Netflix Reacts to Blockbuster's Boasts, iPhone App, and Hulu

Blockbuster Netflix

Blockbuster CEO Jim Keyes has been vocal in the press lately, knocking Netflix for its outdated content and boasting of the company's 28-day exclusive window for new releases, even as they flirt with bankruptcy. While Netflix has resisted responding publicly, don't mistake their silence for retreat. I spoke with industry insiders and a rep from Netflix to get a sense of the company's stance on Blockbuster's public criticisms, especially regarding Keyes's comments in Fast Company's recent interview.

In the interview, Keyes flaunted Blockbuster's deal with several major movie studios that gave the ailing video-rental giant a four-week advantage over Netflix for new releases. But this window isn't entirely in Blockbuster's favor—in fact, it was actually a deal Netflix heavily pushed for.

"We actually went proactively to the studios several years ago because the 28-day model is really good for us—we recommended it," says Steve Swasey, VP of corporate communications for Netflix, who explained that the agreement shaved off significant costs, enabling the online-subscription company to provide its customers with better availability and more titles to stream instantly. "We're even talking to other studios about it as well."

This is a far cry from Keyes's description of the 28-day advantage, which, according to one film industry source, was an arrangement that Blockbuster actually had very little control over.

"Blockbuster didn't stay with new releases by choice," explained the source, who is very familiar with the studio agreements with Netflix and Blockbuster. "Movie studios have Blockbuster where they want them—they know Blockbuster is not in any position to negotiate because of their financial position."

"The studios are getting huge payments for new releases from Blockbuster because they know the company needs them."

Requests to Blockbuster for comment on this issue were not immediately returned.

Swasey would only say that the 28-day delay has had little effect on Netflix's customer base. "We've been [under this arrangement] for six months, and there is only handful—I'm talking only a couple hundred people out of 14 million—who have contacted us regarding the availability of new releases," explains Swasey, who stressed that Netflix's rich catalog is what members are interested in, rather than the latest flicks. "More than 70% of Netflix daily viewing is not for new releases, and this is not an availability issue—it's a preference."

"We find that if they were really interested in a movie, they would've already seen it in the theater."

When I asked Swasey about Keyes's criticisms of Netflix, and whether Netflix would ever respond, Swasey declined to comment on the situation or anything directly related to Blockbuster. "Netflix is looking forward and focusing on Netflix—we're running our business for the betterment of our investors and members," he explained.

But another industry insider offered an explanation for why Netflix wouldn't respond: "There is not a whole lot Blockbuster can say that's positive right now, so why would Netflix even respond to a weakened competitor?"

"It almost seems like Jim Keyes is whistling as he walks by the graveyard to convince himself he's not scared—the company is not in good shape, and the numbers don't lie."

While Netflix's membership is growing—35% last quarter year-over-year—Blockbuster has not released their numbers for by-mail subscribers, calling the figures "irrelevant" since Blockbuster customers use many outlets to access films, including the company's in-store offerings, kiosks, and on-demand services. But the source I spoke with believes the by-mail numbers are anything but "irrelevant," as Keyes said.

"Those numbers were extremely relevant for Blockbuster when they were competing head on with Netflix in 2007," the insider explains. "Blockbuster was very eager to report their monthly gains in subscribers then, when they put about $400 million into competing against Netflix."

Swasey again would not comment on the subject, and instead stressed that the number of "by-mail" subscribers doesn't fully capture Netflix's user base, since more than half of its subscribers also access movies online.

Netflix iPhone But Swasey was willing to speak briefly about competition from Hulu and Netflix's upcoming iPhone app, which debuted at Apple's WWDC 2010.

"As far as competitors, there will always be a company that's angling for you, and clearly, we're not going to have this open field forever," Swasey said. "Hulu is rumored—they may have announced it already—that they're going to have a subscription service, so we'll see how that goes, but in the meantime, we're remaining very vigilant."

Regarding Netflix's app for the iPhone, Swasey would only say that it will be available on previous versions of the iPhone and the iPod Touch, in addition to the device's latest iteration, and will look very similar to Netflix's iPad app.

"You'll be able to put Netflix in your pocket," beamed Swasey.

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  • Jeff Kaplan

    I rented movies from Hollywood Video had better customer service and better choices of movies, they were forced out of business from the Blockbuster (BB) or should I say Lackluster! Then switched to Netflix even tired renting their Blu-Ray movies and only one out or 4 would play on my Pioneer Elite Blu-ray player! As there was an issue with the Blu-ray movies getting messed up in the mailing process! then just defaulted to renting DVD's for newer releases and watching Great classic movies on my PC! All in All Netflix has always been a step/cut above of LackLuster! BB has rude employee and long lines and a lot of the time, the newest release isn't available when you get to their stores! BB business model failed when gas prices increased 100% in 2008 and their core customers started re-thinking about getting in their Gas Guzzling SUV's to drive to BB with their Kids standing in long lines and having to go back a day later and return the movie to avoid late fees! I will not Miss BB aka Lackluster and will not shed any tears! The big losers are all the institutional investors!

  • Chris Pratt

    I actually signed up for a Blockbuster Online trial just for the heck of it (Long-time and current Netflix subscriber with no intent to switch). First set of movies arrived in standard time, but Blockbuster took over 4 days (granted there was a Sunday in there) to ship the next titles. Even then, one of my queue slots didn't ship until the day after that, for a grand total of 5 days of processing.

    Why on earth anyone would pay Blockbuster's exorbitant fees (compared to Netflix) and suffer with that, I'll never understand. If any Blockbuster Online subscribers are reading this: switch to Netflix, you get more bang for your buck, and Netflix is actually on the ball, whereas Blockbuster doesn't seem to know what the heck they're doing.

  • Paul Martin

    I started out with Blockbuster. The store was close and you could redeem your by mail movies for free rentals of games or movies. Then Blockbuster started increasing the subscription fee and cutting services. I think the final straw was you wold get a movie by mail, you could take it back to the store and they would just ship the next movie in your queue. At that point the cost outweighed the benefit and I decided to try Netflix. It's so nice to be able to have just about any movie and show available for instant viewing. I won't give Blockbuster my business ever again. Of course it's not like I could if I wanted; they closed the store last year when they tried to stave off bankruptcy.

  • Olivier Redmont

    We're clearly seeing that the main factor for the success of the movie rental business is the focusing on the convenience to cost ratio. Without seeing blockbuster's by-mail figures, it's hard to make an apples to apples comparison of the two businesses. We're sadly left to assume that they (obviously) cannot compete in the by-mail market. A forward thinking Blockbuster would punt the "by-mail is irrelevant" argument and instead focus on creating a more convenient, higher quality, VOD alternative while also trying to offer a price-point similar to that of Netflix. Assuming they could achieve that price level, they could theoretically overtake their competitor based on the convenience factor -- after reading the previous interviews with Blockbuster management, I can only conclude that they will stick to their conventional way of thinking unconventionally.

  • Belinda Wagner

    I am one of those Netflix customers who joined for the richness of the catalogue. I lived in large urban centers of the Northeast until 1990 when I moved to a small town in the deep South. The only movies we get here are the mainstream blockbusters - see 'em once and done - no thought required - BORING!! When I joined Netflix and was able to see smaller distribution and indie films once again, I was in heaven! Blockbuster cannot even come close - they are just a more portable format for the same distribution profile as the big chain movie theaters. Thanks Mr. Swasey for your customer focus and keen business sense - I want Netflix to be profitable and continue expanding their catalogue forever!

  • Rita Ashley

    Blockbuster doesn't need competition to lead them into failure; they do it all by themselves.

    Stores are unattractive, unfriendly, customer service is rude and prices are ridiculous. Clearly Blockbuster doesn't take into consideration their customers' needs and behaviors. $5 for a rental I can see on cable or satellite on my TV for $2.95 without leaving home or view from Netflix free or at low cost is just silly.

    Netflix, by contrast is constantly modifying their process and offerings based on their customers' usage. And while first run movies are often attractive, most of us watch more than just the latest and greatest; which is why we view several movies a month. Again, Blockbuster doesn't accommodate the sticky needs of their customer.

    And Bully for Netflix for not engaging with Blockbuster in an open forum. That would only allow Blockbuster more ink with no ROI to Netflix. Plus, raging against Netflix just makes Blockbuster look like the dying hulk that it is.

    Rita Ashley, Career Coach
    Author: Job Search Debugged
    Author: Networking Debugged

  • Jeff Brown

    I've already got NetFlix in my pocket via my HTC Incredible. The app PhoneFlicks links directly to my NetFlix account. Yay me.

  • Shane Petty

    Netflix is wise not to respond to the boasting and to stay focused. This is a great example of a David vs. Goliath and it is awesome. We don't typically rent movies, but we started watching 24 this past season and wanted to watch the previous ones. Netflix for $9/month was a steal compared to purchasing the DVD box series and adding more stuff to store in the house that we don't need. Then I found out that you can stream Netflix on some BlueRay DVD players, some TVs and other devices including Xbox, Playstation 3 and Wii. We got the streaming disk for our Wii and have been watching 24 streaming via Netflix. Great technology, price and offerings for us, and we can request the movies by mail that we want. Blockbuster's business model is toast. Netflix obviously has a great technology strategy team and they will be around long after Blockbuster has folded.

  • Brett Atkin

    Blockbuster is done. I have a Netflix account but the wife wanted a movie now so I rented a new release from Blockbuster. It was $4.50+ for the rental. With Netflix and the usual shipping time I have, I can watch 8+ movies a month. I'm on the single rental plan which costs $9 a month and not late fees. Maybe I don't get the newest movie today, but it is simple math. Sorry Blockbuster.