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Company Combines Netflix, Amway Models

24 Sep, 2004 By: Holly J. Wagner

The Netflix business model was a big change from the way people used to rent movies, and its success has triggered a lot of imitators. But one company is hoping to build a better Netflix by adding a twist: multilevel marketing.

Think of it as Netflix meets Amway.

“That would be a good way to explain it. It is the network marketing business model,” said one of Florida-based Gold Entertainment's new distributors.

Although Gold Entertainment has been putting out press releases at a rate of two to four a month, CEO Francis Fytton refused to be interviewed for this story.

But if you believe the press releases and Fytton's Webcast stumping, the company has signed up 5,000 distributors so far to channel renters to goldentertainment.com, Gold's DVD rental Web site. The site offers a three-out plan for $20 a month, but with a difference: Subscriber “distributors” recruit new subscribers from among their friends and contacts, then get commissions on each of these subscribers' monthly fees.

“When we started the multilevel program in March, we anticipated a certain level of growth. We have exceeded company projections,” Fytton said recently. “We are expecting to have tens of thousands of distributors within a couple of years.”

Distributors pay startup fees of about $250 to get set up with a personal Web site, one “free month” coupon and four “buy two months, get one month free” coupons to give to prospective customers. These customers are also eligible to join the distributor network.

“For every six that get involved as a business, you get $65 and then you get a residual on monthly subscription,” the distributor said. “It is bilateral. Every time somebody new is enrolled, it usually goes to somebody in your line.”

Some of the early distributors are already recruiting actively with Web sites like mymoviebiz.com and dvdpowerline.com. But not everyone is convinced the model will work.

“Amway succeeded because nobody was really doing it when they started. These people are going against Netflix, Blockbuster and Wal-Mart,” said analyst Tom Adams. “Pyramids generally involve tangible products, and a subscription is a very intangible thing to be getting excited with your friends about. Amway's got a social function that involves the sale of the product. I don't get this. If you are going to have the neighborhood over to sell a Netflix-style subscription, you don't get to walk away with your new stuff.”

Gold is still refining details of its business model. According to documents that the company, which trades on the Pink Sheets, filed with the Securities and Exchange Commission, it was once Advanced Medical Technologies, but changed its name in a reverse acquisition in 2002. Recent press releases mentioned sales of “DVD Value Packs” and prepaid phone cards, but Fytton said in a Webcast that the company will focus entirely on the rental business.

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