Digital envelopes may cost Netflix

December 15, 2006 The cost of creating a digitally delivered movie service and competition from Blockbuster Inc. could depress shares of Netflix Inc. during the next year, according to a Bank of America analyst who advised clients Thursday to steer clear of Netflix stock. Pitz also noted that Netflix will spend 23% of its revenue this year in marketing, up from 18% in 2003, due in part to competition from Blockbuster, which is marketing its rival DVD-by-mail service at its stores and giving free movies to Netflix subscribers in an effort to woo them to Blockbuster Total Access. The analyst, while acknowledging that Netflix thus far has been adding subscribers at a healthier clip than many on Wall Street anticipated, expressed doubts that the company will reach its stated goal of 20 million subs sometime between 2010-2012.

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