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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).

  2. Netflix: DVD Biz to Peak in 2013 | Inside Redbox Thursday, May 27, 2010

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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.

  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

  5. gregorylent Friday, May 28, 2010

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

  6. Netflix – The Future Is Streaming – Should We Dump Our DVD & Blu-ray Players? | The Blade by Ron Schenone, MVP Friday, May 28, 2010

    [...] Source [...]

  7. 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.

  8. Netflix: Streaming The Future After 2013 – Though company still expects to rent DVDs until 2030 | FiberToTheWhatever Friday, May 28, 2010

    [...] 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 [...]

  9. 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.

  10. The Chutry Experiment » Friday Links: YouTube, Netflix, Kickstarter Friday, May 28, 2010

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

  11. Mike Halleen Friday, May 28, 2010

    The Watch Instantly product selection is entirely determined by Netflix’s deals with the studios.

    Content owners ultimately run this show, not the tech companies and not the resellers.

    More at…
    http://thehollywoodgeek.com/2010/05/28/will-google-tv-destroy-tv/

  12. ABC’s Potential Online Subscription Service — Who Wins and Who Loses Tuesday, June 1, 2010

    [...] native broadband services on multiple connected devices. However, Netflix has proven that you can build a pretty good business on streaming to multiple consumer electronics devices. ABC could really push the envelope here, but [...]

  13. The future of Netflix is in the hands of the studios « NoFilmSchool Thursday, June 3, 2010

    [...] NewTeeVee] Wait, people will still rent movies through the mail in 2029? [...]

  14. I have been subscribing to Netflix for two years now and I don’t find their streaming content all that lacking. Most of my favorite shows are there, though I do like to watch old shows like The Dick Van Dyke show and other classics.

    That said, I still enjoy 30 Rock, 24, and lots of other current shows and movies. My wife and I just watched Up last night on streaming.

    I’ve always thought Netflix was underpriced – I’d pay more money if they raised the price, and be happy to do it.

  15. the Library Channel » Blog Archive » Technology Tidbits Roundup, June 9 Thursday, June 10, 2010

    [...] Best Buy, for example, is experimenting with a download service, while Netflix ultimately sees a transition from its DVD service to a subscription service for streaming video over the Internet. Hulu, a website offering online access to content from major [...]

  16. Relativity Media Shuns HBO & Showtime for Netflix | Newsroom News Tuesday, July 6, 2010

    [...] similar deals with other studios. The company, which currently has some 14 million subscribers, recently posted a presentation on its jobs website that outlines its ambitions to become “one of the world’s largest [...]

  17. Relativity Media Shuns HBO & Showtime for Netflix Tuesday, July 6, 2010

    [...] similar deals with other studios. The company, which currently has some 14 million subscribers, recently posted a presentation on its jobs website that outlines its ambitions to become “one of the world’s largest [...]

  18. Netflix Could Lose Big In Postal Rate Hike Tuesday, July 6, 2010

    [...] rate increase comes as Netflix has been de-emphasizing its DVD business while growing its streaming catalog. It has spent the last several months striking deals with movie [...]

  19. Netflix Loses Big In Postage Increase Tuesday, July 6, 2010

    [...] rate increase comes as Netflix has been de-emphasizing its DVD business while growing its streaming catalog. It has spent the last several months striking deals with movie [...]

  20. Netflix Adds More Streaming Warner Bros. Content Thursday, July 15, 2010

    [...] has made no secret of the fact that its future is in streaming, and it has begun to de-emphasize its costly DVD-by-mail business in favor of its Watch Instantly [...]

  21. Netflix To Launch Canadian Streaming Service Monday, July 19, 2010

    [...] is betting big on streaming, with the expectation that its DVD-by-mail business will peak in 2013. To that end, Netflix has been making its streaming service available on a number of connected [...]

  22. The Real Cost of Netflix Streaming is the Movie, Not the Bandwidth Thursday, July 29, 2010

    [...] By Ryan Lawler Jul. 29, 2010, 8:29am No Comments       Everyone knows that Netflix’s future is in streaming, and as a result, the company is investing heavily in titles for its Watch Instantly service. But a [...]

  23. The Real Cost of Netflix Streaming is the Movie, Not the Bandwidth | Hector Alvarez Friday, July 30, 2010

    [...] Real Cost of Netflix Streaming is the Movie, Not the Bandwidth Everyone knows that Netflix’s future is in streaming, and as a result, the company is investing heavily in titles for its Watch Instantly service. But a [...]

  24. Look Out, Cable Guys — Netflix Is Gunning for You Tuesday, August 10, 2010

    [...] better streaming content is directly tied to Netflix’s ability to write large checks. Well now it’s writing those checks and becoming a formidable competitor both in the streaming space, and potentially against cable [...]

  25. Did Netflix Pay Too Much for Epix Content? Tuesday, August 10, 2010

    [...] It’s also worth pointing to Netflix’s most recent earnings call. Seeking Alpha quotes Hastings saying that the DVD shipment growth has been “less than we thought,” adding: “So, that would imply the peak would be here earlier than we had thought.” In essence, this means that Netflix’ transition to a predominantly online operating service is coming quicker than even the company had anticipated. [...]

  26. Netflix Streaming Heads North, With Some Differences: Video « Wednesday, September 22, 2010

    [...] focus on streaming has also been instrumental in lowering customer acquisition costs and churn, and helping the [...]

  27. Next Up for Netflix: Android Phones and Tablets?: Video « Tuesday, September 28, 2010

    [...] wants to be on every consumer electronics device, and is working to get there. The company’s future is in streaming, and it expects to stream to more than 100 connected devices by the end of the year. But despite [...]

  28. I won’t pay more than 10 bucks a month—otherwise I will find other ways to get movies! forget 3 or 4 dollars a movie–pirates only!

  29. Randall S. Allen Wednesday, January 19, 2011

    Don’t limit your resources to save a buck, What are you going to do next to save a buck? layoff your employees or move your business overseas? I am so sick of american companies useing the economy as an excuse to squeeze in an extra buck into your own greedy pockets. I work for the Boeing company, believe me I know big business and they make me want to throw-up with thier lies and whinning about not making enough profit. Even your idea adds to the demize of this country. The best way to take care of this country is to take care of the people of this country, not to limit or dissolve thier benifits and thier jobs. the government should send the people a bail-out check so we can start over, that will instantly solve all money problems. Run for president with that as your platform and you’ll when or get assassinated.

  30. What about the truck drivers wow netfilx.. they will be lay off

  31. I realize that the world is moving forward with update technology; however, you will be leaving most older retirees and those families that live in the rural areas out of the loop. For a lot of us, we can still afford the 10 a month movies that we can watch in our own homes, since driving into town gets very costly these days. We also don’t have access to the technology that gets us fast internet service to watch movies instantly, though we are promised that we will in the future. That might not be in the next two years. Please try to keep part of your industry compassionate towards the rural and older folks in our country.

    I live in the country and have been a netflix user for the last 3 years years and my husband and I enjoy getting a movie through the mail at least twice a week. We may not have all the conveniences that you have in the cities; however, we can at least enjoy a movie once in a while.

  32. There are plenty of rural people, including myself that can only afford dial up. Dial up or mediocre wireless ISPs like AT&T cannot stream video effectively either in many rural areas. We country people prefer DVDs. Let’s face it. Renting was cheaper than buying the DVD outright. The future may be streaming but the poor will be left out when they can’t afford Broadband, Satellite or cable.
    Thank God I still have my antennae and digital TV…but I only get three channels.

  33. To quote the article above, “But at the end of the day, the company boils down its success to one key message: 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.”…”

    As of January 19, 2011 at 6:03pm cst, the Netflix blog has over 4700 comments to a post that Jamie Odell (director of project management for Netflix) left about removal of the DVD queue in streaming media devices. An article that Yahoo.com posted on their main page about Netflix doing away with DVD rentals in the next two years has also helped to fuel the blogs comments. The majority of these comments are angry Netflix customers.

    As of this writing, Netflix has yet to address any of these comments or concerns that their customers (again over 4700 of them) are posting.

    Tell me AGAIN how Netflix is going to survive as they do not seem very interested in their customers “happiness” or satisfaction at this point and time.

    NRaley

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