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Netflix's Friendly Network

2 Dec, 2004 By: Holly J. Wagner

Call it an online water cooler.

Online DVD rental lets users watch at their leisure, but Netflix is adding another dimension to make the experience more social — a friends network.

Netflix Friends, which is previewing now and will roll out in January, is a step up from a sitewide recommendation engine because it lets subscribers contact each other to recommend movies.

For no extra charge, users log in, build their own friends lists and invite friends to join their lists. Friends find out what member friends are watching and recommend titles to them, and can share their recommendations and ratings. There's even a section for “movies your friends hated,” so members with common tastes can spare each other the need to watch clunkers.

“Anything that improves the service generates more retention and more word of mouth, but what we are doing here will not have short-term, immediate benefits,” Netflix CEO Reed Hastings said. “It is a long term strategy to enhance the movie experience We want people to discover more movies and share those movies with their friends. Initially it's aimed at doing a great job for current subscribers.”

Since members can recommend movies to nonmembers and, at the same time, extend the free-trial offer, the service gives Netflix a word-of-mouse tool beyond the existing recommendations and reviews.

“Netflix already gets a tremendous amount of its subs from word-of-mouth referrals, and this can only help that process,” said analyst Tom Adams of Adams Media Research. “Given the fact that Blockbuster, Wal-Mart and Amazon all have huge customer bases to market to cheaply, keeping new-subscriber marketing costs down will be crucial, especially given the new, lower price structure.”

But since the feature is new, it's difficult to predict how much it will boost subscriptions or member loyalty.

“Anything that gives them any affinity to it is good, but I'm not sure this will have any benefit for a while. People don't do something new unless there is a reason to do it. Somebody has to tell them it's cool and they like it,” said analyst Dennis McAlpine of McAlpine & Associates. “The good news is that it doesn't look like it costs them anything. So whatever they do is found loyalty. It should help keep churn down. Anything that helps make the customer base more stable is good.”

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