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Netflix: The Future Is Streaming

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Netflix (s NFLX) 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 (s AAPL) and Amazon (s AMZN), 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)

33 Responses to “Netflix: The Future Is Streaming”

  1. 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 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.


  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. VelvetElvis

    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.

  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. 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

  9. Guest

    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.

  10. Michael Chaney

    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).