The Netflix effect

For those of you who came in late, let me tell you what Netflix is; others skip to third para.

Netflix is an Internet-based video rental service that has revolutionised the industry. Much like online shopping, you select movies / DVDs and place it in a personal queue. Movies are delivered in the order you have specified (by normal mail) and you post it back when you're done watching. As a member, you need to pay a monthly fee and there are various plans which let you keep upto 3 DVDs at a time.

I'm wondering how Netflix makes money:

• Assume I take the basic plan where I pay $9.99 per month.
• It takes 2-3 days for a DVD to reach me. Say I keep it for a day and return it (by mail). It will take another 2-3 days for it to reach Netflix and the same amount of time again for another DVD to arrive. That way, I guess I can watch about one movie per week. [That's good enough for me, considering my "certified movie-maniac" status and my available time.] If I try a little hard, I think I can do 6 movies per month, maybe.
• Netflix spends 37 cents one way for mailing the DVD; the total is 74 cents.
• For 6 movies, Netflix makes $1.67 per movie. Since they spend $0.74, the effective income is 93 cents. If I watch only 4 movies per month, that figure will be $1.76 -- that's a significant difference, almost double! If I watch even lesser movies or keep one DVD to myself ("no late fees"), they make even more money!
• From my end, I spend $1.67 to $2.50 per movie, which isn't too bad.
  

Yes, I do get the convenience of ordering from home, but I lose the ability to pick a movie of my choice almost as soon as I want it. Also, I have to pay the monthly fee even if I don't want to watch any movies. I doubt if I'd be that way, but sometimes you just get too busy. Though Blockbuster and the like may not give me a better deal, I could do well with a cheap local rental store. That's all the more true for people who don't watch movies so regularly.

I absolutely love the queue feature of Netflix!

Other posts of interest...

• Fantasising about the future of Netflix
  
• Netflix vs Blockbuster
• Why Blockbuster is failing
• How Blockbuster should / can compete with Netflix
• Peerflix, a new variant
• How you might end up in jail for not returning a DVD