc is sent via postal service and no late fee is charged. It describes the company from May 1998, when it originally launched the Web site as a DVD-by-mail rental service (with late fees). Interesting factoids: Netflix operates 30 centers around the country and 11% of San Francisco residents subscribe to the service. Turns out, the company is not afraid of Blockbuster, Wall-mart and Amazon moving into their markets, but they do consider on-demand Internet-download services to be a threat to their business model.

*Netflix still has delays issues

It seems to be getting worse. Netflix has been behaving strangely lately. The movies that I sent out Friday, Saturday and Monday morning (all before post office pick-up time) have all arrived there on Tuesday, but the new movies did not go out until today.

As of Wednesday, one movie is in the queue for Thursday, which is unusual for them. Before, they sent out new titles the same day the old ones were received. Under a current schema, it is often hard to watch more than three movies a week, which undermines the concept of unlimited DVDs. Maybe it is just related to there being only one distribution center in Duluth, GA.

*Blockbuster Online Blurb

DVD rentals cost $17.49 a month, you can check out up to three movies at any time, and shipping both ways is free. In addition, they will complement the online subscription with two free rental tickets a month. Why they would not allow the DVDs to be dropped at offline locations yet beats me. I suppose with the prepaid envelopes, it is easier to drive to the nearest Post Office box than to the nearest Blockbuster. Some people are claiming that the price drop is not worth it when comparing the features of the service:

Whether Blockbuster’s latest attempt at gaining market share will work remains to be seen. It sure will not be easy. Netflix stayed comfortable in growth and subscribers, despite a lower-priced Wal-Mart option for more than a year.

When the price difference is small, small differences in service start to matter. Although some people will stay with Blockbuster for that one more month of free service and then they will switch back to Netflix and its $17.99 equivalent plan once the promotional offer expires. Simply put, I think the additional features are worth the extra $0.50.

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