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DVDs, On Demand, Netflix & Streaming Video By the Numbers

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netflix-samsung.jpgA few weeks ago, I relegated my 6-year-old Sony DVD player to exclusive CD playback duties and replaced it with a new, network-enabled Samsung Blu-Ray DVD player, which includes access to Netflix’s (s NFLX) streaming service for that company’s subscribers. So I signed in and before you know it, I had wasted my entire weekend catching up on movies I had always planned to see, but had been too lazy to order as DVDs. With higher-speed Internet connections of over 20 Mbps, more network-enabled devices such as televisions and the availability of an increasingly larger online content library would essentially put DVDs and other physical media on the road to nowhere. And that’s a good thing, not just for Netflix but also for the movie industry.

More importantly, such speeds are going to turn Netflix into a core entertainment company of the 21st century. (I will be chatting with Reed Hastings, CEO of Netflix, at our upcoming NewTeeVee Live conference on Nov. 12th. You won’t want to miss it; get your tickets today!)

Thanks to a 50 Mbps connection, I watch movies without any stutter or loss of quality. Sometimes I even forget that I’m not watching a DVD. Apparently I’m not the only one who feels that way. Yesterday, Netflix reported its third-quarter 2009 results and offered up some statistics that showed the number of people watching video-on-demand via Netflix is on the rise.

In the third quarter of 2008, some 22 percent of Netflix subscribers streamed a TV episode or movie, for at least 15 minutes, the company said. A year later, that number had risen to nearly 42 percent. “When you consider there our sub base is 28 percent larger than a year ago, this means that the raw count of subscribers engaged in streaming has more than doubled over the last year,” Hastings told a group of Wall Street analysts. Netflix is also partnering with an undisclosed gaming device maker with a substantial installed base to grow its streaming service even more.

These are other signs of behavior changes among consumers, changes that will take hold over the next three years. Earlier this week, Cisco released a study which showed that prime time on the Internet was from 9 pm to 1 am. The same study also pointed out that we were all collectively watching more and more video. This is both good and bad news for the cable industry and the movie studios.

For cable broadband providers, streaming video, as Hastings rightfully pointed out, is “the killer app driving adoption of high-end broadband packages.” More importantly it is good business — since it has no content costs, it has huge gross margins and it allows them to use their transmission spectrum more efficiently than sending out video channels. Fiber broadband providers should be viewing it as a way to goose demand for their high-end packages.

Cable’s video business divisions are not so fond of companies such as Netflix, mostly because they largely alleviate the need for consumers to order premium and on-demand content. Those poor cable guys — in addition to the pressure streaming is going to continue to put on them, they’re facing competition from low-cost DVD rental outfits such as Redbox.

Redbox rents DVDs via kiosks in high-traffic retail locations such as Wal-Mart and Albertsons for about $1 a day. The cable companies’ video-on-demand offerings, by comparison, costs $5 for a movie that’s only available for a 24-hour window. Furthermore, some chains are offering free rentals to customers that spend a certain amount of money. (Related GigaOM Pro Analysis, sub required: Redbox Success Means Netflix Should Consider Kiosks.)

Taken together, these things should be good for the content industry, but instead the movie studios are still looking for ways to squeeze every last bit out of the DVD. According to Hastings, the studios are working on a new “short sales-only window that would be a benefit to DVD sales and therefore to the health of the DVD ecosystem.” Hastings also noted on the call that he’s less dependent on getting the latest DVDs as quickly as possible in order to grow his business than, say, some of his competitors such as Blockbuster and RedBox.

Nevertheless, for the movie studios the writing is on the wall; they have very little time to diddle about. Just look at this growing list of devices that support streaming videos.The more they support streaming, the more they make it possible for people like me to consume movies more often than say buying a DVD or even renting one from RedBox.

Meanwhile, I’m looking forward to the weekend and watching the Season 5 of “The Wire” thanks to Netflix.

10 Responses to “DVDs, On Demand, Netflix & Streaming Video By the Numbers”

  1. Netflix instant watch content is a really nice service (a few good items on Hulu as well), but you run out of good content fairly quickly. Most of the best stuff is still on DVD and, per your article, that’s probably the way the studios want it. The numbers have got to work out for them and the time it takes to receive a DVD in the mail and/or the effort to go to the rental store/kiosk are inhibitors to high volume use on monthly subscriptions. Unlimited streaming for a monthly fee doesn’t have those built in limiters, so if the world goes that way, seems like it’s either going to either be expensive or they will want to put caps on volume or studios will have to make less money. hmmm… wonder which path they’ll choose?

    • True, I have been streaming Netflix content to my TV using the Roku player for about a year now and I ran out of good content very quickly. It took me about a month and a half to be done with their “good” movies and tv series. I thought the tie up with starz play would be good but that has been a disappointment more than anything. I have read elsewhere that, in future, Netflix will have a tough time acquiring digital rights from content owners. If that is infact the case, then I am not sure how netflix will succeed going forward.

      On the contrary, my roku box interfaces with amazon VOD content which has lot more content than netflix, although each movie costs atleast $3.

  2. Netflix nearing a no physical media in postal mail ( plus no STB ), Slacker abandons its dedicated hardware, TomTom and other GPS morphing into iPhone apps only…

    Is it just me, or does everyone hate single purpose, proprietary hardware as much as I do?


    • Todd

      I think people hate expensive single purprose hardware and that is becoming increasingly obvious. I think in the end we will see the emergence of a non-pc pc that is about entertainment and lifestyle usage.

  3. Anonymous

    I love Netflix streaming. I joined Netflix for this service alone.

    You can already stream Netflix movies using Xbox 360. That is a killer application in my view for that game console but Xbox does not support Blue Ray player. PS3 does not support Netflix streaming. If PS3 did, I would have bought that instead of buying a Samsung Blue Ray player.

      • CyKiller

        Hey Om, I got a feeling that you had something up your sleeve with that information. That next system is indeed the PS3 and not the Wii, it will be here very soon. Sony was smart enough to monetize off of a great platform with some revolutionary hardware for the mainstream buyers and newcomers.

        Anyways, you knew it all along, hehe – admit it.

        Cy, good to see this good article and your comments, take care – its been a while.

    • Same here. My streaming device is my TiVo and streaming was the reason I signed up for Netflix. It has been nice to see the content continuing to expand so I’m actually hopeful that the rights holders are recognizing this as a opportunity and not a threat. My “man this service is great” moment was when Lost got added as streamable content.