Movies by mail -- for the masses

Jud and Julie Hogan like to race each other to the mailbox to see if the mailman has left another red envelope. Each contains a little present the couple ordered online -- a DVD of a film they’ve just heard about or always wanted to see but couldn’t find. For $19.95 a month, the mailman brings them as many as they can watch.

Like many of their friends, the Hogans of Redondo Beach subscribe to Netflix, a relatively small online DVD delivery service that has inspired big-time competition and a devoted, almost cult-like, following.

As a financially strapped college student, Daniel Block, 26, was once forced to drop Netflix. But he says he signed up again first thing after he found a job and rented an apartment in West Los Angeles. When a friend signed up too, he was ecstatic. “Her first movies were delivered when I was there,” he says glowingly.

Better than advertising, this sort of word-of-mouth has helped the Los Gatos-based Netflix to grow in five years from zero to 1.5-million subscribers. Most are concentrated in urban and suburban areas, but there are also those in the nation’s remote outposts. “In King Salmon, Alaska, there are 100 registered households. Half of them are our members,” recounts Netflix founder Reed Hastings, 43.

Customers like the mail-in convenience, of course, and the Netflix library of 15,000 titles. But in an increasingly complex technological world, what many like most about Netflix is its simplicity -- and the ease of finding the small gems among the standard Hollywood products.

Hastings, who expects his subscriber base to reach 2.5 million this year, sees his company as the Starbucks of in-home movies. Not only did the coffee house chain develop an original idea, it also changed American tastes in the process. “They’ve evolved the whole culture’s appreciation of coffee,” he says.

By working with filmmakers and distributors directly, Netflix is expanding the market for small independent and foreign films, Hastings says. Last year, Netflix accounted for 30% of the rentals for the Oscar-nominated “Talk to Her,” he says. The Oscar-nominated “Daughter From Danang” was not going to be released on DVD until Netflix persuaded a small distributor to put it out last November, Hastings says. For a month, it was available on Netflix exclusively.

So far, though, Netflix’s membership is a drop in the bucket compared to Blockbuster, which has 48 million subscribers. But Netflix’s growing numbers are enough to inspire imitators and giant competitors like Wal-Mart and even Blockbuster itself, which recently announced it will launch its own version of a movies-by-mail service by the end of the year. Like Netflix, there will be a flat monthly fee and no late fees, according to a spokesman for Blockbuster.

Hastings doesn’t appear fazed by competition from the giants. He’s confident that ordering movies from home, whether through the mail or downloading on a computer, will become the norm relatively soon. Netflix’s small but devoted market tends to mirror Internet users, and includes not only young parents and young professionals, but also elderly shut-ins and students, Hastings says. More than half have been to college; slightly more than half are women.

Simplicity rules

Technologically challenged movie lovers can be easily intimidated by the new wave of fast-changing movie delivery systems, each with separate prices and market-driven windows of release dates. There’s video on demand (formerly known as pay per view) that comes through cable and movie downloads that come through the computer. Downloads can be hooked up to a TV set if the owners can figure it out. Not to mention the compatibility issue between cable and digital TV.

Naturally suspicious of change anyway, most consumers are particularly disconcerted by the prospect of buying something online they can’t touch or feel, says market analyst Gale Daikoku, research director at the San Jose-based Gartner/G2.

“It’s only going to get more complicated,” she says. “In the future, the person who makes it simplest to get it on my TV will probably win my dollars.” With Netflix, she says, “you plop it [the DVD] in, then you put it in the mail and it goes away.”

On netflix.com, members can search for more esoteric fare such as Japanese anime or Bollywood, along with Oscar winners, TV shows, favorite genres, actors or directors. Netflix will e-mail them with news of a new arrival they might like. Members place their orders on a queue. Depending on availability, Netflix sends out the movie on the top of the list when they mail back the last one; subscribers can have several DVDs out at one time. With Netflix, Daikoku says, consumers don’t have to search in vain, or stand in line at a video store; on the other hand, they never know which movies on their queue will arrive when.

With 23 warehouses around the country, Netflix offers one-day delivery to most of its members, Hastings says. But some Netflix subscribers complain that new and popular movies sometimes have long waiting lists and sometimes it takes more than a day or two for a DVD to arrive. By the time they get “The Sopranos,” for instance, they might be in the mood for “Howards End.”

Blockbuster’s research shows that customers usually rent a movie within 20 minutes of making their decision. Its online system will also allow for in-store returns so subscribers can still rent on the spur of the moment, a spokesman says.

Ordering by mail, however, allows movie lovers to broaden their horizons, seeing films they probably wouldn’t watch otherwise. At first, the Hogans, who refuse to watch commercial television, caught up on a backlog of their respective must-see movies, and then branched out.

Julie Hogan says she was thrilled to find Buster Keaton shorts on the Netflix website. She recalls going to the Unicorn, a small theater in La Jolla, as a child with her parents to see his silent films that played late at night. “My mom would wake us up in the middle of the night. My mom and dad and my sister would all sit on the floor on mattresses. I fell in love with him.” She had never been able to afford to buy the Buster Keaton shorts, or to find them in a rental store.

Many members have developed a special technique for arranging them online. Daniel Block currently has 74 movies in his queue.

“Usually, I keep the movies that are brand new up at the top,” he says. “When they run out, I rent older movies in the queue. Then if I get a TV series available (‘Alias’ or ‘The Sopranos’), I will rent those right in a row. Every week or so, I rearrange them, based on my mood.”

Netflix subscriber Brook Stein of Sunnyvale says he and his wife, Laurie, ordered some classics, but they quickly fell to the bottom of the list. “We put comedies and dramas in there to break things up. I like series, like ‘Band of Brothers.’ ” Scrolling through his current queue of 25, Stein says, “Toward the bottom, there’s ‘Nicholas Nickleby’ and then,” he pauses, “ ‘Darling Buds of May, Vol. I’ ... I guess my wife put that in there.”

Whose movie lands on top of the queue has become a matter of delicate marital negotiation, Julie Hogan says. “We’ll say you can put this at No. 1 if I can put this at No. 2.”

Brook Stein says he looks forward to the next red envelope in the mail. “It’s kind of cool to come home and see it in your mail, like you won something.”