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March 09, 2005

Spring DVD Cleaning

Sarah Lacy

I have one of those husbands who buys a new DVD every time he walks in Costco. He rarely watches any of them. In fact, most are still in plastic wrap. For some reason he just likes to possess them. While weird to me, it's apparently very common. Nearly 70% of DVD owners own at least a few DVDs and a good number own upwards of twenty or thirty. A new startup aims to help wives like me get all those unwatched DVDs out of the house.

Peerflix, of Menlo Park, just raised an undisclosed amount in venture capital from 3i and BV Capital. I think it's a smart deal. That's right. Bearish Old Deal Flow is actually high on an Internet deal. The company is like a cross between eBay and NetFlix, drawing on behavior patterns their customers have already widely adopted. And it manages to get at peer-to-peer movie sharing without violating copyright laws.

Here's how it works: You sign up and the company mails you a starter kit, including envelopes like the ones NetFlix uses. Then you make two lists: Movies you want to get rid of and movies you'd like to see. The site matches someone who wants Shrek 2 with someone who wants to get rid of it. That person may in turn get matched with someone different to get a copy of Bridget Jones Diary. So it's like everyone is a little video store. You get points when you give someone a movie, then the system uses those points when it gets you a movie. They are valued on how new or in demand the movie is. So copies of Better Off Dead from the $5.99 bin aren't valued the same as a new release.

The company makes $.99 on each trade. It has no inventory or distribution centers and all the matching is automated. Right now it only has eight employees and there are tens of thousands of movies trading on the site. That's a nice business model, assuming there's demand.

Will there be? If they can get the word out, I think so. At first blush this may sound like a gimmicky version of NetFlix, but the folks at Peerflix have thought through what distinguishes it. It helps clean out your stash of DVDs you never watch like eBay, but they make the shipping as easy as with NetFlix. And unlike eBay they have guarantees against fraud. And because you are bartering, you never have to return the movie if you love ita step beyond NetFlix's keep-it-as-long-as-you-like policy. You own it until you feel like trading again. And there's no limit on how many you can barter. With NetFlix you can only have a set amount of movies out at a time. With Peerflix, you can get rid of 20 DVDs and get 20 DVDs in a matter of days if you want, requisite buyers and sellers permitting.

The flip side of that is what might convince me: You can also trade as few as you want. Peerflix's pricing is per transaction, not a monthly fee. No more pressure to watch at least two movies a week to make the $14.95 monthly fee worthwhile. That's the only reason my husband and I put off getting a NetFlix-like subscription as long as we did. Between TiVo, rapidly approaching baseball season, and, oh yeah, LIVES, our time for entertainment is pretty over-booked.

Apparently, that resonated with other people too. Last summer they tested two pricing models: a monthly subscription of $5.95 with a free two week trial or $.99 per transaction with no free trial. "Overwhelmingly people were flocking to the pay per trade," says co-founder Billy McNair. It's a smart company that listens to its customers.

10:54 AM


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