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Netflix moving in on premium cable services

October 25, 2010 07.48 Europe/London By Robert Briel

Netflix’s offer of unlimited access to over 20,000 movies and TV programmes for a monthly $8.99 (€6.40) subscription fee could seriously hurt premium cable services. Recent figures from the US market show that Netflix represents more than 20% of downstream traffic during peak times and is heaviest between 20.00 and 22.00 – television’s prime time.

The company has just issued its third quarter results and in a statement the management is ecstatic about the results, “The third quarter of 2010 was another extraordinary quarter of growth for Netflix. On a year-over-year basis, our subscriber growth was 52%, our revenue growth was 31%, and EPS grew 35%. For Q4, we are forecasting, at the midpoint, subscriber growth of 58%, revenue growth of 33%, and EPS growth of 19%. In other words, we are forecasting even more subscriber growth in the fourth quarter.”

The statement goes on saying: “Driving these results is the strength of our consumer streaming offering. Three years ago we were a DVD-by-mail company that offered some streaming. We are very proud to announce that by every measure we are now a streaming company, which also offers DVD-by-mail. In Q4, we’ll spend more on streaming content than DVD content, and we’ll deliver many more hours of entertainment via streaming than on DVD. More impressively, a majority of our subs will watch more content streamed from Netflix than delivered by us on DVD.”

Netflix streaming video started out as a computer only service, but the past few months Netflix has been working hard to offer its streaming to a number of devices, which put the programming directly onto the subscriber’s TV set. These include TiVo, Apple TV, the Roku box and games consoles from Microsoft, and more recently Sony and Nintendo. The service is also available on Sony Bravia TV sets and Blu-ray players as well as on iPhones and iPads. An agreement with Google TV was also announced recently.

On the content side, Netflix has also signed some important new deals. The company added nearly 1,000 new titles from Paramount, MGM and Lionsgate for reportedly $900 million. Together with an existing Starz deal, Netflix can offer the complete theatrical output from Sony, Disney, Paramount, Lionsgate and MGM studios.

TV shows are also an important element in the content strategy. According to the company, TV shows are now viewed on Netflix for about the same number of hours as are movies.

At the moment, Netflix has around 15 million subscribers to their combined DVD-by-Mail and streaming services. However, the company is now looking at offering a streaming-only subscription with the DVD-by-Mail as an add-on. Netflix is currently experimenting with this model in Canada, where a streaming-only subscription costs just CAN$7.99 (€5.60) a month.

“The competitive landscape is continuing to evolve,” the Netflix management notices, “There are rumors of Amazon entering subscription; Hulu Plus is in beta; and TV Everywhere is getting more widely adopted. We’ve expanded our TV show selection and have become as strong in TV shows as we are in movies. Despite the competitive environment, our 52% subscriber growth last quarter continues to underscore the compelling nature of our offering.”

It is our take that with a streaming-only subscription offered at below $10 (€7.15) a month and a choice of over 20,000 titles, Netflix will become a formidable competitor to premium cable services, especially now that subscribers can stream the programmes directly to their TV set. The movie studios will find themselves in a devilish dilemma. On the one hand, they need services such as Netflix in order to compensate for dwindling DVD revenues – which are only partly offset by Blu-ray sales.

On the other hand, they are jeopardising their income from premium TV services. This also poses a threat to cable, IPTV and DTH operators, who stand to lose large parts of their premium subscription business as well as their VOD services.

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Filed Under: Cable, Connected TV, Editor's Choice, On Demand/VOD, Top Story Tagged With: Netflix Edited: 26 October 2010 11:34

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About Robert Briel

Arnhem-based Robert covers the Benelux, France, Germany, Austria and Switzerland as well as IPTV, web TV, connected TV and OTT. Email Robert at rbriel@broadbandtvnews.com.

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