Netflix Continues to Smoke Blockbuster (Albeit a Bit More Slowly)
According to a report from Lehman Brothers, Netflix’s growth has slowed down a bit, but is still expected to act as a catalyst for more and more retail rental store closures. Netflix’s turnover ratio (subscriptions-to-cancellations) for the second-quarter is expected to be around 3.9%, which is a drop from last year’s 4.7%. See the full story here.
This slower level of growth could mean several things. For starters, it could be a result of competition from the movie download business. In the near future, competition from movie downloading should increase (especially given the rumors surrounding Apple’s impending involvement), but analysts expect consumers to warm up to this model only gradually. This prediction makes sense, of course, since it will take time for more consumers to adopt better downloading hardware and for more movie companies to agree to licensing deals with service providers.
I tend to think, however, that this slower growth rate is ultimately a product of Netflix’s own success. As more and more people subscribe, the new subscription level is bound to top off at some point (Although it would be helpful here if we could get a better explanation of the smaller ratio, i.e. is it predominantly a product of there being fewer new subscribers or of there being more cancellations?). This is compounded by the fact that so many retail stores are going out of business. The advantage that Netflix offers over these stores is, in the first place, convenience (the second advantage is obviously selection; don’t even get me started on this one). If Netflix’s success resulted in there being even FEWER of these stores, it makes it more of a hassle to get to them, thereby making the brick-and-mortar rental model even MORE inconvenient.
In any case, the attempt made by some of these chains to take advantage of an online-based rental model is a clear-cut case of too little, too late. In this year’s first quarter, Netflix had a net increase of around 685,000 new subscriptions, while Blockbuster had a net increase of only around 100,000. Nice try guys. Maybe next year.