Sep 20, 2011

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Netflix Video Game Rental: The End of Gamefly?

Netflix Video Game Rental: The End of Gamefly?

Netflix is used to running people out of business. Their business model was so revolutionary and effective that they played a big part in the demise of both Blockbuster and Hollywood Video. Yesterday, they announced that they would be splitting up their mail service and streaming service, renaming the mail service to Qwikster. This new service will also start renting video games (for PS3, 360, and Wii), directly competing with Gamefly. Could Netflix yet again push another industry leader out of the market?

It’s far too early to tell, but if they utilize their resources and learn from Gamefly’s mistakes, Netflix should be able to oust the leading video game rental service. There are a few key areas where Netflix has a huge advantage: they have more subscribers, almost half of their streaming comes from video game consoles, they have more money, and they have far more distribution centers. One of the biggest complaints I’ve always have had with Gamefly is the turnaround time. Unless you live close to their five locations, it could take anywhere from three to five days to get your game. For me, since I live near San Francisco and the closest center to me was in Los Angeles, it takes two days for them to receive my game and then another two days for me to get my new game, and that’s if they had the game I want available.

Compare that to Netflix, where they have many distribution locations around the U.S.; in California and New York alone they have six in each state, apparently. After speaking to a representative at Netflix, they told me that 90% of their customers receive their movie within a few days. Personally, I get my movie in two business days. I send it out, the next day they receive it, and send out my DVD, and then the following day I receive my movie. Not only do I get my movie in a few days but I get the movie I want.

When I used to use Gamefly (and I haven’t since about a year ago), I would have maybe three to four games I really wanted to play. Most of those were games everyone else wanted to play as well, which led to that game being in low availability, and thus I would have to wait awhile to receive my game. But even in the instance that games in my queue were available, they would send me games from the bottom of my queue, skipping games I had placed ahead of them. So even when I finally got a game, it might be a game I kind of wanted and just placed there because they suggest you have at least eight games in your queue.  Gamefly’s inability to have a quick turnaround time and offer the games in high demand to everyone is the biggest issue with the service. I don’t want to constantly have to time my shipments back to Gamefly simply to get a chance at getting a newly released game.

That’s something Netflix can learn from and can do better than Gamefly. They have so many more distribution centers that if they were to ship games from each of those centers or even half of them, the turnaround time will be a fraction of what it is from Gamefly. Not only that, but they have the money to purchase far more games that will be in high demand, which would allow more gamers to get new releases. It’s astonishing to me that Gamefly, a company that only ships games, can’t properly manage their library and predict which games will be in high demand.

One thing that Netflix must do is make it affordable. Gamefly offers up some great incentives and options for subscribers. Even though the price is high, over $20 a month for two games, you can rent games for just about every console and you can purchase/keep the games for a discounted price, often cheaper than you can find elsewhere. The issue here is the slow turnaround time makes every rental that much more expensive and really makes it cheaper to rent from Redbox or a Blockbuster (if you can find one). So if Netflix can make it affordable, let’s say for an extra $10 a month, they will already start to pull gamers away from Gamefly simply for the lower price. Then again, it’s looking like you have to already have a single DVD mail service in order to get games, but if they allow you to add games independent of DVDs, than it makes Gamefly seem even more useless. With almost half of Netflix streaming coming from consoles, imagine if those subscribers could add video game rentals to their subscription, which would be a huge boost and loss for Gamefly.

A few issues are still on the table, but affect both Netflix and Gamefly, and that’s the issue of Online Passes. Having to pay extra or have a code to play online is becoming the norm, which will be a huge hurdle for both companies. But if Netflix could offer a used game store along with a “keep it” feature, the codes could come with the cases, thus slightly solving that issue.

The gaming industry’s fight against rentals and used games sales aside, Netflix has a really big chance here to either force Gamefly to be more competitive, or face becoming the next Blockbuster. If Netflix can provide more new releases to gamers with a fast turnaround time, and at a much affordable price, it will be tough for Gamefly to compete. Netflix has the money to heavily invest in games without having to worry about turning a profit. If they can learn from Gamefly and take what is working for them, combine that with the fast turnaround times and large inventory, there’s absolutely no reason Netflix shouldn’t be able to quickly become the industry leader in video game rentals.