I wrote an editorial about the box (which I ordered) over at AV Rant. To be honest, I cannot believe some of the push-back on this product. This is a HUGE development in the industry.
Netflix has around 8.25 million subscribers. That number is either going to double in two years, or Blockbuster will offer something similar and both subscriber numbers will grow. I'm happy either way so long as they continue to improve and innovate.
The Editorial:
http://www.avrant.com/?p=295
I do agree with your point about Blockbuster. They're going to have to offer something similar to be competitive.
I think the doubling of subscribers is being incredibly aggressive and probably totally out of reach. Even the company themselves doesn't see more than a 20% net gain for FY2008, as they recently stated in their first quarter earnings release. The company has a subscriber churn rate that works out to over 1 million customers leaving every quarter. A doubling of their subscriber base would require a net subscriber growth rate of 33% per year, which means the yearly gross growth rate would be over 70% (~20% new people signing up every month).
From a business perspective what I think is most interesting is how the hardware costs will affect Netflix. Right now Netflix's financial advantage is that their biggest worry from a cost side subscriber acquisition cost (basically the total marketing costs for adding each new subscriber in a period)- which has been going down pretty significantly over the past few quarters. This is a positive sign b/c even though they're adding fewer customers, percentage-wise, each quarter they're able to keep their marginal costs down. Now they're adding costs related to hardware production, distribution, and maintenance. The company already operates on razor thin operating and profit margins, any additional costs without the appropriate benefits is going to have a very large impact on their financials.
From a financial standpoint I think this was a genius move on the part of Netflix because they had to do SOMETHING. They were not going to survive and grow over the long run simply through what simply amounted to a DVD mail-order business. While they were profitable and were starting to generate cash, they were never going to be very profitable or generate enough cash to ward off a potential buyer (e.g. Best Buy) who would eat the company whole. This move also put a ton of pressure on their main competitor, who's margin and ROE/ROA numbers look considerably worse than Netflix, and will force Blockbuster to make a bold move back.
