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Commentary: Netflix continues to succeed with free content

Written by Rich Fiscus @ 19 Feb 2010 2:36 User comments (4)

Commentary: Netflix continues to succeed with free content

Nearly a third of all Netflix subscribers with broadband internet connections stream video to their TVs using the company's Watch Instantly service according to a new report from TDG.
That figure includes 24.6% who use both their computer and TV for Netflix streaming and 7.2% who watch exclusively on a TV. Another 30.7% only use their computer.

Even though the remaining 37.5% don't use the service at all, the majority are at least familiar with it.

The increasing number of viewers streaming video to TVs is a reflection of the company's long term thinking. In fact Netflix has taken a smart approach to the streaming business from the very beginning, when it was little more than a novelty.

Perhaps the most important detail of their strategy has been the understanding that some things are worth more when you give them away.

That's not to say streaming video has no value. But its value hasn't been in producing a unique revenue stream. Instead they've used it to promote their DVD by mail business and help them continue to increase their subscriber base.

The decision not to charge extra for streaming has allowed them to make other good decisions, such as avoiding overpriced content deals.

The number and variety of titles available initially through Watch Instantly was extremely limited. There were no big hit movies or TV shows when the service debuted in 2007.

Had they been charging extra to use the service that would probably have been the kiss of death. But they weren't. As a result, anything they offered was a bonus.

Some might argue that Netflix streaming isn't really free since you still need a subscription, but the price hasn't changed with the addition of Watch Instantly. In fact the limits on most lower priced plans were lifted last year. It would be hard to argue their plans would be any cheaper without it, which in practical terms makes it free.

Netflix has continually focused on deals that make sense financially. By avoiding prohibitively expensive hits and focusing on whatever titles are being offered at a more reasonable price they've been able to avoid accompanying price hikes that would surely drive away many customers.

All this free streaming has produced another, equally valuable commodity - viewers who want to stream movies to their televisions. And just as with the video itself, they understand this is a commodity which is more valuable when given away.

By working first with set-top vendor Roku, and later with more traditional consumer electronics vendors they made their subscriptions even more valuable. Eventually they even released an API so developers could create computer-based clients of their own.

Rather than complaining that others are making money from their product, they have continued to concentrate on growing their customer base, and at the same time retool their business for the future.

Eventually DVD and Blu-ray as viable products will go the way of the record album and video tape. Rather than making their service less valuable, this will simply shift the value to yet another commodity - the painless user experience of all the embedded Netflix hardware clients.

Even now, anything you can stream from Netflix is also be available for free from sources like P2P networks. What distinguishes Watch Instantly is that it's a better experience for the user, which is something people will pay for.

By embracing technology advances, and the economic realities that come with them, they've continued to expand existing revenue streams without sacrificing the future.

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4 user comments

119.2.2010 17:04

i bought the subscription just for the streaming and just queued all the athf dvds :P i use it in my living room with my elite and xbox live and in my bedroom on my pc with a second video card going to the tv. netflix is awesome but i still have to torrent new tv shows.
btw A+ good read.

This message has been edited since its posting. Latest edit was made on 19 Feb 2010 @ 5:05

219.2.2010 23:56

Netflix rules! I love them on my PS3, my PC. It works great. Sure it isn't alot of high priced new release stuff, bur some of the other content is really neat! As an huge fan of Law and Order: SVU you can get almost every season to watch! Any way, I love Netflix.....can't wait to see what happens when they begin streaming HD content!

320.2.2010 05:26

There is definitely something to be said for "minding your OWN business." It's nice that Netflix has decided to stick to focusing on expanding their DVD rental client base by adding value, rather than diversifying. Very smart.

427.2.2010 11:12

I've been living Cable TV free for one year now. All I pay is my $55 for high speed internet and my $12 Netflix subscription (Hulu is still free). I made an initial $500 investment to build a small Home Theater PC. That money has been covered by now with all I've saved over the past year. That's the way to go.

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