NETFLIX WON'T SACRIFICE ‘FOCUS’ FOR MOVE INTO VIDEOGAMES, CFO SAYS
Videogames would be “a natural extension” for Netflix, given that 70% of subscribers are 35 and older, many of whom have children, CFO Barry McCarthy told Roth Capital Partners investor conference Mon. Moreover, if videogame publishers would agree to revenue sharing model, he said, “we would consider migrating into the game space.”
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At same time, he said, Netflix’s “mantra” has been “focus, focus, focus” on its existing DVD model, and “more companies lose their way by losing focus than by finding their way to the promised land by extending their business models to other things.” Accordingly, he said, improving customer service by 20% would be “a bigger prize” for Netflix than “expanding into new markets.”
American public loves movies, “but they hate Blockbuster,” and traditional trappings of home video rentals, McCarthy said. Consumers’ frustration with late fees and other functions of traditional rentals has fueled growth of DVD sellthrough and Netflix revenue by similar rates, he said. Netflix method of delivering DVDs within day to households in close proximity of regional shipping centers and 2-3 days nationwide is “incredibly efficient,” McCarthy said. Average DVD with capacity of 4-7 GB of data costs Netflix 37? to ship through U.S. Postal Service. “If we tried to move that electronically over the Internet it would cost us 10 times that.” From standpoint of data capacity, he said number of DVDs shipped by Netflix in average week is equivalent to Internet’s “entire bandwidth.”
Company opened 11 new shipping “hubs” last year, each averaging about 4,000 sq. ft and entailing startup costs only $60,000, McCarthy said. There are no new inventory costs associated with opening new hub because “we don’t buy new DVDs when we're adding a hub, only when we sign on new subscribers,” he said. All 11 hubs have grown at same steady rate as original one in Bay Area, where Netflix’s local household penetration rate has reached 5%, he said. Additional 15 hubs will have been opened by year-end 2003 (including one announced yesterday as having opened in South Fla.), McCarthy said.