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Thursday, June 9, 2011

Netflix Dominates Streaming Video Options

Since we last reported on Netflix less than a year ago, that company’s business model has changed somewhat. While they do still offer DVDs (and Blu-rays) through the mail, as they did from the start, they have followed the general trend by supplementing those offerings with an array of movies and television shows available for streaming via the Internet.

Successful Strategy
Adding the streaming option has paid off for Netflix in terms of adding subscribers. More than 7.7 million new accounts were created in 2010, bringing their subscriber base to more than 20 million.1 What’s more, that number is projected to increase to more than 50 million by 2013.2 Netflix now takes up more bandwidth in North America than any other source.3

Adding Content
Of course, the streaming service alone doesn’t draw subscribers. Viewers are looking for quality content, and not everything that is available through Netflix’s DVD delivery service is automatically available for streaming. However, Netflix is signing deals with various entertainment studios and TV networks for the rights to stream their programming. For instance, it was recently announced that Miramax films—including such contemporary classics as Pulp Fiction, Shakespeare in Love, and The Piano—will be available beginning this month.4 On the television front, they agreed in April with Fox to bring such popular shows as Glee and Ally McBeal to their subscribers.5 The Wonder Years is also listed as being part of that deal; if they succeed in adding that to their selection, it would be the only method to view the classic television show outside of syndication, as it has never been offered on DVD, despite clamor from its fans.

In some respects, though, Netflix is a victim of its own success. Premium cable channels such as HBO and Showtime see Netflix’s streaming service as a competitor, and thus withhold their programming.6 So don’t look for shows like Dexter (Showtime) or True Blood (HBO) to stream from Netflix anytime soon—although you can still get the DVDs delivered.

Competition on the Horizon
While some channels view Netflix as a competitor and others see them as a new outlet for syndication, there is no doubt that rivals will rise up to challenge Netflix’s dominance in the arena of streaming media. A number of well-known companies, including Wal-Mart, Best Buy, and Amazon, are considering subscription streaming services in addition to their current pay-per-view offerings.7 Still, with such a head start, it will be difficult for anyone to unseat Netflix from their lofty perch.

Expanding Into New Markets
Even if competitors do spring up to eat into Netflix’s subscriber base, Netflix is already looking to maintain its edge by expanding into markets outside the United States. They launched a streaming-only service in Canada in September of last year, and 8% of Canadian households have already signed up (by comparison, it took five years to reach that milestone in the U.S.).2 This is in spite of a more limited inventory than is available in the States as well as more aggressive bandwidth caps imposed by Canadian Internet service providers.8

Currently, Netflix is negotiating for rights to begin streaming some content in Latin America.9 If successful, that would become their third market. While nothing concrete has been announced beyond that, CEO Reed Hastings has hinted at possible locations such as Brazil, India, Australia, and Turkey.

What Does This Mean for Libraries?
In the report we cited in August, libraries were slightly outpacing Netflix for the number of DVDs loaned. While updated figures are not yet available, it stands to reason that, with their emphasis shifting from DVD to streaming media, Netflix has lost some ground to libraries in terms of physical DVD lending.

While the convenience of the streaming option may keep some patrons glued to their Internet, it is important to remember that the number of titles Netflix offers for streaming, while expanding, is still quite limited. Due to rights issues, most hot new titles just arriving on DVD from theaters will not be available for streaming. Additionally, some Netflix subscribers have been bemoaning that company’s recent neglect of older titles coming to DVD for the first time.10 Thus, by maintaining robust collections in these areas, libraries can continue to lure patrons by offering selections that viewers want to see but can’t find via other outlets.

Furthermore, streaming video at its highest quality is a technology-intensive venture. While it’s becoming more common, at this point many Americans simply don’t have the broadband capacity or the necessary equipment to enjoy streaming video without suffering a reduction in picture quality or occasional pauses for the services to buffer. On the flip side, 90 million American households do contain a DVD player (and 27.5 million contain a Blu-ray player).11 For this reason, along with a slew of others, consumers still prefer DVD and Blu-ray over streaming video (as we reported last month). With all this in mind, it seems likely that patrons will be turning to libraries to fulfill their DVD needs for the foreseeable future.


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