Hurricanes No Disaster for Netflix12 Oct, 2004 By: Holly J. Wagner
It's been a rough couple of months for the Southeast. Other than Movie Gallery, which said that hurricane-related closures will cost it a half percent in same-store sales this quarter, it hasn't really showed up yet in numbers.
This week, Netflix reports its quarterly data. I know there are a lot of questions swirling around right now about the change to amortization formula, and I don't fully understand it myself yet. I'm sure the call will shed some light on the subject.
But you could fairly expect Netflix to be doing slightly better this quarter, depending on how many of its customers are in the Southeast.
Two things accrued uniquely to Netflix's benefit this quarter: the hurricanes and the Olympics.
Both events are tough on video rentals — in the one instance because the power is off, and in the other because people are watching swizzle-stick gymnasts instead of renting movies. It's why we see Movie Gallery lamenting storm-related closures and the brick-and-mortar chains decrying the pull of the Games.
So who wins? Netflix. Because Netflix subscribers are, by definition, subscription renters. The company actually makes more money when people rent fewer movies. CEO Reed Hastings has said in the past that the break point is about seven or eight movies per month — if a subscriber on a three-out plan rents more than that, the company is in the hole on that subscriber for the month. But this quarter, subscribers kept paying even though many may not have been renting.
It's an interesting side of the subscription business that has yet to show much muscle with other rentailers. Now we'll have to see how much help it was for Netflix.