The internet continues to transform how consumers find and view content on a daily basis. More and more people are giving up their traditional television service to watch their favorite shows and films online, and Netflix continues to dominate the market. Although they made some costly missteps in the last year, and continue to find stiff competition in Hulu and Amazon’s VOD service, recent numbers show that they remain a powerhouse, and may be reaching new heights. As more and more homes receive high-speed internet, and high-end smartphones and tablet devices sell at higher and higher rates, it’s clear that entertainment is changing for good. And with Netflix’s announcement that their customers took in over 1 billion hours of video online last month, it’s just further evidence that preconceptions about internet consumerism are no longer valid.
The CEO of Netflix, Reed Hastings, announced the record number on Tuesday, just one day after Mark Mahaney, an analyst with Citigroup reported the future of Netflix is more than rosy. Both reports led to a banner day for Netflix on the stock market, as the company saw a 6% rise in stock prices. That’s great news for Hastings, as the company’s stock is still trying to recover from Netflix’s ill-received hike of their prices in the United States. So even though the 6% stock growth led to a closing price of $72.04, that’s still well under the stock’s July 2011 peak value of $305.
More customers than ever are taking advantage of Netflix’s streaming video service, which is encouraging as the company attempts to deemphasize, and eventually replace the DVD-by-mail aspect of their service. Hastings is adamant that DVD is a dying format, and that the company must move in another direction. And since it’s incredibly expensive to mail all of those DVDs, it’s a strategy they expect to help them now, and in the future. Streaming gives customers the instant satisfaction they are looking for, but the amount of films and shows Netflix has the rights to stream is much smaller than those they have on DVD. To compensate, Netflix has spent eight figures over the last two years to shrink that gap and add more streaming content.
The one billion hours of streamed content shows that their efforts are working. It’s important for the company, and for their board to see that all that money is being spent wisely. Of course, it’s also putting Netflix in the rough position of showing a loss in 2012, the first time they’ve been in the red in ten years. And their streaming expenses may grow even more. There’s the sense that networks and film studios will look at the rise in streaming video as a direct threat to pay television, and the massive revenues they enjoy from advertising. With Netflix customers who choose the streaming only option paying a mere $8 a month, and watching as much as they want without a single commercial, it’s clear that licensing fees may not make up the gap for the studios and networks.
Netflix may be hoping that they are growing strong enough to combat the ire of the networks. They currently enjoy more than 26 million subscribers all over the world, which is significantly more than Comcast Corp., the top cable provider. But considering the companies that own the content licenses really have all the leverage, Netflix may have no choice but to pay even more for the rights. So maybe they should strike a deal with DVDDuplication.net to get cheaper product on the one side of their business they can fully control.