Netflix Takes Over Wal-Mart DVD Rentals
Wal-Mart Stores Inc. is turning over its online DVD rental business to Netflix Inc., signaling that the world’s largest retailer couldn’t beat the Internet upstart at its own game. Netflix shares surged after the agreement was announced Thursday, rising $2.61, or 17 percent, to $18.11 in midday on the Nasdaq Stock Market.
Wal-Mart is offering its existing online DVD rental customers the chance to continue their subscriptions with Los Gatos-based Netflix at their current price for the next year. Those who don’t sign up with Netflix by June 17 will lose their service. Wal-Mart plans to continue promoting the Netflix service on its Web site. In return, Netflix will remind its subscribers that they can buy DVDs from Walmart.com.
The companies didn’t disclose how many customers Netflix will inherit nor the financial terms of their partnership. About 70 percent of Wal-Mart’s DVD rental customers pay $12.97 per month for the right to check out up to two titles at a time. Most Netflix customers pay $17.99 per month for three titles at a time. Wal-Mart charges $17.36 per month for three titles
Wal-Mart is believed to have fewer than 100,000 online DVD subscribers, said industry analyst Dennis McAlpine of McAlpine Associates. ”This is a nice deal for Netflix, but it still doesn’t mean Netflix will win the game,” he said.
Quite amazing, really. Netflix had a huge head start in this enterprise but Wal-Mart has massive buying power and a ubiquitous distribution system. Of course, Wal-Mart hardly took advantage of its economies of scale, charging essentially what Netflix was on a per-DVD basis.