Novice Investing - Blockbuster Online Vs. Netflix

Date: Monday 01st 2008f December 2008 03:53:49 PM

Blockbuster Online Vs. Netflix - 10/16/2005

By: Novice Investing Staff

In the battle of online DVD rental, two companies stand out of the pack. One is the king of DVD rental stores that had been around for years, Blockbuster Inc. (BBI). On the other corner, is a relatively newcomer Netflix Inc. (NFLX)

In the digital era where the use of broadband internet connection is widespread, we believe that video on demand will be next. Besides, customers have long been dissatisfied with the way late fee is imposed upon them. Online rental solves their problems. Having stores are becoming less relevant for DVD rentals. Therefore, today we will compare the online operations of Blockbuster and Netflix, which has been battling each other fiercely for quite some time.

Both companies offer a subscription based fee from $ 9.99 per month. There are no late fees and DVD is delivered right to their door step. Customer can rent up to one DVD at a time for the $9.99 plan. Both companies offer similar plan at a glance. So, who is winning the online war? It is hard to tell but we'd try our best to explain.

We will use our favorite traffic analyzer at alexa. Once there, we type www.netflix.com inside the search box and get its traffic details. It will show the traffic rank for Netflix. We click on the traffic details link and then scroll down. The 3 months-average traffic for Netflix is 3210 per million users. This is equivalent to 0.32% of all internet users. Using the same methodology, we find that the 3 months average traffic for Blockbuster is 1250 per million users, or 0.12% of all internet users. This translates into 3.07 million daily visitors for Netflix and 1.2 million daily visitors for Blockbuster.

From here, it seems like Blockbuster has not caught up with the online DVD king, Netflix. Traffic for Netflix site is 2.5 times larger than Blockbuster online. While not all visitors convert into customers but we believe that the conversion rate for both sites will be about the same.

For now, Netflix has the upper hand at online DVD rental. Its stock valuation reflects that as well. Blockbuster's retail stores are worth really little at its current $ 5 stock price. Investors seem to think that the future is for DVD to be rented online, instead of through retail stores like Blockbusters. We will see who is right.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Netflix Inc. (NFLX) or any other securities.

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