Of course the video game industry is profitable. Everyone knows that. Yes World of Warcraft may top $1 Billion in revenues. Hell, Halo 2 made near $150 million in one day!!
The thing to remember though is that GZFX and Netflix are not in the movie & video game business. They are in the RENTAL BUSINESS! That's a huge difference.
I'm not in the rental business so I don't know the actual costs for inventory, but let's just use some examples.
How much does it cost Netflix to purchase a movie for their inventory? Let's say the average cost is hypothetically $10.
Now how much does it cost for a video game on average. I have no idea given the mix of games & prices, but I'm sure it would have to be around $30-$40.
Now think about the profit margins of movies vs. games. With a price tag of 3-4 times more for inventory, average # of subs and sub prices being equal, a company renting just games needs to produce rentals/subs 3-4 times what a renter of movies would need just to generate the same amount of gross profit. Of course, gross profit in dollars is a fairly useless number without computing the gross profit %.
Obviously this is simplified as GZFX has both games and movies, so their inventory costs/mix would not be the $30-$40 per unit. However, just do the math and you'll see why renting strictly movies is FAR more profitable than games & movies all things considered equal (sub #'s and avg. sub revenues per member).
You wonder why Netflix isn't interested in the game rental industry? Look at the profit margins compared to movies. It doesn't take a genius to figure it out. Until it becomes far more profitable to rent games than it currently is, Netflix isn't interested.
You wonder why they don't care about GZFX? Only 8-10k subs and heavy reliance on penny investors. Why should they care?
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