Transforming the Movie Rental Business

From Local to Global

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On a recent trip to the local shopping district near my house, I noticed that a staple of the neighborhood--the local movie rental store--had closed. It wasn't a Blockbuster or a Hollywood Video, it was a true local shop with three locations in the Somerville and Cambridge area.

Instead of housing just the typical movie rental store fare, this store had an extensive collection of films by diverse directors, a vast foreign and independent film selection and a section of excellent staff picks. You could stop in to pick up the latest box office hit, but the store was really best suited for finding those hard-to-locate films appreciated by true movie buffs.

I often frequented the store, loving that I could rent at one location and return to another, and took advantage of their mid-week deals on renting multiple movies at once. The employees were always helpful in locating any movie requested and often suggested some great films to watch.

People posting to a local online forum cited high rents in the area as the reason for the store closing, but I suspect it has more to do with the lack of people renting at locally owned video stores.

Call me old-fashioned, but I loved dropping by after work and picking out something to watch that night, especially during our bleak Massachusetts winters.

Now I'm seeing a Netflix subscription in my future. It's not that I'm against the online movie rental giant--I even got my parents a subscription last year after their local movie rental store in New Hampshire closed--but I liked the character of my local video store, reading the backs of DVDs and debating with family and friends about which movies to rent.

Whatever my feelings about the company, it doesn't change the fact that Netflix (NFLX) has transformed the movie rental business with its online platform. In fact, it was featured in Cabot Market Letter just a few weeks ago, with Editor Michael Cintolo writing:

"The buzz about Netflix these days centers on the rumor that someone (Amazon is the most-mentioned possibility) might buy the DVD movie giant. But investors don't need to look for a takeover premium to see NFLX as a stock with high potential. The company revolutionized the movie rental business with its innovative system of mail delivery, and now it's working hard on making the transition to online delivery, offering free streaming movies as a supplement to its regular home delivery. Netflix won its first big battle years ago when it handed Blockbuster its head. With an unmatched catalog of movies to work with, and unparalleled data on customer preferences, there's every reason to think founder Reed Hastings can keep the company in the lead."

Shortly after that was written, Netflix reported that second-quarter earnings jumped 22% from a year earlier while its sales grew 21% and its subscriber base expanded by 26%. The stock has been basing between 43 and 44 for seven weeks, and while it's no longer a hot stock, we believe it still has great longer-term potential.

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I doubt you can squeeze anything investing-related out of the next section, but I want to share it with you anyway.

Earlier this week, I was reading the New York Times online and came across a short article detailing the dangerous nature of cows. No, this isn't the start to a really bad horror movie, apparently there are dangerous cows among us.

The Center for Disease Control and Prevention recently released a report stating that cows kill about 20 people a year in the United States. (I'm sure someone yelled, "Stop the presses!" when this enlightening statistic flew across their desk.) Apparently in some cases cows actually have attacked people, which is certainly no laughing matter, especially not for those 20 people who got killed by them.

But something about this article just struck me as strange. With all we have to worry about--H1N1 (swine) flu, a potential plague in China and countless other diseases--I thought the CDC would have something better to do than worry about a few hyper-aggressive cows.

It seems pretty silly to focus on a problem that killed a mere 20 people when an estimated 565,650 people died of cancer in 2008. I wonder how much of the CDC's resources went to the study of these mad cows ... I hope not a lot.

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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.

Cabot Wealth Advisory 8/10/09 - Trailing Indicators and Economic Recovery

On Monday, Paul Goodwin wrote about how to use trailing economic indicators and what they say about the economy. Paul also wrote about his father-in-law's refusal to diversify his buy-and-hold investment portfolio. Paul finished by writing about a very low-priced and low-volume stock that might just be the next big thing. Featured stock: Xinhua Sports and Entertainment Limited (XSEL).


Cabot Wealth Advisory 8/13/09 - Exciting Developments in Car Technologies

On Thursday, Brendan Coffey wrote about why we shouldn't be sentimental about depreciating assets, like cars. He also wrote about what the data gleaned from the Cash for Clunkers program so far is telling us. And Brendan finished by discussing new technologies in cars and one stock in particular that is doing well. Featured stock: Maxwell Technologies (MXWL).


Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Editor's Note: Cabot Stock of the Month Report selects the top stock each month from across the spectrum of Cabot's publications. It may be a Green stock, growth stock, value stock, emerging markets stock or momentum stock, but you can trust that it will always be the best for current market conditions, like these past picks: Intuitive Surgical: UP 500%, Broadvision: UP 670% and UP 1,290%. And Editor Timothy Lutts is using his decade of investment experience to navigate the market's volatile waters to bring subscribers the best stock each month. Don't miss his newest pick. Subscribe today!


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