7:16pm EDT, Thu Sep 2

Netflix Puts Faith in Online Video, Adds 700,000+ Subscribers

By: The Online Reporter
Publish Date: January 30, 2009

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- What Recession? - Soon: No Box Needed - Any Screen, Anywhere, No Extra Fee Netflix is proving to be more aptly named than anyone ever expected. The online video streaming and physical movie rental service is using the Net to drive professional content to users everywhere and is making large gains, expecting to reach nearly 11 million subscribers this quarter. While Netflix is still predominantly a DVD delivery service, its “Watch Instantly” offering is catching everyone’s attention, especially with its recent announcement of reaching more than 9 million users. Netflix is putting faith in streaming video over an Internet connection, but it’s also putting a lot of faith in the TV set. Netflix has made its way onto a variety of devices, from the Roku player to Blu-ray players to Microsoft’s Xbox 360 (gold membership required). Microsoft announced there were 17 million Xbox Live members as of this January, all potential customers. It will eventually be embedded in TVs. LG has also said it will build new TV sets that have access to Netflix embedded in them, which could be another nail in the coffin of its competition. Wedbush Morgan Securities analyst Michael Pachter told BusinessWeek that he expects 800,000 Xbox Live gold users were already Netflix subscribers when the service was added to the Xbox, and that 200,000 more subscribers and gold members are on their way. Users Up 26% Netflix has seemingly ignored the recession, reporting a big jump in subscribers for its movie-rental service last fall, to 9.39 million, a 26% increase from a year ago. Netflix also reported a 45% increase in net income for Q4 2008, $22.7 million from $15.7 million a year ago. For Q4 2008, Netflix saw its revenue climb 19% year over year to $359.6 million, and it also added more than 700,000 subscribers. It expects to reach 11 million subscribers in Q1 of 2009. Netflix attributes its growth to both its traditional DVD rentals and its Internet movie streaming options. The online streaming service is free with most subscriptions and has found its way to some very prominent devices. It currently offers more than 12,000 titles for streaming. “It’s very clear that streaming is energizing our growth,” Netflix chief executive Reed Hastings said on the company’s earnings call Monday. Hastings noted that DVD rentals still make up the bulk of Netflix revenue and he expects that market to grow until at least 2013. But he said the company would be working with studios and putting an emphasis on streaming deals. The surging numbers make Netflix very attractive when looking at the whole market, especially when looking at services that require branded boxes like Apple TV and Vudu. Ahead of the Game The Internet is the future of professional content and content delivery, and Netflix knows it. Content is becoming more available on more screens, whether it’s Hulu bringing TV to the monitor or YouTube finding its way to the TV, the market is quickly approaching an any- content, any-screen reality. Netflix is ahead in this market because it has a great product, great deals and was one of the first to really understand the market. People are spending more and more time in front of the PC and TV because of the content now available to them, and Netflix has forged an alliance of console makers and studios for its streaming services, while having a huge library of titles for physical rental. The chart on this page looks at its deals and the closest competition’s. CompanyConsolePriceDeals with:NetflixPC or MacVariesNBC Universal Xbox 360199Sony PicturesRoku Box99MGMTiVo BoxVaries20th Century FoxLG BD300 Network Blu-Ray player349CBS/ParamountSamsung BD P2500 or BD- P2550399ABC/DisneyWarner Bros.Lionsgate EntertainmentNew Line CinemaStarzVuduVudu Box299Lionsgate EntertainmentVudu Box XL999New Line CinemaVudu Box XL21299Paramount PicturesSony Pictures Entertainment20th Century FoxUniversal StudiosThe Walt Disney StudiosWB StudioBlockbusterMediaPoint player99Paramount PicturesMobile DevicesVariesSony Pictures EntertainmentMGMUniversal PicturesWB EntertainmentBuena Vista Pictures20th Century FoxKoch EntertainmentApple Apple TV229DisneyCBSNBC Universal News Corp.ViacomTime WarnerDiscoveryBBCAmazonAmazon TiVo onDemand 143.97Disney/ABCPixarCBSNBC Universal News Corp.ViacomDiscoveryBBCStarz EntertainmentThe Watch Instantly Gang Recap Netflix’s “Watch Instantly” feature has been picked up by some major players and is a list that any competitor would love to have. The model has almost become one where everyone wins. Netflix makes its money off subscription fees, hardware makers end up selling more hardware and customers get access to more titles. Here’s a recap of companies, products and dates important to the evolution of the service. — Initially the service gave one hour of streaming per dollar spent, so a $16.99 plan gave 17 hours of streaming media. — January 2008: Netflix removed the restriction on hours and extended the service to plans of about $9 and over. — October 2008: Starz Entertainment partnered with Netflix, boosting its Watch Instantly offerings to more than 12,000 movies and TV shows. — Online streaming started off with Windows PCs using Vista, but made its way to Mac computers, also in October 2008. — Netflix and TiVo announced a partnership in October and the streaming service went live on Series 3 and TiVo HD devices in December 2008. — November 19, 2008: Netflix launched its HD streaming options, and the service went live on the Xbox Live. — Samsung and LG previously announced Blu-ray players that support the service, but at the 2009 CES showed off new models expected to also contain this connectivity. — LG and Vizio have since announced plans to make the service available on some new TV sets this spring. The Future: Any Screen, Anywhere, One Flat Fee If Netflix has its way, the future of its streaming service and video in general will be any screen, anywhere at no extra charge. That last bit is the magic that probably made Netflix the amazing service that it is. The “no extra fee” merged an à-la-carte service with an all-you-can- eat buffet. Users with a $9 and up subscription to Netflix still get access to the over 100,000 movie titles for physical rental, but the chance to watch 12,000 titles instantly is purely a bonus. The free part of the deal can actually be more compelling than the rental service, because it can happen on the road or at the house of a friend who has an Xbox. At this point in the game, everyone else is playing catch-up. Blockbuster has announced a new deal with Sonic Solutions that could bring some heavy competition — if it works the way they’re hoping it does. Recent figures from Media Control GfK show that video-game sales reached $32 billion in 2008, beating out the $29 billion combined DVD and Blu-ray disc sales. If Netflix can jump onto another system, it could still keep its lead in spite of the Blockbuster deal. Nintendo’s Wii and Sony’s PlayStation 3 have both recently begun testing YouTube for Television, so they both obviously like Internet video on their systems. With Nintendo reporting this week that it has sold 44.96 million total Wiis worldwide and 4 million of those sold in the US in the past two months alone, that platform would be a great place for any online video service to jump on.