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Netflix' Pix Beat Mortar and Bricks

By Arlene Weintraub Who hasn't buried a video under the TV Guide and forgotten to return it before the late fees began a-risin'? And now that home-movie viewers have DVDs filled with extras like documentaries about the making of the films they watch, the temptation not to return a rental within the stipulated period is growing. But they can't expect sympathy from the teenager running the local Blockbuster or Hollywood Video: Miss the deadline and, ka-ching, it's the penalty box for you, pal.

So what are you going to do about it? That's where online DVD-rental service comes in. With the help of the Internet and the U.S. Postal Service, it's offering an alternate, and amazingly easy, way to rent DVDs. For a flat monthly fee, you get as many DVDs as you want and keep them for as long as you want. When you return one or all of them, the next selections on your list are mailed out.

TITLES APLENTY. Consumers are responding: Netflix recently announced that it has passed the 500,000 paid-subscriber mark. Now Blockbuster is testing a similar program that would allow an unlimited number of rentals for a monthly fee. And with Netflix on the brink of going public, it reported a first-quarter loss of $4.5 million on revenue that topped $30 million, up 78% on the first quarter of 2001. In a nod to the more conservative IPO market, the offering came only after Netflix achieved positive operating cash flow -- and even then, it was downsized from its original target.

Netflix offers four tiers of service, ranging from $13.95 a month, which lets you have two DVDs out at a time, to $29.95 for five at once. You pick movies from the 11,500-title online catalog and save your selections in a personalized "rental queue." They send you the first movie on your list. When you finish it, just pop it in the postage-paid envelope Netflix sends with every movie and drop it in the mailbox. As soon as Netflix gets it, they send your next selection.

Here's the best part: no late fees. Ever. Just remember, you won't get the next ones on your list until you've returned your movies. It's a far less painful punishment than continually getting whacked with $4 Blockbuster charges. Think of it as a carrot, rather than a stick.

SMART SITE. Still, I was skeptical at first. After all, one of the benefits of the local video store is that you don't have to know what you want going in. With all the new releases neatly organized, you can hunt until something strikes your fancy. The thought of trying to browse Netflix's 11,500 DVD titles, especially with my sluggish dial-up Web connection, was not appealing.

Shortly after logging on, however, I was hooked. The more you use Netflix, the more like a video store it becomes -- but a store tailored to your tastes. After you see a movie, you can rate it by clicking on the stars that appear next to every movie's listing on the site, from one star if you hated it to up to five stars if you loved it.

The more you rate, the more Netflix learns what you like, delivering personalized recommendations every time you log on. No video store can do that: In most stores, movies are arranged within their genres -- comedies, new releases and the like -- in alphabetical order. When I joined Netflix to research this review, I rated about a dozen of my favorite movies. After I gave a thumbs-up to The Sixth Sense, the mystery thriller about a kid who "sees dead people," Netflix reminded me of the director's follow-up, Unbreakable, which I had not seen. With one click I added it to my queue.

MISSING LINK. Netflix does have a few drawbacks, though. When you order a movie that comes with a second DVD full of extras, Netflix doesn't automatically send the companion offering. At first, I didn't even realize Tom Hanks' Cast Away was a two-DVD set -- one disc has the movie, the other has several documentaries, a Charlie Rose interview of Tom Hanks, and an amusing featurette on Wilson, the volleyball that has a starring role in the film.

I would have completely missed all that had I not scrolled down into the synopsis of Cast Away on Netflix's site and seen this warning: "Please note that this disc contains the movie only. If you'd like to see the bonus material, please rent Cast Away: Bonus Disc." Oddly enough, I had to go back to the home page's search engine to find the extra DVD. It would have saved me all that extra effort if the listing for the movie had included a link so that I could add the bonus disc right into my queue.

Another flaw is that Netflix's customer service is a bit lax. When my copy of Meet the Parents vanished en route, I went to the "My Account" page on the site and reported it by clicking on a special link Netflix provides for lost-in-the-mail alerts. Nothing happened. A week later I had to dig around on the site to find a customer-service e-mail address (there is no phone access). Within hours of getting my e-mail, Netflix sent a replacement copy at no charge, which was great. But the folks at Netflix could make customers like me a lot happier if they put a "lost in the mail" link on the home page, including a direct connection to customer service.

BLOCKBUSTER, TOO. Nevertheless, Netflix's advantages outweigh its shortcomings -- and put it ahead of the inevitable copycats that have popped up on the Web. I sampled two of the biggest: and Both had subscription plans similar to those of Netflix, but neither boasted as big a selection nor as elegant and useful a site. Meanwhile, Blockbuster's plan to test a Netflix-like service is shaping up as more expensive: The chain plans to charge $24.99 a month for three movies (video or DVD) at once. Unlike Netflix, it will still charge late-return fees if you keep a movie longer than 30 days.

The key question about Netflix: Does it offer enough advantages over your neighborhood video store to justify the monthly subscription fee? If you rent more than four DVDs per month -- or if you rent more than two DVDs per month and are punctuality-challenged when it comes to returning them -- go for it. Without the burden of late fees, you're sure to enjoy the show. Weintraub covers technology for BusinessWeek in Los Angeles

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