Amazon Quietly Dumps DVD Rental Business; Guess Netflix Isn't So Easy To Beat

from the netflix-never-dies dept

Tue, Feb 5th 2008 10:56am — Mike Masnick

You really have to hand it to Netflix. Every time some new (big) entrant enters the market and prognosticators insist that Netflix is going down, the company has managed to keep on chugging along -- while the competitors eventually capitulate. Remember back in 2002, when Wal-Mart entered the DVD rental market, and everyone thought that Netflix had no chance? Fast forward a few years, and Wal-Mart was shutting down its efforts and handing them over to Netflix instead.

Then there's Amazon. In 2004, Netflix itself broke the news that Amazon was entering the market, causing plenty of concern. After all, Wal-Mart was a big stodgy company, where you could (possibly) predict that it wouldn't be able to succeed in a web-based endeavor. However, Amazon was a very different story. Except that it wasn't. Amazon realized just how difficult it was to do a good job with DVD rentals in the US, and chose to focus just on the UK, hoping to build up experience there without having to compete head-on with Netflix. There was even talk that Amazon might follow Wal-Mart into just letting Netflix handle its own DVD rentals in the US. No matter what, it appears that Amazon's little experiment didn't go all that well. It has now sold off the DVD rental business in the UK and Germany to competitor Lovefilm (while also taking a stake in the company).

Either way, it's yet another example of a big company assuming it could easily take on Netflix in the DVD rental business and finding that it wasn't nearly as easy as expected. While Blockbuster is still hanging in there, Netflix has shown time and time again that what looks like a simple business isn't always so easy to replicate. This is an important lesson for those who insist that big companies can always just come in and crush small upstarts. That's not the way things always work. An idea is one thing. Execution is something entirely different.

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Filed Under: dvd rentals, germany, uk
Companies: amazon, netflix

21 Comments

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skitter, 5 Feb 2008 @ 11:27am

Not so small...
This is an important lesson for those who insist that big companies can always just come in and crush small upstarts

Not really. Netflix is just showing a rare exception to this rule--and Netflix ain't so small, either. Smaller than Walmart, sure, but not some itty bitty company.
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Michael Long, 5 Feb 2008 @ 12:13pm

The future is...
Or they could simply realize that it's not worth building a snail-mail distribution infrastructure from scratch when the real future is going to be Unboxed and Apple TV and all of the other digital content delivery systems.
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Duncan McLeod, 5 Feb 2008 @ 12:14pm

There can be only one
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Michael Setzer, 5 Feb 2008 @ 12:24pm

reply
I'm thinking that Netflix was victorious over both Amazon.com and Walmart because in the words of a certain popcorn maker "They do one thing and do it better than anyone". Online DVD rentals (and videos on demand) are all Netflix knows so it has to know the business inside and out.
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Danny, 5 Feb 2008 @ 12:34pm

I agree with comment #4
Walmart and Amazon try the "you can do/buy everything here" approach. There times when this is a good strategy (like grocery shopping or picking up odds and ends) and there are times when this strategy fails (like when you are out to buy high end electonics, high quality plumbing equipment, older items that are no longer in production). Places like Walmart and Amazon (lower price for lower quality) will almost always lose out to specialty stores (higher price for higher quality).

BTW I've been using Blockbuster Online for about 3 years and I've thought about trying Netflix out but other than the fact that Netflix seems to have faster shipping times (which is no big deal to me) what advantages does Netflix have over Blockbuser Online (FYI I'm only talking standard DVDs since I don't have High Def gear yet)?
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Ima Fish, 5 Feb 2008 @ 12:37pm

Netflix provides great service
I've been a Netflix subscriber for years, probably several years. I can't remember a time when I didn't have an account.

But I'm consistently amazed at the quality service the company provides. I get a two day turn around, e.g., I mail it on Monday I'll get a new one on Wednesday. I have no problem getting new releases, the trick is to remember that they mail them out on Monday. And they've yet to nickel or dime me, which is quite common in US capitalism.

I tried Blockbuster and it would take no less than 9 days to get a movie to me, and well over 9 days for them to receive it back. I received an email three months after I quit notifying me that they had just received a DVD I had mailed back three months prior. That's beyond crappy service.

I do agree with Michael Long, however, that the future will be streamed and Netflix has to really jump on that. iTunes combined with Apple TV could leave Netflix in the dust. If iTunes is reasonably priced, has good quality, and the movie iTunes release date is not delayed too much.

I've heard that Hollywood will not allow iTunes to release movies until a month after the DVD release. If that's the plan, then I'd just rather rent from Netflix as it'd be much cheaper and higher quality.
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Roger, 5 Feb 2008 @ 12:37pm

"Either way, it's yet another example of a big company assuming it could easily take on Netflix in the DVD rental business and finding that it wasn't nearly as easy as expected."

That's nonsense.

Amazon operates in the UK. Netflix operates in the USA. How do they compete?
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John Desmarais (profile), 5 Feb 2008 @ 12:38pm

Re: The future is...
... the real future is going to be Unboxed and Apple TV and all of the other digital content delivery systems

Sure, eventually. But for right now Netflix has found a profitable niche and staked their "king of the mountain" claim. In another year or few, when digital delivery of high-quality video to the average person becomes more practical, Netflix will be positioned well to leverage their name and market clout into that business as well. (After all, in the minds of teh average person, the only difference between what Netflix does now and digital delivery is medium.)
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Mike (profile), 5 Feb 2008 @ 12:45pm

Re:
Amazon operates in the UK. Netflix operates in the USA. How do they compete?

I thought I was pretty clear on that, sorry if I was not. Amazon launched in the UK with the idea that it would learn how to do this and then come to the US with it. However, that plan clearly did not work.
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Jeff, 5 Feb 2008 @ 1:14pm

Re: The future is...
Not until they get rid of the rule that you only have 24 hours to watch a DVD. Since they feel it is oimportant to not let you watch a DVD for more than 24 hours (what business model is THAT based on), netflix will continue to rule (despite the in vogue thinking that digital will destroy netflix...;yeah right, and new england will go 19-0..)
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Ima Fish, 5 Feb 2008 @ 1:38pm

Re: I agree with comment #4
"I've thought about trying Netflix out but other than the fact that Netflix seems to have faster shipping times (which is no big deal to me) what advantages does Netflix have over Blockbuser Online"

Do you even know what the word "advantage" means? You admit that Netflix gets movies to you quicker. Which means for what you're paying for Blockbusters you could receive more movies. Which is another way of saying that Netflix offers better service at a better price.

But if you don't find better service at a better price an advantage, I'm not sure what "advantage" Netflix could provide that you'd like. Maybe Netflix could offer to come and beat you with a baseball bat every so often, would that be an advantage?
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Gabriel Tane (profile), 5 Feb 2008 @ 2:03pm

No big suprise
Two things that I see these "big guys" doing wrong...

1) Assuming that just because this little upstart company can do it, so can they. I'm sure a lot of people said "eh, it's a novel concept, but I don't think it'll last" when Netflix start up. Even though they're still around, that doesn't mean that it's easy to do.

2) Not offering anything new. You're entering into a market that is already well established by a single company. Then you ask everyone to use your service instead. But you don't give a reason why to switch. If some of the above-mentioned stories are true about the service you offer, you're giving reasons not to switch. And you're surprised that no one switched? Seriously... this is where innovation is not only a good thing, but absolutely vital.

Now... as far as the streaming business goes... I'm not sure that it'll really take off as long as it's tied to any one company's hardware. Yeah, iTunes is successful, but how many people shop it when they don't own an iPod? Now, granted, there's a whole heckova lot of iPods out there. But still, I don't see myself buying yet another gadget to hook up to my TV just to pay a monthly premium to stream a movie.

Yeah, you could hook your computer your tv... in fact most new HD tv's come with a computer-in port (I'm typing on one now) and stream thataway, but the vast majority of home movie watchers aren't going to know how to or want to do that. Most of them are going to have an older TV and not want to upgrade just to stream.

I'd be more impressed and hopeful if they offered a generic stream (that you subscribe to) but allowed the secondary market produce the hardware to put it on your TV. Then we'd see some competitive innovation... or just more patent lawsuits. :s
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I_Like_Netflix, 5 Feb 2008 @ 3:03pm

Re: Re: The future is...
They are already providing DVD viewing on demand. They started out with limited viewing hours (19 hours/month on an 18.99/month plan) and just recently moved to unlimited hours a month viewing time.

They are positioning themselves very well for the future market.
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Danny, 5 Feb 2008 @ 10:07pm

Re: Re: I agree with comment #4
Yes I do know what advantage means. The reason the turnover time doesn't mean anything to me is because of the fact that regardless of how fast I get the movies I usually am so busy with other stuff that I'll have them for a week or so before I actually get to watch them. Meaning that if I'm holding the movies for a week after I get them it doesn't really matter how fast I get them.

By advantage I mean is Netflix cheaper, better customer service, bigger selection, they don't intentionally put a hold on new releases so that customers have to wait a month before getting them...etc.
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Alimas, 6 Feb 2008 @ 7:46am

Didn't Stand a Chance
As soon as I heard of it, I didn't think Wal-Mart or Amazon stood a chance against NetFlix. Like commentor #4 quoted "They do one thing and do it better than anyone." Netflix advertises a lot and provides great service they set the bar and it'd be hard to compete with them if you can't meet the bar right out of the box.

I think AppleTV is gonna bomb. The average user doesn't have an internet connection fast enough to download a movie at high quality within a reasonable amount of time to have made it worth the effort. My girlfriend downloaded Zoolander through ITunes on her DSL service, took her two days and it looks like crap.
Goodluck with that, Apple.
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Scotto, 7 Feb 2008 @ 4:18pm

Unboxed is the future? Huh, someone should have told me that before I watched the entire first season of "30 Rock" via Netflix. I realize their streaming catalog needs some work, but between their very zippy DVD delivery service, the steady growth of their streaming offerings, and their recent move to make streaming unlimited, Netflix seems to be in good shape to keep getting my money at least. Whereas I have had to stifle giggles every time someone describes the Unboxed user experience - still, to this very day, that happens!
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Dave Ryan, 7 Feb 2008 @ 5:21pm

Off the mark
Im sorry but Amazon UK selling of its DVD rental division has absolutely nothing to do with Netflix.

It seems this whole post has missed the point, the point is that Amazon US did once try to compete with Netflix and couldn't, that is now history. What has happened recently is that Amazon UK has tried to compete with LOVEFiLM.com and failed in a similar way it did with Netflix.

Netflix and LOVEFiLM are two separate company's on two different continents, are not in competition with each other. The only similarity is that they both rent DVD's in the post and have both put Amazon's DVD rental section out of business in there own territories.

More facts, less speculation would be a good start.
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tom, 13 Feb 2008 @ 11:22am

The next upstarts
The biggest flaw in the Netflix model is with new releases. I have had a "new release" DVD at the top of my queue for nearly 3 weeks without receiving a copy in the mail. I could easily go to my local grocery store and pick it up instantly for $1 using the RedBox or DVDPlay kiosks.

I think kiosks are the next thing to erode Netflix customer base as people get fed up with their inability to satisfy demand for timely mailing of new releases.

As for DVD's vs. on-demand, DVD's are here to stay for a long while. The Comcasts of the world are delivering low-resolution movies via On-Demand. They are not even DVD-quality! Fast delivery of HD or DVD qualtiy video over the internet direct to my plasma TV ain't gonna happen anytime soon. It will be years before that changes...also, I submit that "triple-play" (aka triple gouge) will die an ugly death...gov't regulation will come back into play soon.
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Bruce McCarthy, 22 Feb 2008 @ 3:32pm

Inspiring
I hear the comments on this entry, but I still find the fact that "Netflix just keeps chugging along" inspiring. They are very customer-driven and it works for them regardless of what the competition does.
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paul ryazanov, 25 May 2008 @ 8:38am

rental business start up - guess rental software is the key
As I know there are many local stores which really not able to cover netflix but still useful since netflix really cover biggest market of hollywood movies. Local owners really more dedicated to customers - able to get specific movies - best than netflix + let say I need specific language movie - with netflix thats not possible to get in russaian for example. The only thing that local store hard to manage manually based on human resources. So when you open your own dvd/video game rental business you are always suppose to remember that the key of the success is the right choice of the software. You have to make sure that video game/dvd rental software you are running absolutely secure, powerful, stable and ready to grow together with your business. Thats why its important to decide what system will suite your business best - let us show why choose W3RentT rental software. Contact our team at http://www.w3rent.com and we will response to any questions you may have about rental business.
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tom, 2 Jul 2008 @ 10:41pm

Re: Netflix provides great service
Friends one nice site....It provides comparision among providers like
netflix, intelliflix, blockbuster at http://www.onlinerentdvds.com/comparison.html.
Also provides information about online game plans They are also cover
latest news and reviews on http://www.onlinerentdvds.com/reviews.html.
...real cool check this out.
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