The Future of Netflix is All About Streaming

A great debate is raging as to what the future of movie distribution will look like. On one side of the debate are those who claim that physical discs like DVDs, Blu-ray, and whatever format will eventually supplant Blu-ray, will always deliver a superior viewing experience than anything that will be available via streaming or on-demand content. Pundits on the other side of the debate--and this is the side that appears to gaining the most momentum--say that as broadband's footprint continues to expand, throughput speeds continue to increase, advances continue to improve in compression technologies, and more consumer electronics devices gain access to streaming content, the inevitable future of video distribution will increasingly depend on online access.

In an interview with, Netflix CEO, Reed Hastings, is siding firmly with the latter camp and it would even appear that Netflix is gearing up to move all of its eggs from the mail-distribution basket to the online streaming basket. Hastings indicated that perhaps as soon as later this year or sometime in 2010, Netflix might start offering online-streaming-only subscription plans (beyond just its current Starz plan--see below). The Bloomberg report states:

"The company's success hinges on its ability to transition to online video from DVDs, Hastings said yesterday in an interview in San Francisco. Netflix faces a challenge similar to the one AOL had as it lost subscribers who shifted from Internet service via a telephone connection to high-speed access, he said."

It is this "generational evolution" that Hastings warns can make investors wary. And in a sort of chicken-and-egg scenario, Hastings claims that in order for Netflix to be able to add more available online streaming content, Netflix needs to pay for that additional content with revenue generated from new customers. Many of these new customers will be ones who sign up in order to receive their videos via Netflix's traditional DVD-by-mail distribution. But some of these new customers will also be attracted to Netflix's offerings as the company continues to improve its "online-streaming technology for computers and [gets] its software embedded in consumer devices."

Netflix has over 10 million paying subscribers, with 718,000 of them signing up in just the fourth quarter of 2008. Netflix also expects that it "will add a record number of subscribers this quarter after doing so last period"--already having "added more than 600,000 subscribers since the beginning of the year."

As to Netflix's current library of 100,000 DVD titles available for rental-by-mail, only about 12,000 of those titles are available via online streaming--and most of the available streaming titles, unfortunately, are not recent or A-list films, despite content from CBS Television Network, Disney-ABC Television Group, and Starz Entertainment. Customers who subscribe to any of Netflix's "Unlimited" disc rental plans (which starts at $8.99 per month for one disc out at a time), also have unlimited access to Netflix's Watch Instantly streaming feature. For those who are interested exclusively in Netflix's streaming options, Netflix also currently offers a "Starz Play Only" plan for $7.99 per month, which offers unlimited access to "Starz Play and live Starz Play TV channel" content, but not the CBS, Disney-ABC, or other streaming content.

Hastings didn't comment on how many customers have opted for this steaming-only option, but this plan represents the beginnings of where Netflix is headed. In fact, the Bloomberg story ends with this quote from Hastings: "We've got one singular objective, which is 'Be successful in streaming'... If we do that, that's a homerun." In order to succeed, however, Netflix will need to expand its available streaming offerings. As such, Bloomberg reports that "Netflix is seeking to make licensing deals with channels like Time Warner Inc.'s HBO and CBS Corp.'s Showtime."

The other linchpin to this success will be the availability of Netflix streaming on devices other than just computers. Netflix streaming is currently available on the Xbox 360, TiVo HD DVR, Roku Digital Video Player, and on LG and Samsung Blu-ray players; and while Netflix doesn't currently support streaming on the Sony PS3, a number of third-party solution make it possible. Xbox 360 access has been especially
successful, as Netflix reported earlier this month, "1 million Xbox LIVE Gold members have downloaded and activated the groundbreaking Xbox LIVE application from Netflix since the alliance launched last November."

While watching streaming video from Netflix is not available (yet) on any mobile devices (other than laptops), the
Mobile Manager for Netflix Windows Mobile application can play Netflix video previews on Windows Mobile devices. This is pure speculation, but perhaps the ability to stream entire movies might not be far behind. And while this might be pie-in-sky, wishful thinking, the ability to watch Netflix streaming movies on an iPhone might just be the killer app.