Rich Fiscus
19 Feb 2010 14:36
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.