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Notice anything different when you went to Netflix (s NFLX) today? If you logged on and were greeted with titles available through its “Watch Instantly” streaming video service, you weren’t alone — the company just switched up the order of its tabs to point users to its streaming titles first and foremost.
On the official Netflix blog, the company acknowledges the switch, calling it a “slight change…to highlight movies and TV episodes you can watch instantly on your TV or computer.” But that description downplays the strategic significance of the move, which could help reposition the company as a streaming video provider rather than a subscription DVD rental service.
From a strategic standpoint, the decision to point users to the streaming service makes sense. Consumers are gradually moving away from physical media toward to the convenience of on-demand availability. For Netflix, that means more customers steaming as opposed to waiting for DVDs to show up by mail. According to a recent study, 62 percent of Netflix subscribers had tried out the “Watch Instantly” service, and more than half — 54 percent — stream Netflix titles at least once a month.
That’s due in part to the proliferation of ways they can view the Netflix “Watch Instantly” service on the TV, among them the Xbox 360 and PlayStation 3 gaming consoles, the Roku player, TiVo, and connected Blu-ray players and TVs from consumer electronics manufacturers like LG Electronics, Samsung, Sony and Insignia.
From a financial standpoint, the push behind its streaming model makes sense as well. At NewTeeVee Live last month, Netflix CEO Reed Hastings said the company spends about $600 million a year on postage for its mail-order business, a figure he expects to grow to $700 million in 2010. But the cost of streaming a video title is much cheaper than shipping by mail — about 5 cents a gig for bandwidth — or about a nickel per movie — according to Hastings.
Netflix will no doubt continue to operate both its streaming and DVD-by-mail businesses simultaneously — but by making its “Watch Instantly” service the first thing its subscribers see, it’s clear that it sees streaming as its future.