They have created a customized storefront for each subscriber. Though these stores, subscribers can rate titles, which will generate recommendation of titles for them to rent. They feel through these recommendations and service, It strengthens the relationship and maintains a high level of utilization from the consumer. They encourage frequent communication and feedback from their customers to continually improve service. Nettling also launched two social networks for subscribers. One is Friends; this program allows subscribers to share movie ratings and recommendations.

The other program is Profiles; this program allows subscribers to set up sub-accounts for spouses and children. * An effective marketing program is another advantage for Nettling, Inc. They use various marketing programs such as online promotions, television advertising, package inserts and other promotions with third parties. Nettling advertises their service through many different avenues. They believe that their efforts are helped by word of mouth advertising, referrals and public relations programs. * The last advantages would be the convenience, selection and fast delivery of their DVD’s. Nettling stocks more than 35,000 titles.

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They have no due dates, late fees or shipping charges for their fixed monthly fee. They ship and receive Davys from 30 shipping centers In the united States. They believe that their fast delivery time will result In new subscribers, retaining their customers and helping with customer satisfaction. The advantages that they have over the traditional bricks-and-mortar video rental outlets are based on Nettling, Inc. ‘s title selection. Convenience and price. Nettling, Inc. Comprehensive library does not compete with the traditional brick-and-mortar inventory. Most of the rental outlets impose a late fee on their rentals; Nettling, Inc. Goes not. This should put Nettling with a stronger advantage over these types of rental outlets. The advantages that Nettling, Inc. Has over the web based services offered through downloading of movies over the Internet are customer satisfaction, personalized libraries and selection of titles. Nettling has placed themselves at an advantage with the personalized libraries that are offered through on-line services. With this service, subscribers can have personal ratings, recommendations and preferences set up for OFF Torture use when looking tong ten comprehensive Diary. I Nils service also improves customer satisfaction.

This should also put Nettling, Inc. At a stronger advantage over the web-based services. 2. The sustainability of Nineteen’s current sources of competitive advantages in the movie rental business is a complicated question. This case was based in 2005; we are now in 2011 and are able to see where the future is going. But based on the information in the case and in the 10-KS, I believe Nineteen’s will be able to sustain their edge over their competitors in most areas. The first advantage, comprehensive library, they will continue to have the edge over the traditional brick- and-mortar rental outlets.

There is no way that the traditional rental outlets will be able to carry the number of titles to compete with Nettling, Inc. The competition from the web-based services will give them some problems. With the rapid growth of personal computers and increased technology, downloading movies through the Internet will give them a run for their money. Consumers will need to get comfortable with new technology and the ability they will have through their own amputees and televisions, once this happens, Nettling will most likely not have the edge in this area. The second advantage, customer service and satisfaction, will continue to be a competitive advantage over both brick-and-mortar and web based services. Nineteen’s will continue to sharpen their services and produce new and improved programs for their consumers. This will be an advantage over the brick- and-mortar due to the availability of items and services. The advantage they will continue to have over the web based services will be the ability to personalize their braises and offering the tools to effectively sort through the titles of the huge number of selections. The third advantage, marketing programs, will still be an advantage over the brick-and mortar rental outlets. But, I would foresee the web- based services making it very difficult for Nineteen’s to sustain their level of business. It is much easier for Nineteen’s to advertise in a much larger scale then the traditional rental outlets but the web based services will make it difficult for Nettling to maintain their customers and have continual growth. * The fourth advantage, convenience, election and price, will still be sustainable over the traditional brick-and-mortar outlets but will be difficult to sustain over the web based services.

Web based services will also provide the convenience, selection and price that could decrease Nineteen’s growth. The one advantage that web based services has over Nineteen’s would be no returns are necessary. This alone could make it difficult for Nineteen’s to compete with web based services in the future. 3. Nettling, Inc. Amortizes the cost of its entire DVD library, including the capitalized portion of the initial fixed license fee, on a “sum of the months” accelerated basis ever one year.

Based on their periodic evaluation of both new releases and back- catalogue utilization, they determined that back catalogue titles had a longer life than previously believed. Nineteen’s then changed from one year useful life to a three year life for back catalogue titles. This changed their revenues and their net income for the year ending December 31 , 2004. Blockbuster Inc. Amortizes tenet rental Diary, Down In-store Ana online, on an accelerated basis over a six-month period to an estimated $4 residual value.

Blockbuster provides other information relating to video games and VS. tapes but Nettling seems to deal with only DVD movies, so I will base my Justifications on comparing DVD movies. I do think the difference is Justified. I believe that Nettling can assume amortization over a year because their consumers have subscription plans and the return of DVD’s are higher than Blockbuster. Blockbuster does not have as strong of a connection to the consumer as Nineteen’s does. This could mean that Blockbuster could lose more of their inventory in a shorten time period. 4.

If Nettling, Inc. Decided to expense all cost associated with its DVD library as they ere incurred, it would change the operating income for the year. Take the Operating Income for the year ended December 31, 2004 and adjust the prepaid expenses and the accrued expenses reported for that year and you will have their operating income for that change. Operating Income $ 19354 Prepaid Expense and other current assets. (9,130) Accrued Expenses Total Income after changes 1,506 $11,730 5. Nineteen’s provision for income taxes in fiscal year 2004 is so small for two reasons.

The first is management established a valuation allowance for all deferred tax assets s future realization is uncertain given the history of losses through the first quarter of 2003, limited profitable quarters to date and the competitive industry of online DVD rentals. Second, Nettling had a net operating loss carry forward for federal and California income tax purposes. This reduced future income subject to income taxes. 6. To calculate the rental library turnover ratio for Nettling, Inc. , you would take the beginning inventory and the ending inventory and divide by 2 to get the average inventory.