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Summary:

Netflix expects its DVD-by-mail business to peak in 2013, at which point its Watch Instantly streaming service will drive growth in the company. That’s the gist of a slideshow posted on the company’s jobs site detailing its plans and the competitive outlook for its streaming business.

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Netflix expects its DVD-by-mail business to peak in 2013, at which point it believes its Watch Instantly streaming service will be driving its growth. That’s the gist of a slideshow posted on the company’s jobs site that details its plans to transform itself into the leading streaming subscription service for TV shows and movies.

According to the Netflix Business Opportunity slideshow, the company sees streaming as a “huge potential market,” pointing to the 100 million households that have pay-TV subscriptions in the U.S. Netflix had 14 million subscribers by the end of the first quarter, a number it expects will rise to 17 million by the end of the year. And it believes that as both it and the Internet improve, it can boost that figure even more.

“To have profitable growth in such a huge market, you find a segment in which you can gain and maintain leadership,” the slideshow says. “Netflix [sic] segment is consumer-paid streaming of movies and TV shows.”

With greater adoption of streaming video, Netflix says it can put more money toward building the catalog of content available through its Watch Instantly service. Its cost of goods sold in 2009 was $1.4 billion, of which more than half was spent on postage and handling. But as the company’s DVD-by-mail business peaks — which it expects to happen around 2013 — Netflix will be able to spend more money on licensing content. By 2020, if it can continue to aggressively grow its subscriber base, it expects to be one of the world’s largest licensors of movies and TV shows.

The goal, it says, is to “have content so broad, engaging and affordable that everyone subscribes to Netflix.”

All that said, Netflix has a detailed list of the competitive threats it faces in the online streaming business, which includes cable, satellite and IPTV providers that are bundling on-demand video services through TV Everywhere initiatives; cable programmers like HBO and Epix that could go straight to the consumer with their premium original content; Hulu, which is expected to launch subscription services any day now; and giants like Apple and Amazon, which could launch subscription services of their own.

The company also says it faces potential threats from piracy, $1 DVD rentals, ISPs increasing the price of their broadband services, high CPM-targeted advertising, very cheap pay-per-view services and content producers selling their content directly to consumers.

Despite all these competitive threats, Netflix believes it still has a winning value proposition for leading the subscription streaming business. But at the end of the day, the company boils down its success to one key messag: Its business depends primarily on keeping its customers happy. “It’s pretty simple,” the slideshow says. “If subscribers keep raving about Netflix, we will prosper.”

Related content on GigaOM Pro: Slow and Steady, Netflix Pulls Ahead in Streaming Video (subscription required)

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  1. Michael Chaney Thursday, May 27, 2010

    Not only does Netflix face competitive threats from direct TV programming offered by cable, satellite, and IPTV companies, but could also face network access blocking or throttling by those same companies that also offer broadband Internet service, and who Netflix hasn’t worked out a business agreement (a.k.a protection money).

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  2. [...] NewTeeVee) Bookmark [...]

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  3. Get me good content via streaming then I’ll actually care. Right now as it stands the online selection is absolutely awful. I am guessing Netflix will have a really hard time getting better content and at the same time keeping their prices low.

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  4. Streaming will be the future but I think most third party service providers will get cut off.
    And the actual content producers like Movie Studios will be selling streaming services etc themselves directly eother themselves or through the broadband service provider

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  5. gregorylent Friday, May 28, 2010

    where in the world does such bandwidth exist that streaming everything is possible?

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  6. Netflix’s “one size fits all” model isn’t going to last. They either become an aggregator of channels, and sell them in different packages (like cable does today,) or the content producers will just bypass them. Hulu, YouTube, Amazon, iTunes all have platforms today, and HBO/Showtime/etc.. can make their own platform anytime they want. The challenge for Netflix is to NOT try to monopolize the platform, because IT history shows that this is (almost) always the looser.

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  7. [...] option only, but it’s clear that the popularity of their streaming service is skyrocketing. NewTeeVee directs our attention to slideshows at the Netflix job site that indicate Netflix believes their [...]

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  8. VelvetElvis Friday, May 28, 2010

    While I do agree that Netflix’s catalog of “Watch Instantly” movies needs to be improved — I am a big fan of the service and its quality.

    I’ve been a Netflix subscriber for about 2-3 years, and just recently (a month ago) upgraded my entertainment system with TiVo Premiere, through which I can access videos on Netflix and YouTube in addition to my digital cable channels.

    My “Watch Instantly” queue has almost as many movies as my “DVD only” queue. The threats they — and others who have made comments here — have identified surely are ones to be concerned about. I’d rather not ever have to get a physical DVD again, so I have high hopes that Netflix will continue to take steps to improve its catalog.

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  9. [...] NewTeeVee, Netflix crunches the numbers on the future of video rental and concludes that DVD-by-mail will [...]

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