Yahoo + Netflix = LOVE

By Davis Freeberg

Just in time for Valentines day, Yahoo is hinting that they might be willing to subsidize Netflix subscribers if you would be willing to use their search engine instead of their competitors.

In a test marketing survey that went out to 5% of their Yahoo Mail users, they asked what it would take for you to make them your primary search engine. They listed several interesting rewards, but the one I liked best was an offer to receive 3 dvds from Netflix at $10.99 instead of $17.99.

This would be a very tempting proposition for me. On one hand, I love to save money, but on the other hand Google is pretty amazing. Personally, I think I would stick with Google, but it does cause people to stop and ask themselves if $7 is worth using Yahoo instead of Google.

Everybody has been focused on whether or not Amazon would enter the DVD rental market, but they may have missed a bigger threat. If Amazon doesn’t want to partner with Netflix, then why not allow Yahoo to contribute to the comoditization of the DVD. Yahoo has been evolving into a media company for some time now and a DVD distribution strategy would make a lot of sense for their business. It would increase traffic to their site and would tie more of their services into their customers’ everyday lives.

While this could be great news for Netflix, it could be a terrible blow to the video store industry. With their heavy debt loads, high fixed costs and old economy management, there is no way that they will be nimble enough to cut prices that low. With both Movie Gallery and Blockbuster having significant debt problems and with $8 billion in revenue at stake, Netflix continues to treat the rental industry like a video store pinata. When the video store industry finally does collapse there is certain to be a mad scramble for the candy that falls out. With many competitors certain to emerge, I’d want to be one still holding the bat.