Our take...
At first glance, Netflix's estimated half a million Blu-ray subscribers looks insignificant, but Screen Digest analysis indicates that Netflix is punching above its weight. BD player penetration of US TV households will be 2.5 per cent at end 2008 (2.9m households). If you include PS3 households—which are incidentally equipped with BD—then BD penetration increases, but only to 10 per cent (8.5m households). So Netflix has either captured some of these 'incidental' BD households or it has a 17 per cent share of 'active' standalone BD player households in the US, which would be impressive considering the company has a nine per cent share of US DVD households. Even if 25 per cent of PS3 homes subscribe to Netflix, the company would still boast 10 per cent penetration of 'active' BD households.
In any case, the extra $500,000 a month provides a timely boost for Netflix, having recently revised its fourth quarter forecast downwards slightly, in light of slower-than-expected growth in its subscriber base.
In the context of the current economic climate, rental might appeal to BD households, particularly PS3 owners looking to sample movies in hi-def. European online DVD rental specialist LoveFilm International (LFI) believes BD is a strong rental proposition, claiming some consumers may be put off purchasing BD titles at a premium price point.
Unlike Netflix, LFI is not applying a premium for BD rental, preferring to use it as a value-add. Perhaps this reflects increased competition from store-based rental amid fears of a recession. Historically, video rental has proved popular among lower-income households as an affordable form of entertainment. At the moment, some consumers may prefer to pay small change for a night's rental than commit to a monthly subscription.
This seems to be borne out by Blockbuster's third quarter results, with same-store sales in the US up by 5.1 per cent year-on-year, and rental revenue up 0.8 per cent over the same period.