Netflix, the largest online DVD rental service, is opening a distribution center in Tempe to provide faster delivery of DVDs to its Valley subscribers. With the official opening today of the shipping center at 2727 W. Baseline Road the company will be able to mail DVD movies to area subscribers overnight instead of two to three days, said Chief Executive Reed Hastings.
Previously the company has served Valley customers from distribution centers in Dallas and Los Angeles. “Phoenix is one of our top 20 movie cities, so it has been on the list for better service,” he said. “Now we're happy to do it.”
The Tempe warehouse, which the company is leasing, was chosen because of its proximity to a post office, he said. The local center, which employs about a dozen people, is the 16th that Netflix has opened nationally and is part of an aggressive expansion to provide faster delivery of movies nationwide. The company plans to have 25 shipping centers open by the end of this year, Hastings said.
For a $20 a month fee, subscribers have access to about 13,000 DVD titles with no return deadlines or late fees. Subscribers can check out up to three DVDs at a time, but they have to return one in order to receive the next one.
Subscribers can order online at netflix.com, and the movies are mailed in a special package that contains a wrapper for returning the disc. The company stocks multiple copies of the most popular movies at its distribution centers to increase their availability. Netflix, which is based in Los Gatos, Calif., pioneered the online DVD rental business in 1999 and has by far the largest market share, Hastings said.
The company raised more than $100 million in venture capital in the late 1990s before the dot-com bubble burst and then went public in May 2002. The company's stock price plunged in October when Wal-Mart announced it would get into the online DVD rental business, falling to about $5 a share. The price has since recovered to more than $14 a share, almost its previous level.
Netflix also competes against Filmcaddy.com, a Mesa-based online DVD rental service backed by Blockbuster Video. The company is still not profitable by standard accounting rules, but it was cash-flow positive last year, Hastings said.
He did not predict when the company will become profitable, saying he is focused on rolling out additional shipping centers to bring more households within overnight delivery range. He added he's not losing a lot of sleep competing against the likes of Wal-Mart and Blockbuster. “That (overnight delivery) is our best competitive weapon,” he said. “We take them seriously, but we have a strategy.”
The company can serve about 40 percent of American households with overnight service, which will increase to about 60 percent by the end of this year, he said.