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Face Off – Netflix Versus Blockbuster Online. And Should You Buy Netflix Stock?

I have been a frequent critic of Netflix’s really silly and insulting habit of “throttling”.  Essentially if you are a frequent Netflix user, they tag your account making it more difficult to get the newest releases.  Put a new release in your queue and you are often greeted with “long wait” or “very long wait”.  This allows Netflix to ship the newest releases to customers that watch fewer movies or are new to the service.  While most brands seek to reward their best customers, Netflix takes the opposite approach and penalizes customers that stick with them  so they can make a little more money on customers that at least inititially use them less.

There are a few options to solve the problem.  One approach is to open a new account under another family member’s name.  I opened an additional Netflix account under my wife’s name and all the new releases are miraculously available.

Another option is to use Blockbuster’s online service, which works about the same as Netflix and is priced similarly.  Blockbuster’s potentially clear advantage is that they allow you to use the stores and the online service under one account, but I have not been in a video store since the days of VHS, so this was of no interest to me.  I tested Blockbuster’s online service against Netflix and found the following –

  • I put five identical new releases in my Netflix and Blockbuster queue.  Netflix listed all five as “long” or “very long wait”.  Blockbuster listed one as long wait, and was able to ship all the others immediately.  Good job Blockbuster.
  • However, Blockbuster took two to three days to get the DVDs to me – versus one day from Netflix. 
  • On average, Netflix’s site is much easier to navigate and use.

So if you are getting throttled and want the newest releases, and don’t mind waiting an extra day or two, Blockbuster is the way to go.  Of course, I cannot assure you that Blockbuster doesn’t also engage in throttling once you become a big user.

And despite my disappointment over Netflix’s bad customer treatment, I maintain my Netflix account, and I should also admit, I am a stockholder and a big believer in the long term prospects for the company.  One reason I stick with Netflix is their wonderful download service.  If you install the right piece of hardware (I use both an HD Tivo and a Samsung DVD player, but there are now many options) you can choose from thousands of movies to download direct to your television, and it is all included in the price of your membership.  (To be fair, Blockbuster now offers this service, with different terms, and I have not tried it.) But it was Netflix that really pioneered and scaled the idea, and I believe that just as the video store is practically obsolete, we are approaching a time when DVDs will be largely eliminated in favor of downloading and streaming.  Netflix, Apple, and perhaps Amazon are in prime positions to capitalize on this development, and I own all three stocks.

While Apple builds terrific proprietary hardware that allows you to stream their entertainment, Netflix has taken more of a Microsoft approach, working with multiple consumer electronic companies to allow downloading via their equipment.  Netflix is also doing some interesting deals with the studios, agreeing to delay certain releases on DVD on their site to allow the studio more initial profits by selling DVDs, but in exchange getting the rights to release earlier than the competitors via downloading.

All these moves were apparent when Netflix released earnings a few weeks ago.  Strong profits have driven the stock price up $12 a share in just the last month.

Ultimately, I think their practice of throttling is short-sighted, but they are doing so many other great things with the company that I remain a long-term believer.  In the meantime, Blockbuster is trying to catch up, but they are years behind, and they are saddled with a lot of real estate and an old business model to dispose of.

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