Free-Flowing Streams at Netflix

Early last year, Netflix (Nasdaq: NFLX  ) launched its on-demand video-streaming platform, giving subscribers a few hours of instant gratification each month. Today, the company handed out unlimited streaming to all but the most frugal subscribers. I think it's a great marketing move.

I'm sure that some reporters will call this move a disaster on par with Blockbuster's (NYSE: BBI  ) Vegas buffet of movie indulgence -- unlimited Total Access. Each of these efforts was a stretch into the next generation of movie delivery, with an all-you-can-eat meal ticket and no additional cost. But the differences are massive.

Blockbuster shot itself in the foot by turning profitable in-store customers into profiteering movie maniacs. Every time a film buff returned a mailer in the local Blockbuster store for a free rental, it brought that title one box closer to an empty shelf. Combined with the "no late fees" policy, it was a valuable asset handed out for free, and it kept movies out of paying customers' hands for up to two weeks. Growing that online customer base was tantamount to selling out the remaining in-store clients -- except that the company never made any money from the whole deal.

On the other hand, Netflix is showcasing a unique competitive advantage, hoping to pull in curious would-be downloaders, and then getting them hooked on the DVD-by-mail offering as well. The grim reality today is that getting a video signal from your computer and onto that 52-inch plasma screen is too hard for your average consumer. Even hardcore technophiles like myself find it cumbersome to drag an appropriately equipped laptop into the living room when the movie mood strikes.

On top of that, Netflix has more than 90,000 titles available on DVD today -- but only around 6,000 have been licensed for online viewing. And while you can find Jerry Maguire and Zoolander in that exclusive repertoire, newer hits like 300 or The Bourne Ultimatum won't get there for years. So I find it hard to believe that unclean hordes of habitual streamers would descend on Netflix in a feast of profit-sapping license expenses.

With Blockbuster backing off its by-mail marketing under new boss Jim Keyes, the real competition now lies elsewhere for Netflix. The streaming solution should steal more customers from Amazon (Nasdaq: AMZN  ) Unbox than anything else, and it might have Apple (Nasdaq: AAPL  ) looking over its shoulder as that company moves deeper into the online entertainment market.

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10/20/2016 4:00 PM
NFLX $123.35 Up +1.48 +1.21%
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Blockbuster, Inc. CAPS Rating: *