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P2P DVD Exchange

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For the past couple of years, I've been mulling over an idea for a different kind of DVD "rental" company, similar in ways to the popular NetFlix. Now I have encountered a new company called Peerflix which is doing something similar. Is it annoying or vindicating to see somebody else run with something? :-)

So instead I will comment on Peerflix, which I am going to try out, and what I planned to do differently.

The rough idea is a movie network that doesn't own the movies. The members do. The members declare what disks they have that are available to go out (key in or scan UPC codes or just put disks in drives) and, just like netflix, they also browse the list of DVDs and pick what they would like to rent. For each disk you have out, you are entitled to one in (approximately), and somebody close to you, who has the disk you want, is told to mail it to you.

Once scaled up, it's faster than netflix (the disk is mailed to you directly from the last person to have it, rather than going through the warehouse) but mainly it's vastly cheaper. In theory it could even run for free, with postage and mailers being the only cost -- plus of course the initial disks you introduce into the system. Netflix 3-at-a-time is $216/year, the one at a time is $120 per year.

There are, however, a number of interesting problems to solve in doing this, and some special factors you may not know about Netflix.The system as I envisioned it truly had you renting your DVDs. What that meant was that after the DVD's rental life was over (or whenver you demanded it) your disk (or an identical copy) came back to you, to put back in the box you kept and sit in your collection. Part of the fees (in a non-free system) would go to insurance to make sure you got your disk back if you wanted it. This means that the DVDs you introduce into the system are ones you particularly wanted.

Peerflix isn't a rental system at all. Instead, it's more like a specialized eBay. You sell your existing DVDs for their Peerbux (2 to 3 peerbux for a typical movie) and you buy DVDs from other members with those peerbux. You can buy the peerbux for cash but they are vastly overpriced at about $9 each; you are much better off picking up used DVDs and selling them into the system. You own the disks you get, you can quit their system and keep those disks. You don't get your originals back ever though you can rent (really buy) some copy back if you want and others have them on the outgoing list.

Both approaches have merit. There are some legal benefits to the Peerflix approach because it can also do music CDs which can't legally be rented. (Thanks, RIAA.) Because it's to inefficient to mail around the DVD case and accompanying booklets, the Peerflix approach leaves the old owner with an empty box and the new owner without one. But I suspect this is fine most of the time.

Both systems need a reputation system to deal with people who don't perform well. Those who don't mail disks on time, or don't mail them at all. Those who damage disks. Those who pretend not to receive disks or are slow to report that they received them. Unfortunately when a disk is reported missing, you can't tell whether to blame the sender, recipient or the postal service, so both parties reputations must be dinged, which is unfair to one.

To improve the situtaiton, it might make sense to provide a small cheap label printer to customers to make the process of sending off disks as automatic as possible. Pick disk from menu to declare it available for sending, then when told to send it, it prints a mailing label (possibly with e-stamp style postage to get really automatic) and away it goes. For people who get mail pickup at their house it's very easy, or for people who have a very close mailbox or a mail slot where they work. For people who must make a special trip to send mail, reliability will be lower.

(It's reported that some forms of e-stamps include confirmation from the post office that the package was mailed. That could improve things a lot, making sure people put stuff in the mail, and knowing not to blame them for not mailing it -- unless it arrives empty or broken. Of course thieves on the receiving end could declare it arrived empty but not too often.)

If a service like this got very popular, it would be not uncommon to end up sending a disk to somebody very near -- perhaps somebody who works or lives on the same block. People could elect manual delivery to make this even cheaper. They could even meet neighbours, if they wanted. A good feature would be to declare multiple places you could receive the disk if you wanted this to happen -- ie. home or work.

Peerflix system of fixed peerbucks may be too simple. The value of disks varies a bit more than that. One could actually implement peerflix on top of ebay pretty easily, though I agree people would not want to sit around bidding on items -- it's too time consuming -- and would want to go entirely with a buy-it-now based on good market information. And of course, on eBay, you have the annoying trick many sellers pull of charging less for the item and charging ridiculous shipping. Or just charging ridiculous shipping.

Right now you can go to eBay and pick up just about any DVD used at a decent price, then sell it back when done for pretty much the same price. The shipping charges will ding you. And it would be a lot more work, at least today, than peerflix. eBay could build a streamlined DVD trading system using dollars instead of peerbux and take advantage of eBay's existing reputation system.

Eventually a DVD's demand-life fades, and far more people will be offering a disk than wanting it. When this happens with peerflix, you are stuck with the dead DVD. As demand drops, more and more people rent it to find nobody else wants to take it next, and thus they have fewer DVDs "out" to allow them to have the same number in. To fix this the user needs to buy a higher-demand DVD and put it into circulation. So there will be an annual cost to operate this above the postage and company fees. But almost surely less than netflix.

My own approach deals with this problem in a different way. When a DVD falls out of demand, it is the original owner who introduced the DVD who loses a slot. They can elect to take the DVD back for their collection (for free) or also leave it with the current holder until such time as somebody wants it again. By default, after a few months of non-demand, it would probably come back. Again, to be able to rent DVDs, you would need to buy new in-demand DVDs to put into the system.

In any case, you don't actually have to buy new DVDs. You can pick up used DVDs on eBay or other places, watch them and put them into the system.

Netflix has a special advantage here which is harder to adapt to. They have a special deal with the studios to buy just the disks (no boxes and booklets) for a much lower price, and destroy them when demand goes down. Thus their cost of inventory is much lower than a physical rental store. My approach relies on the fact that the original introducers of a DVD want it back to deal with their higher cost of acquisition -- they get something for it.

It's not impossible that a P2P system might cut the same deal, so that a person wanting a high-demand new release could elect to pay a reduced price to get just the disk. Then the company would bill them and mail them the disk, and they woudl watch it and put it in circulation. In fact, to stop this from being a cheap way to get DVDs during their hot demand period, the system could insist this DVD be reintroduced within a set period, breaking the "keep as long as you want" rule on just these disks.

I will report back on my Peerflix experience. What I have read reports some problems expected with startup (limitations on selection) and some longer term problems (trouble with people not mailing disks soon enough.)

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