Netflix

With more news in the video rental space, I couldn't resist to explore the strategy of Netflix. When Netflix is mentioned, most people think of a red envelope that includes a DVD found in the mail (see left). The number of DVDs mailed per Netflix Subscriber has been declining over the past few years, with a dramatic decrease during 2010. Even more surprising is the fact that Netflix is encouraging this decrease. Their logic makes more sense upon understanding their strategy to make way for its digital streaming channel. While content acquisition costs remain high, Netflix is confident that its digital library will become a profit pool for them as the number of subscribers increase. Not only is postage not necessary, but the digital library is much easier to manage then actual DVDs that need to be shipped across the country through its several distribution centers. Apparently this strategy is working for them as they just announced that they added 3 million subscribers during the past quarter, giving it a total of 20 million. From the business aspect, it seems as though there strategy has few flaws; however, as a current Netflix subscriber, I would be quick to cancel their service if the red envelopes stopped coming in the mail. In other words, I think they have a long way to go before they dominate the market with their small digital library.