December 17, 2006 9:00 PM PST
DVD swap site switches from credits to cash
The DVD-trading site, which has about 250,000 regular users, will now let participants swap their old DVDs for money or monetary credit to buy other DVDs being sold on the network. The idea is to make exchanges on the site more liquid, the company's CEO, Billy McNair, said in an interview.
Until now, consumers could sell old DVDs on the site, but in return they got credits for buying someone else's old DVDs. The discs were given number ratings (1, 2 or 3) rather than dollar values, depending on demand or rarity.
Thus, in the old system, Independence Day and Crash may both have had an equivalent 2 value, and getting one for the other would have been a straight swap. Under the new system, Independence Day may be rated at $5.43, while Crash gets a $7.19 value, putting the person with Crash in a better position.
"It brings in a profit motive that wasn't there before," McNair said. "There was also a learning curve with credits. Cash is easy to understand."
The monetary value of the discs is set by an algorithm developed by Peerflix. The company has also revamped the look of its site to make it easier for users to post movie reviews or information about their own cinematic likes and dislikes.
Since 2005, the company has grown fairly rapidly and now processes about 30,000 to 50,000 trades a month. While consumers use the site to get rid of old DVDs and buy new ones for their collections, many use it as a substitute for renting movies, said McNair. People buy a DVD, but then trade it away again in a week. The short period of ownership becomes the equivalent of a rental.
If a consumer watches only three to five movies a month, swapping movies in this manner is cheaper than renting or using flat-rate subscription services like Netflix, McNair asserted. Each Peerflix trade costs a consumer only 99 cents (assuming the movies you trade have the same value of those that you buy). As a result, five movies would be $4.95.
The company's network has listed 35,000 different titles for sale, and the popularity of many movies means that they are perpetually available.
"Documentaries do quite well," McNair noted.
So why should consumers use the site rather than much larger sites such as eBay, Amazon.com or Craigslist, to dump their used, unwanted DVDs? Convenience, McNair says. "You don't need to download a picture," he points out. Peerflix supplies the movie art.
And because Peerflix determines the price of the discs through its algorithm, consumers don't have to track bids or determine a market price for their discs.
Additionally, the company tries to automate much of the buying and selling process. Consumers essentially list the discs they want to sell and those they want to buy. When Peerflix finds a buyer on the networks, it notifies the seller and discloses the price and the name and address of the potential buyer. The seller then (if he or she chooses) contacts that person. If the seller doesn't respond to the potential buyer in a certain amount of time, the order is passed on to another seller. The company also tracks the progress of the order after mailing.
The buying process is similarly automated. Once you have monetary credits built up, the system examines your wish list and buys the movies on your behalf as they come up.
"With this, you can say, 'I want Shrek' and it will come to you," McNair said. The company will also suggest movies based on past purchases.
Peerflix does not take title to the DVDs. Instead, it charges sellers the 99-cent trade fee. The company's cut is invisible to buyers: if you buy an $8 disc, the seller gets $7.01 and the company retains the rest. Peerflix supplies sellers with envelopes.
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