Netflix CEO: Movie rental stores will lose more market share to pure-plays
Netflix Inc. founder and CEO Reed Hastings is painting a bleak future for bricks-and-mortar movie rental stores.
As the movie rental business shifts even more to an online model, Hastings expects that bricks-and-mortar stores and chains will begin to close even more stores. “Online rental provides a better consumer experience and greater value than store-based rental,” Hastings told analysts on the company’s recent third quarter earnings call. “The larger online gets, the more difficult store-based rental becomes economically, and we think the major chains will close 5% to 10% of their stores next year.”
As evidence of the shift from stores to online, Hastings says that Netflix now has 6.3 million online subscribers with plans to reach 20 million subscribers within several years.
Movie rentals, an $8 billion market, will be mostly online within a decade, Hastings says. “As more stores close, the online market is further strengthened,” Hastings told analysts. “Our view is the trend of online rental growth and store rental decline will continue for many years.”
The next big growth opportunity for Netflix is downloadable movies. In 2007, Netflix, No. 21 in the Internet Retailer Top 500 Guide to Retail Web Sites, will invest about $40 million in new technology that enables customers to download movies from the Internet. “We plan to significantly accelerate our spending on digital downloading in 2007 from less than $10 million this year to more than $40 million next year,” Netflix chief financial officer Barry McCarthy told analysts.
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