Reuters just reported that Netflix [NFLX] sued rival Blockbuster [BBI] today and is seeking to have its online rental business shut down based on various patent infringements. According to reports, Netflix believes Blockbuster has infringed on the company's patent filed in June 2003 on managing customers DVD wish lists as well as an additional patent the company received today that extends its previous patent across a wider range of "automated interaction with its customers."
For the record, I am and have been a bull on Netflix. The company is far and away the dominant player in the online DVD rental space with around 80% market share and ended 2005 with approximately 4.2mn subscribers compared to Blockbuster's 1.2mn. I like this move by Netflix especially considering Blockbuster is already juggling several balls with trying to manage its deteriorating bricks and mortar business while simulteaneously attempting to build an online delivery user base. Blockbuster also has over $1bn in debt on its balance sheet looming over its head coupled with deteriorating cash flows and approximately $275mn in cash. This compares to Netflix who has zero debt and approximately $175mn in cash and increasing cash flows. Just as the eBay/MercExchange and RIMM/NTTP cases have recently displayed, these law suits can take years to settle, but they can also lead to handsome pay days if it is determined patent royalties are to be paid. If Netflix's patents hold up this doesn't paint a pretty picture for Blockbuster. Regardless, Blockbuster is already the equivalent of a one armed juggler and doesn't need another ball in the air.
They have been throtteling me for some time even though I am not a heavy user. I have been a 5 year customer and have many times considered jumping to BlockBuster, though no kidding myself, Netflix is the clear leader and will probalby stick with them.
Posted by: Scott Donahue | April 05, 2006 at 11:19 AM