Aside from all the dilution and bills past due, I believe this company has a fundamental problem at its core business model.
Let's forget the Flix part for a second and just focus on the Gamez. Let's say a company wants to rent games without late fees and starts out with 10,000 subscribers to their service. Game Company A releases the sequel to the best-selling shoot'em up game of all time.
With a little member demographic analysis the Gamez Rental company can determine that 20% of their members will want to "rent" this game. A little more demographic analysis tells the Gamez Rental company that average rental times for their members is 45 days per game. So there's the huge problem. How many games does Gamez Rental company order to keep a majority of their customers happy and not going elsewhere? Most games are still in the price range of $50 retail and even at cost are most likely $35. Do you buy 2,000 titles at $35? That's a $70,000 risk on the title. And we all know the big blockbuster that everybody has right now will quickly be replaced by the next big blockbuster.
So, if you're the one in charge at the Gamez Company making these decisions, you'll need to be right what percentage of time? 50% right loses $35,000 per title in the example above; 90% rights loses $7,000. And if you order on the low side and your interest projections are wrong, you can potentially upset every sub that you have. And the more sub numbers grow, the trickier and more expensive this risk gets.
In the old rental world before DVDs, non big money flicks ran about $90 cost. A rental store would know that it needed about 30 rents a title to cover that cost or get some help from late fees. Big box office movies that ran for about $15 only needed 5 rents to start turning a profit, so they helped, too. At that time, games were still in the $50 range and people expected to pay a little more to rent them, so about 15 rents was all that was needed to start turning a profit, but the downside risk was small if you bought a stinker because only one or two copies per store was all you risked.
In a nutshell, this risk explains why Gamefly and others have such high monthly membership costs and why GZFX is such a bargain. And the only reason Netflix and the like have been able to come into being is with the cost of movie/DVD purchases being reduced to where they are today.
GZFX is playing with fire and has to hope that they have an ordering genius on their payroll in order to pull this thing off at the current subscription level structure or the costs of games needs to be reduced by at about 80%.
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