business news in context, analysis with attitude

Interesting story in the Financial Times about Netflix, an online DVD rental site that has pretty much had the business to itself since it went into business in 1998. It was a good business, too, with more than 700,000 paying customers since it launched.

Then, a few weeks ago, Netflix got new competition: Wal-Mart.

Netflix’s founder, Reed Hastings, tells the Financial Times "We had been competition-free until Wal-Mart made its entry. So we went from zero competition to competition from the world's largest company." Not only that, but Wal-Mart is pricing its monthly subscription fee at $18.86, more than a buck less than Netflix charges.

Wal-Mart can afford to make less money than Netflix. It has $217 billion in yearly sales, while Netflix has $207 million in annual revenues.
KC's View:
We mention this for several reasons.

For one thing, traditional food retailers often get a persecution complex about Wal-Mart, and this story proves that it isn’t just the supermarket business that the Bentonville Behemoth wants to dominate.

Wal-Mart wants everything. (Sort of like the pods in “Invasion of the Body Snatchers…)

However, we liked Hastings’ approach to the new competition.

First of all, he says, "With competition and the drama it creates, it attracts more cultural attention, It is catalyzing interest."

(That’s a great approach. Wal-Mart isn’t the enemy. It’s just an interest catalyzer.)

Furthermore, Hastings notes that if Wal-Mart just has its eye on the DVD rental business, it is taking a short-term approach. When video-on-demand finally catches on -- which may be more than decade from now -- Netflix intends to be there.

"We called the company Netflix and not 'DVDs By Mail'," Hastings says. "When it's a big enough market, we will be there."

Love that attitude.