Pitched Unfairly
Video · Strategy office

The Netflix meeting, take two.

Competitive response · Dallas · Fall 2000

01 / The threat

Netflix is tiny, and it's aimed at our late fees.

Price
$15.95 to $19.95 a month
Due dates
None
Late fees
None
Catalog
5,800+ DVD titles
51M+ Our active member accounts
120,000 Netflix paying subscribers. Actual size.

02 / How they win

Their whole pitch is our customer's worst moment.

Renting from us

  1. 01Drive over
  2. 02Pick a movie
  3. 03Due in two days
  4. 04Forget
  5. Late fee

Renting from them

  1. 01Pick online
  2. 02Mailbox
  3. 03Keep it
  4. 04Mail it back
  5. Next one ships

03 / Where we're exposed

16% of our revenue comes from customers being late.

$795.8M

in late fees, 2000

Everything else: rentals, games, popcorn Late fees · 16.0%
Red: late fees, 16.0%2000 revenue, $4,960.1MWhat the 10-K calls "extended viewing fees"

04 / What it costs us

Kill late fees and we have to win back 3.3M subscribers.

Plan price

Also on the line: the store trip that sells $704.8M of candy, games and tapes a year.

Subscribers needed, just to stand still

3.3M

Each tape is 100,000 subscribers. Netflix today: 1.2 tapes.

05 / The options

Four options on the shelf. Only one uses 7,700 stores.

Wait it out Call it a niche

$0 todayEvery late fee, later

Build our own Mail order, from scratch

YearsStarts 120,000 behind

Buy Netflix The $50M on the table

$50MA website, alone

Staff pick

Buy it. Plug it in.

$50M for Netflix, then returns at every store we own. Late fees retire on our schedule.

$50M + storesThe only one they can't copy

06 / Our move

Buy the mailbox. Then give it 7,700 front doors.

Blockbuster Video · Store 0001 · Dallas TX

Competitive response · Qty 1

  1. 01 Buy NetflixAbout 1% of one year of revenue $50,000,000.00
  2. 02 Return at any storeMail it back or drop it on the counter 7,700 STORES
  3. 03 Retire the late feeOne subscriber at a time, as they replace it -$795.8M

Total due today$50,000,000.00

Please be kind. Rewind.

07 / The plan against what happened

We made every move on this plan. Years too late.

  1. Online 4 yrs late Buy Netflix, $50MBlockbuster Online, 2004
  2. Store returns 5 yrs late Return at any storeTotal Access, Nov 2006
  3. Late fees 3 yrs late Late fees retireNo late fees, Jan 2005
  4. Nerve Hold through the tripwiresCEO out, online cut back
  5. Ending Not on the planChapter 11, Sept 2010

08 / Tripwires

Three tripwires tell us it's working before the P&L does.

All three tripped in 2007. We pulled back anyway.

Netflix net subscribers, per quarter Trips when it goes negative

-55,000

Q2 2007 · Their first decline ever

Tripped

Our online sign-ups Trips at: 500,000+ in a quarter

~800,000 Q1 2007

Their price Trips at: They cut it

$1 off July 2007

09 / If we pass again

Pass again, and the store count rewinds to one.

Stores 0001
  1. 2000Today: close to 7,700 stores
  2. 2004The peak: 9,094 stores
  3. 2010Chapter 11: about 3,300 U.S. stores
  4. 2013Dish closes the last ~300 it owns
  5. 2019Bend, Oregon. The last one on Earth.

10 / The decision

Say yes to $50 million. This week.

Decision slipNo. 0001

  • Acquire Netflix for $50M
  • Returns at every store, mail or counter
  • Late fees retire as subscribers replace them
  • This room reviews the tripwires every quarter

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