Attack Of The Clones? Hastings' Netflix Sues Blockbuster

[Teutatis]

Forbes.com


Faces In The News
Attack Of The Clones? Hastings' Netflix Sues Blockbuster
Greg Levine, 04.05.06, 11:28 AM ET

New York -

At first, it sounds like the neighborhood's first pizzeria suing the Chinese takeout joint for making deliveries.

But take a closer look at the Netflix lawsuit against Blockbuster, and some of the details might seem, well, not quite kosher.

Led by Chairman and Chief Executive ReedHastingsReed Hastings, Netflix took e-commerce to a whole new level. Before the current era of digital entertainment and downloads, the company defied brick-and-mortar business models with its online DVD subscription service.

One "old economy" firm was not so thrilled at the innovation: Blockbuster. According to The Associated Press, the storefront movie-rental chain lost $588 million last year alone--and expects to continue to shutter locations as more renters seek DVDs online. One secret to Netflix success has been its no-late-fee policy; making its money via paid subscriptions has allowed Hastings' firm to eschew penalties. Renters can return films whenever they wish.

Blockbuster last year followed suit, dropping late-return fees at its storefronts--and potentially sacrificing hundreds of millions of dollars annually. (This was one of the tactics Carl Icahn objected to, sparking his drive to gain power on Blockbuster's board.)

Then Blockbuster discovered the Internet.

After scoffing at CEO's flat-fee scheme, Blockbuster apparently did a 180-degree turn, launching its own online service that allows customers to rent up to three DVDs at once for a monthly charge of $17.99. When a customer returns a DVD, postage-paid, the service automatically sends the next film queued on the user's want list.

The automatic dispatch, the three-disc system and even the $17.99 figure are the same as the Netflix business model, the AP reports.

"Blockbuster has been willfully and deliberately copying Netflix's business methods," Netflix spokesman Steve Swasey was quoted by the AP as saying. As of press time, there had been no reply to an e-mailed request to Blockbuster for comment.

Netflix seeks a court order forcing Blockbuster to alter its Web rental service--or require the latter to pay patent royalties. In light of recent patent-infringement findings--such as the settlement agreed to by BlackBerry maker Research in Motion--that could pile up pretty high for the defendant.


http://www.forbes.com/2006/04/05/netflix-blockbuster-lawsuit-cx_gl_0405autofacescan08....rtner=yahootix

[HatchetMan]

But blockbuster has free in-store rentals every month, something Netflix can't possibly offer.

[j1d10t]

But blockbuster has free in-store rentals every month, something Netflix can't possibly offer.

Unless you want to go to the video store, that doesn't really matter. I think the whole idea of renting movies on-line is that I don't have to go to the video store - I hate having to go into the store, try to find what I want (all the while they are playing some piece of garbage - usually something not suitable/appropriate for younger audiences - on the screens around the store, with the volume turned up so loud you could hear it outside), hope they have what I'm looking for in stock, then stand in a long line to check out. I can't stand that. But that could be just me So the in-store part of Blockbusters deal would be wasted on me.

This case will take years. But it will be interesting to see how it unfolds, and how/if it affects the customer.

[RDS1955]

Sounds pretty wishy-washy to me...I used to have a Walmart DVD Rental Account until Netflix bought em out..Had em both for about a year or so, How come they didn't sue Walmart back then, they both had the same business model, basically the same prices (Almost)...Seems to me that Netflix is getting shaky concerning the competition... If you can't compete, sue em..

[lordsmurf]

I think it's more the other way around. Netflix is the top dog, and Blockbuster has a real monopolistic attitude about things, so this is more of a pre-emptive legal strike.

[Xylob the Destroyer]

the reason they're losing money is because the customer service in their stores is atrociously horrible.
the stores are filthy, unorganized, and they never have anything but the latest "hits" in stock.
I've stopped going to BlockBuster since I got Netflix because I'd rather deal with nobody at all instead of dealing with idiots who have bad attitudes and don't know the meaning of the term "customer service".

[somebodeez]

But blockbuster has free in-store rentals every month, something Netflix can't possibly offer.

I have been a member of both NF and BBs.
My personal experience is BBs has treated me better than NF
BBs seem to value their long time customers as much as they do their new customers.
From BBs, I can get the latest releases in a timely manner without having to take a back seat to new customers and BBs has never "throttled" my deliveries.

I also sometimes take advantage of their free in-store rentals to fill in the "gaps" even though their stores don't have everything that they offer online and so far, I haven't experienced anything other than polite and helpful attitudes from their employees.

I haven't experienced long lines but then again, I'm probably lucky in that I can go during the day...

And this has nothing to do with any of the above but I noticed that NF doesn't seem to have the page up on their site anymore about the class action suit. I was trying to find out if there were any updates about it but couldn't find it.

[lordsmurf]

and BBs has never "throttled" my deliveries.

You probably do not get just new releases. Simple as that.

From what I have read, the "throttle" effect only affects small over-active queues, or those queues with only newer releases. BB and NF pretty much operate the same (at least in terms of how systems operate ..... which may be the entire reason for this lawsuit), only people like to whine more about NF. It's not like NF says "oops, too many videos this month, you're cut off young man!". They still send things in your queue, just that you may not get the top queue entires. Give yourself a big queue with all kinds of discs from all eras, and you'll be perfectly fine. Right now NF is sending me discs from about the #10 slot because all the others are rented out to other folks. Fine by me, I'll get it eventually, and in the meantime I'll enjoy watching something else.

Supply and demand. Those who are "throttled" are a bit too over-demanding, and NF does not have the supply for these people. They never guaranteed you get your #1 disc, just a new disc from your queue. And then there is always the issue of shipment location (not all of them have all discs) and USPS issues. If your queue is otherwise empty, not their fault. Companies have a right to choose customers, just as much as people have a right to choose companies. Overactive renters are apparently not a priority to NF, and I really do not blame them. They cut into revenue (not just profits!). That's why they sell bigger plans. Most whiners have the 3-at-once plan when they really ought to get themselves an 8-at-once plan to meet their needs.

How any of this relates to a suit, I have no idea. But you never know, this could be relevant.

[somebodeez]

and BBs has never "throttled" my deliveries.

You probably do not get just new releases. Simple as that.

From what I have read, the "throttle" effect only affects small over-active queues, or those queues with only newer releases. BB and NF pretty much operate the same (at least in terms of how systems operate ..... which may be the entire reason for this lawsuit), only people like to whine more about NF.

If you mean I don't have just new releases in my queue, you're right - my queue is quite a mixed bag And yes, they will both send me *something* from my queue and not always in order which is no biggie to me.

But I can tell you that out of curiosity (that is my nature), I did some testing. I have added new releases to the top of my queue, at BBs and added those very same new releases in my queue at NF on the same day, within a couple of minutes from each other and I'll get it from BBs while NF always says "very long wait" for weeks for all of them.
Plain and simple fact - that has been my experience.

There just might be a reason why "people like to whine more about NF" although really, it's not like it's the end of the world for me

[adam]

RDS1955, Netflix's suit is in regards to a business method patent and patents are extremely specific. Walmart could provide an almost identical service and yet have one difference and that could be enough to avoid an infringement. Afterall, even in this case Netflix is telling BB that they just have to change their methods to something other than the specific claims in their patent, not that they cannot provide the same basic online service. Also its entirely possible that Netflix did in fact use the threat of suit in negotiations with Walmart when they absorbed their online service. Walmart even admitted that Netflix got the better end of the deal.

I reviewed Netflix's patent and they actually probably have a strong case but this is just more evidence of why business method patents are a crock. They should not be allowed.

This year is going to be absolutely crazy for patents. The Supreme Court is hearing more patent cases, and more important patent cases, than it has in over 40 years. Lots of things are going to change and its entirely possible that business method patents will completely go away which will nullify this suit entirely. Meanwhile BB has already announced that they will probably file chapter 11 bankruptcy within the next few years.

somebodeez: Netflix settled that class action lawsuit regarding throttling. As settlement they are giving some sort of free upgrade to all existing members if they opt for it.

[mrswla]

But I can tell you that out of curiosity (that is my nature), I did some testing. I have added new releases to the top of my queue, at BBs and added those very same new releases in my queue at NF on the same day, within a couple of minutes from each other and I'll get it from BBs while NF always says "very long wait" for weeks for all of them.
Plain and simple fact - that has been my experience.

There just might be a reason why "people like to whine more about NF" although really, it's not like it's the end of the world for me

I have been a NF and a BB customer for quite some time now. All I can say is NF beats BB hands down. For me, I believe it has a lot to do with my location and time planning. I am about 90 miles(Richmond VA) away from the NF plant. If I want new releases I put my movies in the mail on Friday. All new releases will be in my mailbox on Tuesday. I've been using this system for several months now and haven't had a problem. BB on the other hand is in PA. I sent back two movies on Friday and my queue still hasn't been updated as I type this!!! I like keeping the BB around for older titles and the free in-store rental coupon, which is the only reason I go into the store. As noted, the stores are normally horrible to visit.

[lordsmurf]

but this is just more evidence of why business method patents are a crock. They should not be allowed................ and its entirely possible that business method patents will completely go away

Yes, a crock. Go away, I hope.

somebodeez: Netflix settled that class action lawsuit regarding throttling. As settlement they are giving some sort of free upgrade to all existing members if they opt for it.

Yeah, but they have not started it. I signed up last summer or fall, never heard back on it. They were still in legal red tape earlier this year, and would be delaying (throttling the lawsuit? ) the settlement for an undetermined timeframe. It was no big deal, extra disc for a month, or a special free trial for others.

[somebodeez]

I have been a NF and a BB customer for quite some time now. All I can say is NF beats BB hands down. For me, I believe it has a lot to do with my location and time planning. I am about 90 miles(Richmond VA) away from the NF plant.

Both BBs and NF's nearest center to me are in the same town, about 30 - 45 minutes away (depending on traffic). Most of the movies that I get are sent from that location for both services.
But you're right, location can make a difference.
Maybe it also makes a difference in the local BBs stores too regarding the people that work there.
I must be lucky.

RE: Class action against NF -
I believe that those who signed up for it are suppose to get an extra movie in their queues for a month? If they've settled, how long is it suppose to be before NF honors it?

[offline]

Teutatis,

Moving this to offtopic. Please read the stickies in the latest news section. In future you may get a formal warning for posting outside the guidelines.

Thanks

[somebodeez]

Found some news about the NF Class Action suit dated March 23, 2006:

Netflix Settlement Gets Reworked After Protests
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/21/AR2006032101609.html

Judge Ponders Proposed Netflix Settlement
http://cbs5.com/localwire/localfsnews/bcn/2006/03/23/n/HeadlineNews/NETFLIX-CONSUMER-C...urces_bcn_html

The stall seems to be attorney fees and objections to the provision that customers would automatically get a higher bill after the free 1 month upgrade unless they opted out.

[thecoalman]

but this is just more evidence of why business method patents are a crock. They should not be allowed.

Agree with that 100%... hmm I think I'll put a patent on 24 hour service... Give me a break.