Wal-Mart drops online rentals
Promotional deal will direct existing subscribers to Netflix
Paul Sweeting -- Video Business, 5/19/2005
MAY 19 | Wal-Mart Stores said Thursday that it will pull the plug on its online DVD rental service and refer its existing subscribers to Netflix. The retail giant will also continue to promote Netflix on the DVD sales area of its Web site, Walmart.com.In exchange, Netflix said it would promote DVD sales through Wal-Mart on its own Web site and on the mailers it sends to subscribers.
The news lit a rocket under Netflix's stock, sending shares up 20% in early morning trading.
Netflix officials cautioned, however, that they did not expect the deal to have a significant short-term impact on the company's financial performance or subscriber count.
In a statement issued in conjunction with the announcement, Netflix said it was not revising its 2005 earnings guidance as a result of the deal. Chief financial officer Barry McCarthy was expected to address the impact further at an analysts conference in San Francisco later in the day.
Although Wal-Mart has never disclosed its subscriber count, analysts estimate it has fewer than 100,000 online rental customers.
Still, the news capped a good week for Netflix, which also saw its No. 1 rival, Blockbuster, start testing a higher price point for its online subscription rental service.
Blockbuster's current base price is $14.99 a month for three movies out at a time. That's $3 lower than Netflix's base price.
On Wednesday, Blockbuster officials confirmed that the chain had begun testing consumer response to a $17.99 offer in select markets.
An ongoing price war between Netflix and Blockbuster has slashed profits at both companies.
Blockbuster's management has been under pressure from the company's largest shareholder, Carl Icahn, to reign in spending and boost cash flow.
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