October 14, 2004 5:30 PM PDT

Netflix sees Amazon entering DVD rentals

Amazon.com plans to enter the DVD rental business in a move that will put the online retail giant in direct competition with Netflix.

News of Amazon's intentions were disclosed Thursday afternoon by Netflix founder and CEO Reed Hastings during the company's earnings call. Netflix said it would cut prices to ensure future growth in the face of competition from Blockbuster, Wal-Mart Stores and soon Amazon.


Reed Hastings

"We started hearing rumors about two weeks ago, and we were able to confirm them," Hastings said in an interview. "We think we will compete successfully with them because we have great scale, we ship 3 million DVDs a week, and we have five years of experience in this market."

Hastings' comments, coupled with the company's price cuts, caused Netflix's stock to nosedive in after-hours trading. The stock closed at $17.43 Thursday afternoon but plummeted to $10.99 after the market closed.

An Amazon spokeswoman stopped short of confirming its plans to offer DVD rentals and instead presented a reason to enter the business.

"Our customers have encouraged us to offer low-priced online DVD rentals, but we have no announcement to make at this time," Amazon spokeswoman Patty Smith said.

Netflix, which rents DVDs on the Internet and delivers them via the U.S. Postal Service, plans to introduce a movie download service in 2005 in partnership with TiVo, which sells personal digital video recorders. Hastings said that initially, Netflix will see modest interest in Internet downloads, but it expects the partnership to grow over time.

"We think DVDs will be more dominant in five years than they are today," Hastings said. "The evolution to downloading will be slow. The DVD will last as long as the gas engine."

Netflix said Thursday that it has 2.23 million subscribers.

CNET News.com's Jim Hu contributed to this report.

5 comments

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Who knows???
If we can get a few more players into the game, DVD's just might
rent for free !!

Seriously folks, this is the first chorus of the funeral march for
Netflix, or any other mail order operation. Blockbuster will eat
their lunch with their local stores and quick service.

And downloaded movies won't be worth the effort until the
movies are in the H-264 format. MPEG-2 files are just too big.
Posted by Earl Benser (4310 comments )
Reply Link Flag
Doubtful
Those Blockbuster local stores aren't exactly setup well. Take for example this Blockbuster pass crap that tries to emulate Netflix. Some smuck can rent a local copy of something and keep it out for weeks on end. That's great. The prob is that....ITS OUT FOR WEEKS ON END. Netflix doesn't have this problem at all. At the end of the day I ended up going up the road to Hollywood video because they actually have the movies in stock that I want to watch. BBuster can't have it both ways. If they try they will fail at both.
Posted by Jonathan (832 comments )
Link Flag
Yes netflix will die...
...unless they change their business model. Tivo is another company in trouble. When people start buying more media center living room PC's, there will be no need to pay a subscription fee for a simple TV listing. I'm assuming they make no money on the hardware.
Posted by lewissalem (167 comments )
Reply Link Flag
Suggestions?
Any ideas on how Netflix might want to change their business
model in order to survive?

Also, I believe the "media center PC" will never be more than a
niche product. Consumers prefer a device that is dedicated to
the specific task and good at it, not something that contains a
general operating system that is ok (at best) in multiple tasks
but not great in any of them. The ability to record TV, for
example, was available on PCs before Tivo arrived on the scene,
and yet, Tivo still built a market share. I think many consumers
do not want to pay the extra expense for one device that does
tasks they probably won't want but rather purchase a cheaper
device that fulfills a simpler need.
Posted by dejo (182 comments )
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