News

Netflix Results Should Scare Cable

1/30/2010 2:00 AM Eastern

Netflix's fourth-quarter earnings report last week should concern operators with regard to online video streaming.

On top of a fourth-quarter revenue increase of 24% and adding 1.1 million subscribers to what is now a 12.2 million-subscriber base — up 31% from the same period last year — the mail-order DVD outfit said it experienced a significant increase in users of its online video-streaming service.

About 48% of Netflix's customer base streamed at least 15 minutes of video during the fourth quarter, up from 28% of customers last year. It's reported that by mid 2010, the company projects that about 68% of its subscriber base will be streaming movies and television programming to computers, Web-to-TV devices like the Roku box, or the Xbox 360, Wii or PlayStation 3 game consoles.

Most of the content Netflix makes available for streaming consists of older films, B-movie titles and classic-TV content. Imagine what the numbers would look like if Netflix could offer current films within their DVD windows or new episodes of TNT's The Closer or USA Network's Burn Notice within the week after their premiere dates?

Netflix can. It's constantly talking to content distributors to gain valuable streaming rights to marquee content.

In January, it cut a deal with Warner Bros. to gain streaming rights to more of its library in return for delaying the distribution of Warner Bros. DVD titles via mail order for 28 days after they hit store shelves for purchase.

Barrons.com reported that Netflix CEO Reed Hastings told investors, “Our long-term model is to be able, as a percentage of our cost, to pay a little bit less each year on DVD and Blu-ray and to put more and more money into streaming.”

There's no disputing online video usage continues to climb. In January, Nielsen reported time spent watching online video content in December 2009 was up 13% versus the same period in 2008.

Cable, though, has not yet effectively implemented a comprehensive and easy way for consumers to watch its programming on the Web, with a few exceptions, including Comcast's recently launched Fancast Xfinity TV service.

The “TV Everywhere” concept that is being touted as the best way to offer cable programming on the Web has recently come under fire from advocacy groups that say the model of accessing cable-network content online as long as you have a cable subscription stifles competition and hurts consumers in the long run.

Groups such as Free Press, the Media Access Project and Consumers Union have called on Congress and the Federal Communications Commission to investigate TV Everywhere. They say cable providers, satellite operators and telcos would naturally not compete against each other in their respective territories if the one-size-fits-all model were adopted.

While cable and its representatives rightfully argue that TV Everywhere will provide more, not less, online content to the consumer and won't prohibit distributors from offering content through other online options, multichannel video providers are likely going to have their hands full defending that model for a long time to come.

Online video viewing hasn't eclipsed or adversely affected television viewership: Americans still watch 99% of their video programming via the boob tube.

But the number of consumers seeking online video content is only going to increase over time.

It's clear that online viewing is an area where cable will have to remain vigilant if it expects to successfully compete against Netflix and other online content distributors.

March