Hope for Netflix?

The Cranky Economist particularly enjoyed the upper-level course in financial economics he took during his senior year at a certain Cranky College. One of the many virtues of this course was that it first introduced me to Netflix, the increasingly popular DVD-rental-by-mail service. Although I didn't subscribe to Netflix until more than a year after taking the final for the class, the past two and a half months have been the happiest in my movie-renting life.

Its trove of indie and foreign titles, however, was not why Netflix was a topic of discussion in a class about financial markets. Its stock price was. When it first went public, Netflix's price had skyrocketed for a while. This was a source of puzzlement to my professor, who predicted -- correctly -- that Netflix would come under increasing competitive pressure from new entrants to the mail-rental biz like Blockbuster, and from new entrants to the broader movies-at-home biz, like on-demand movies from satellite and digital cable. Meanwhile, it seemed like an odd business model: It can't afford for its customers to use it too much; in fact, its ideal consumer would be one who subscribes and then hardly ever returns movies, thus saving the shipping costs.

Still, increased competition or no, Netflix seems to be doing alright for itself, having just passed the three million subscriber mark, according to MarketWatch.

Who will win the Netflix Wars? Darned if I know. But it sure ain't dead yet.