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Summary:

Nearly two-thirds of Netflix users that subscribe to broadband are now viewing the ‘Watch Instantly’ streaming video service and 8 percent view content exclusively on their TVs. I am among them and am convinced that Netflix has streaming video’s future figured out.

For Christmas this year, Liz Gannes, editor-at-large of NewTeeVee, keeping true to her affection for online video, gave me a subscription to Netflix. It came with an option to rent DVDs via mail and also stream videos directly over the Internet, either straight to my computer or to my big-screen television via a Samsung Blu-Ray DVD player. And boy, have I put that option to good use. In the past, I would typically use different hacks such as the Mac Mini plugged into the TV to watch some of these on-demand videos. Now, the easy integration of Netflix into the consumer electronics devices has made life a lot easier and simpler. Not to mention, there isn’t any cable clutter around my TV. I have been watching The Adventures of Sherlock Holmes, have caught up on Weeds and yes, I have also watched a couple of new films, though their names I don’t remember. In short, I am a prototype of Netflix’s future customer.

This claim can now be backed by data from The Diffusion Group, a Frisco, Texas-based research firm. It published a study today which points out that nearly “two-thirds of Netflix users that subscribe to a home broadband service are now viewing the ‘Watch Instantly’ streaming video service.” Furthermore, a third of broadband-enabled Netflix subscribers are watching this streaming video “exclusively only on their PCs, 8% view the content exclusively on their TVs, and 24% use both their PCs and TVs.” That’s matches pretty well with my experience and proves what Netflix CEO Reed Hastings told the audience of NewTeeVee Live last year: Netflix is the killer app for broadband.

I cut the cord more than three years ago, when we decided to launch NewTeeVee. Lately, it has become fashionable to cut the cable, so to speak. Instead of spending a hundred-odd dollars on cable TV, more and more people are using Hulu and on-demand video services such as Apple TV and Netflix to get their video fix.

That said, it still isn’t a mainstream activity and it won’t be for a while due to the complexity involved with such set-ups. Which is why I think Netflix is going to play a crucial role in establishing a new video consumption habit. Michael Greeson, TDG founding partner and director of research, in a press release lists some reasons as to why Netflix is tasting success with its service, among them:

  • Netflix built a sizeable base of loyal service subscribers prior to launching its streaming service.
  • These subscribers had already demonstrated an ability to think beyond traditional content distribution schemes (e.g., renting a DVD at the local video store). In other words, they were predisposed to try novel, unproven methods of video delivery (in this case, online DVD rental).
  • Netflix was able to establish proof of concept by delivering streaming video to the PC before it tackled the more costly and uncertain issue of TV delivery (a market space littered with the corpses of well-intentioned efforts).
  • Though initially dependent upon a dedicated set-top box (Roku), Netflix moved aggressively to embed its streaming solution in a wide array of traditional CE platforms, thus reducing (if not eliminating) the consumer risk associated with trying an unfamiliar and unproven delivery scheme.

Such devices, plus the old-fashioned DVD-via-mail service, are helping to train consumers to embark on a new way of consuming video. And that strategy is working. The company said that 48 percent of its subscribers streamed content in the fourth quarter of 2009 vs. 41 percent in the third quarter and 28 percent in the fourth quarter of 2008. As a result, it expects to become one of largest studio/network customers.

I think of all the points made by Greeson, No. 1 and No. 4 are the primary drivers of Netflix’s streaming strategy. The service is embedded in most popular game machines, including Sony Playstation and Xbox, and more than a dozen televisions and DVD players. Several dozen TVs and other devices are going to follow soon. And that is what is going to help prevent Netflix from becoming the next Blockbuster, Redbox or whatever and in the process become the iPod of Streaming Video.

Related content on GigaOM Pro (sub req’d):

Connected Consumer Tuned In to TVs in Q4 (subscription required)

  1. ….iPod of streaming video ? or do you mean iTunes – albeit with a different biz model?

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    1. I think of it as iPod, you can think of it as iTunes. I think you and I are on the same page as far as their usability is concerned. I mean they had turned the act of watching video online dead simple. Their UI could use a facelift, but then it seems to be working.

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  2. Finally, HBO makes its content available online. I think people will switch between PC and TV unless TV experience will be significantly different. This is where 3D might come in and interrupt this convergence

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    1. I don’t think it is an either or. TV and PC would represent two different experiences and I think it is going to be interesting to see how it really shakes out. My view is that TV is about to get more interesting — in fact HBO on Cable would need to do some creative thinking about how to leverage that big screen in a more effective manner.

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  3. While I mostly agree with this article, several of my friends and I have had trouble cutting cable for two reasons – live sports and internet price gouging when you don’t have a cable subscription or a landline.

    I have my PC connected to my TV and it’s fantastic…I just wish Netflix would start streaming in HD as they already do with many other devices. It was nice to see that 5.1 sound is on their roadmap for this year.

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  4. We got a Roku for Christmas, and while I love it for its gadgety goodness, I’m disappointed in the Netflix TV interface. You have to add stuff to your queue from your computer, and finding Watch Instantly content even through the regular Netflix site is a real pain. The search and browse functions need a drastic overhaul.

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    1. Yeah, even Roku admits it needs a better user interface, and have said that they’re working on it. The current system just isn’t very intuitive. As for adding titles from your computer — not sure that’s going to change. I think it might be exclusive to Xbox 360 for now.

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  5. The Netflix + Xbox 360 experience is absolutely fantastic! I’ve got a huge library of movies, tv shows, documentaries, cartoons, etc. all easily accessible and instantly available, even in HD! It’s a better experience in than Comcast’s On Demand service, since the choices on Comcast are constantly rotating in and out, while almost everything on Netflix is there for good. For $9 a month (+ Xbox Live service which I have anyway), you can’t beat it. Oh, and you get 1 disc out at a time too… but tell me why when I dug up the disc we had out from behind the entertainment center back in September and found that it had been sent in January! I hadn’t watched it because there was so much good stuff available instantly!

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    1. ditto – xbox360 and netflix is amazing – my boys are so used to watching video on a laptop screen (13 and 15 inch macbooks) that it’s like endless access – they can bring the xbox around the house to stream shows and movies into the tv set or simply take the laptops around and watch stuff, all on demand…recently changed my netflix from 3dvd’s and unlimited streaming to 1dvd and streaming because we watch so few physical dvd’s – and in the odd event that we want one, like once a month when netflix is ‘in the mail’ (because it’s so fast), then we hit the local redbox for a buck and get a movie, which still means i can rent like 5 or more physical dvd’s and thousands and thousands of on demand streams across multiple screens and devices for abotu 10 bucks a month – blows the cover off the cable model

      now, i just need sezMi in boston because fios will ensure its awesomeness…at which point i’ll be paying about 30 bucks a month for ten times the content volume of cable at about 1/2 or or 1/3 the price…

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  6. Netflix is missing all the new programming you can find on cable plus sports, news, etc.

    I really don’t see how you can compare it to cable at all. IT’s really a different beast.

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  7. I was over at relative’s house he was in the middle of watching one of those yet-another-mummy-movies. At first, I was about to accuse him of downloading a low-res VHS copy for his 50-inch TV. It turned out he was streaming it from Netflix through XBox.

    The quality was so low (with visible pixelization so awful I couldn’t pretend I see a clear picture even when standing across the room) that I immediately realized that not only I will not ditch cable for very long time, I would probably not going to be a big believer in online streaming for next few years.

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    1. Don’t write it off based on that one experience. The quality varies in real time based on how much bandwidth you have available. Also, older movies aren’t available in what Netflix calls “HD”.

      If you watch something new like “Food, Inc” on an average broadband connection, you will not be able to tell the difference it and a DVD of the same film.

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  8. I love Netflix on my $100 Blu-ray player!
    However, regarding “cutting the cord,” if you get broadband through cable, then you will have to give up a multi-service discount to drop TV. In the case of Comcast, that discount is ~$15, but the lowest plan is only ~$19. So, you can effectively get a bunch of SD channels for the bargain price of $4/mo, which is hard to justify giving up for a little local news and “on-the-spot” late night shows now and again.

    However, since I did that, I was strongly craving motocross in HD, and the only real option is a bunch of upgrades to get Speed HD. Too bad I can not get decent video coverage of my favorite sport online, but that is the world we live in with exclusive coverage and broadcast rights.

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