Concept Arbitrage: Netflix

I wrote an article last October about Netflix being a ripe Concept Arbitrage opportunity for India. Netflix itself has been going gangbusters, with 2006 revenues charted to hit $1 Billion. A PwC study forecasts: “Online subscription rentals, including DVD-by-mail and broadband delivery services, will grow from virtually nothing in 2002 to $3.62 billion in 2010, compared with the then-estimated $6.18 billion in-store rental market. ”

Meanwhile, Netflix has sued Blockbuster. Does that mean, everyone else who copies the concept will get sued? Do their patents protect them internationally?

Which brings us to the company SeventyMM, an online DVD-rental service a-la Netflix in Bangalore, that hopes to hit a $100M+ revenue run rate in 5 years, by expanding into all the major metros in India. Ambitious goals, obviously, but let’s say they can get a subscriber base at an average of $40 / year. They need 2.5 Million subscribers to make that number.

India’s target is to have 20 Million broadband subscribers by 2010, and 40 Million high-speed Internet subscribers. DVD Players came in at 4 Million in 2005, likely to grow rampantly at about 25%, will be about 10 M units in 2010. The market LOVES movies, and video rental, so far, has been a less than satisfactory experience in the brick-and-mortar format. Aggressive target, but may happen.

It is not that they don’t have competition. Catchflix and Clixflix are two. They don’t have major funding yet, but as the trends catch on, I am sure they will. SeventyMM, of course, has already raised $2M from DFJ, and is looking to raise a larger round soon.

Glad to see this concept starting to gain traction in India. I have so many film buff friends in Kolkata who would love to be able to access all the foreign films that I constantly talk about …

Hope not too many companies will get funded though, as it always happens in Silicon Valley, when a good concept starts to gain traction.

All the VCs follow the trend, and inevitably crash the segment!

From that perspective, it is a good thing that the number of VCs playing in India is still reasonably limited.

This segment is a part in the series : Concept Arbitrage