Netflix Wants That Money (But May Not Get It)

Netflix, Redbox (part of Coinstar), and Blockbuster recently have been at it tooth and nail, working to lock in video rental customers while getting into downloading, all the time trying to stay into business. And in the process, all three are reenacting an old business scenario: try to undercut each other, even if you take a loss, until you get rid of the competitors. And that isn't easy on any of them. For today, though, let's look at Netflix.

Check the numbers from the company's last earnings release. At the end of the three months as of June 30, 2009, there were 10.6 million subscribers and revenue of $409 million, or roughly $38.58 per customer. During the same period of 2008, revenue was $338 million over 8.4 million customers, or about $40.24 a customer. That was a drop of about 4.1 percent per customer for an average of $3.22 per month per customer. Notice something interesting: on the average, Netflix gross revenue per customer per month is even below the lowest priced plan of $4.99 a month that the company has. Wow.

During the quarter, Netflix added roughly 1.9 million customers to its list while losing 1.6 million. That's a swing of 3.5 million customers, or 31 percent of its customer base. Even if you're adding net customers, that's a lot of change to deal with, and a lot of cost in customer acquisition. In the meantime, there's pressure coming from the video studios, which are starting to demand higher revenue cuts from the "kiosk" and "mailorder" vendors, which means Redbox and Netflix. And given the general drop the industry has been seeing in business, I don't think that's going to disappear any time soon.