Is Netflix a Monopoly?

Collusion between Netflix and Wal-Mart in 2005? This Fool doesn't see it.      

Rick Munarriz
Rick Munarriz
Jan 8, 2009 at 12:00AM
Other

Ready for a laugh?

Yesterday's Los Angeles Times carried a story about a consumer lawsuit against Netflix (NASDAQ:NFLX) and Wal-Mart (NYSE:WMT). The plaintiffs allege that the companies colluded to raise rental prices, as a result of Wal-Mart's decision to bow out of the DVD-subscription market in 2005.

I'm no legal eagle, but I can spot more holes in this litigation than some of M. Night Shyamalan's recent plotlines.

For starters, let's recall that Wal-Mart had roughly 100,000 members at the time. It was just a small player, unwilling to take on Netflix and Blockbuster (NYSE:BBI) in building out the network of DVD distribution centers necessary to provide overnight delivery through the postal system. Wal-Mart's hundred grand, however few of them may remain, is a sliver of the 8.7 million current subscribers that Netflix boasts today.

The plaintiffs accuse Netflix of raising its prices by $3 a month as a result of the Wal-Mart grab. Really? A year earlier, Netflix had slashed the monthly tab for its most popular plan -- one that allows unlimited rentals with no more than three titles out at a time -- by $4 to $17.99. The catalyst for the price cut is that it feared that Amazon.com (NASDAQ:AMZN) was about to enter the market.  

In recent years, Blockbuster has gone from pricing its Total Access plan at price points lower and slightly higher than Netflix. Amazon remains a threat to throw its hat in the ring, but it has decided to focus its efforts on digital delivery, like Apple (NASDAQ:AAPL) has.

Oh, and where exactly is the Netflix pricing strategy today? The same monthly plan that set film buffs back $21.99 in 2004 and $17.99 in 2005 is now just $16.99. Netflix has also gone on to include digital streaming at no additional cost. If the minor deal with Netflix is collusion to inflate prices, why are prices heading the other way?

Again, I'm no courtroom expert. Maybe there is some legal precedent behind the case. But everyone from Blockbuster to Netflix to the McDonald's (NYSE:MCD)-backed Redbox are lending out physical discs, and everyone from Apple to Microsoft (NASDAQ:MSFT) is busy promoting broadband-delivered rentals. So, with the film-rental market more competitive now than ever before, doesn't this seem frivolous?

Did I say frivolous? I meant hilarious.   


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