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3Vision Insight - Netflix - 20m subscribers and growing

13 Apr 2011
3Vision Insight - Netflix - 20m subscribers and growing

As part of our ongoing series of 3Vision Insights we have profiled Netflix as they reached 20 million customers in the US by Q4 2010 and continue to steal the headlines.

Netflix launched in 1998 as a DVD by mail business and then quickly moved to unlimited monthly DVD subscriptions by post in 1999. Since then, Netflix has grown into the largest subscription service in the US for DVDs via post - and now leads the way in streaming movies instantly over the internet. By bundling streaming services for no additional cost to their established base they instantly became a very powerful online video player. According to recent figures published by NPD, Netflix now accounts for over 60% of all movies streamed in the US.

Netflix led the way with investing in connected devices, ensuring the widest distribution as possible for the service. An early target in 2008 was Xbox and estimates suggested that within three months one million Xbox users downloaded the Netflix app. Their primary focus was getting to the TV screen and Netflix has taken this to the next level – the latest figure given by Bill Holmes, VP of Business Development at Netflix, was that Netflix was integrated with over 400 unique products.

Unique and high profile content deals have become key to their continued growth with Netflix taking an aggressive approach to building a desirable proposition that works for the consumer, getting new content where possible and not purely settling for library titles. In addition to non-exclusive library deals Netflix are starting to compete for newer content, which means targeting content that once would have been exclusive under the pay TV window to broadcast channels.

This month saw Netflix signing a multi-year deal with Lionsgate for the Emmy award winning series Mad Men. This is the first time Netflix has attained syndication rights to a TV series currently airing, whereby Mad Men reruns will only be available on the streaming service and not on broadcast or cable platforms as has traditionally happened.

Recent deals suggest that premium operators such as Showtime are only willing to provide older product and are unwilling to change their exclusive approach thereby weakening their proposition. The alternative to cooperation on new content is going head to head with pay/premium TV channels on acquisitions, and this may prove even more disruptive. Every day more potential disruptive content deal stories comes out - with a recent $100 million bid for original content in a bid against HBO. but for every disruptive story there are deals of a more cooperative nature, reflecting the pragmatic approach to building a service that retails at only $7.99 (compared to bigger ticket cable subscription prices).

Netflix has recently begun expanding internationally, starting with their first launch in Canada at the end of 2010 and expect to have 1 million subscribers by Q3 2011. Netflix’s second launch is expected in South America in mid-2011 but they have remained tight-lipped on other target countries. However, they have many challenges ahead, with cable platforms launching TV Everywhere, the growth of free ad-supported online TV, content owners going direct (Netflix’s stock dropped on the news that Warner was selling the Dark Knight through Facebook) and the emergence of competing online video services (again stock prices dropped at the time of Amazon Prime’s announcement). But with such a straightforward and focused proposition, and the scale to ink quality content deals, they are undoubtedly going to continue to be a force to watch both in the US and internationally.

3Vision Insights is a series of profiles documenting and providing comments on interesting and significant developments in our industry - previous editions include the launch of Hulu Plus, Sky 3D and Sky Atlantic. We share these with our clients and close contacts to help them keep up to speed with what's happening. To be included in our distribution list for the 3Vision Insights series, and for the full Netflix profile, please contact us.

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