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Netflix Mail-Order Still Thrives

20 Jun, 2006 By: Jessica Wolf



Even as Netflix is spending millions on potential forays into digital downloading, the service's core mail-order business is thriving, company COO Bill Henderson told attendees at the Entertainment Supply Chain Academy 2006 conference.

Netflix has made no decisions on how to attack a download strategy, Henderson said during a pithy keynote speech Tuesday, July 20, in Los Angeles.

“But we believe we will be a major player,” he said. “Obviously we have a leg up on everyone else.”

“I don't think ‘bluebuster' will even be in the equation,” Henderson joked, heckling his company's biggest online rental competitor, No. 1 rental chain Blockbuster.

In the meantime, Netflix is successful in part because of its strong partnership with the U.S. Postal Service.

Henderson's intimately knowledgeable about that organization too. He served as postmaster general from 1998-2001.

The arrival of the mail is still an event in the home, a brief moment that draws the focus away from TVs, computers and the myriad of entertainment distractions for American families, he said. That the arrival of new mail tends to stop all action, even for a ‘nanosecond,' is a boon for Netflix as an entertainment provider and for a U.S. mail service that increasingly needs “anchors” like Netflix's DVD delivery to keep direct-mail advertising a viable option for other businesses.

That strong value-laden partnership between Netflix and the U.S. Postal Service unfortunately doesn't exist for most supply chain relationships.

Big retailers have been very adroit in “commoditizing” the packaged-entertainment business, he said.

“I wont mention their names because you probably already do business with them,” he said, jokingly adding the initials “W.M.” to his comment.

“If you don't have those tentacles tied deeper than a check, tied to the value of both companies, you will be come a commodity, and you will be squeezed and squeezed until you have no margins left,” he said.

David Bishop, president of North American business for Sony Pictures Home Entertainment, put a pin in the issue as he introduced Henderson.

“It's important that at this time in the home entertainment industry that we focus on the basics,” he said.

Netflix is not limiting itself to creating a set-top box for subscribers to use for movie downloading, as company acquisitions executive Eric Besner was erroneously reported as saying during a panel discussion at the Independent Film & Television Alliance conference last week.

Netflix filed a disclosure document June 20 with the Securities & Exchange Commission that states: “Netflix is evaluating a broad range of options, and no decisions have been made regarding specific delivery options or timing.”

In the SEC filing the company also noted it will more fully discuss its downloading plans in its fourth-quarter earnings announcement in January 2007.

Netflix is spending $5 million to $10 million this year on developments for digital downloading.

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