Netflix Infuses Shifted Business Model with IT-Savvy COO

While the news may not have garnered the media attention associated with Netflix Inc. announcing it had shipped its one billionth DVD, a major management change likely reflects the evolution of the pioneer and its innovative video business model.

Without fanfare, and in a brief release, Netflix announced that Chief Operations Officer Bill Henderson is planning to become a strategic adviser to the company and that Vice President of IT Development Andy Rendich, an eight-year Netflix executive, has become interim head of operations. Henderson is expected to serve as a consultant to Netflix for at least the next two years.

"Andy was one of my stars, and I have total confidence in him running operations," said Henderson.

"Bill's unprecedented operational expertise as former postmaster general of the United States has contributed to Netflix's tremendous gains in automation and efficiency," said Netflix Founder, Chairman and CEO Reed Hastings. "We look forward to Bill's continued participation in the company's growth."

Those are high words of praise from a company whose business model, mailing subscribers DVDs they had selected, relied on mammoth understanding and use of the postal system. Netflix recently announced an option whereby subscribers can have their movies streamed to them over the Internet.

Blockbuster, which Netflix first went up against, found the company’s model alluring, and copied it last year.

Though the Blockbuster service has proven popular, Netflix’ loyal subscribers, who don’t have to deal with Blockbuster’s practice of assessing late fees, relatively short due dates (initially for the most popular rentals) and didn’t require a physical visit to a store, have stayed aboard, according to the company.

An increased focus on IT as a key driver in Netflix operations unit makes good sense, especially given the growing list of players acting on the download to rent and/or buy options using the Internet, instead of the postal service, for delivery.

“It seems pretty clear that Netflix has determined that the opportunities for online delivery are now hitting critical mass,” began Tom Nolle, president of CIMI Corp. “The entry of Blockbuster into the business and the fact that the latter can leverage their retail locations to reduce the time required to return and replace a DVD means Netflix has to move faster than even that, and without stores the online option is their best bet.”

Netflix sees an opportunity to benefit from the RBOCs and cable companies getting into a speed war that will facilitate downloading, Nolle said. “The key issues for them will be DRM for store to play multiplay contents (as the user can now play the DVD several times) and also insuring they can provide movies viewable on TV but delivered to a computer.”

Netflix is the world's largest online movie rental service, providing more than six million subscribers access to more than 70,000 DVD titles. The company offers a variety of subscription plans, starting at $4.99 a month. There are no due dates, no late fees and no shipping fees.

DVDs are delivered from regional shipping centers located throughout the United States. Netflix can reach more than 90 percent of its subscribers with generally one business-day delivery.

Netflix Inc. www.netflix.com

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