Netflix clangs death knell for the lowly DVD
Netflix has rung the death knell for the lowly DVD. Disks haven’t disappeared yet. But the U.S. video rental service says that most of its customers will watch more streamed content than they will from mailed disks in the fourth quarter. Though the DVD is dying swiftly, Netflix has survived this tricky switch from analog to digital and is thriving. Now it needs to see off a whole new slew of well-financed rivals.
Netflix will no longer report the percentage of customers who watch content online. Two-thirds of Netflix customers streamed something in the quarter, up from 41 percent a year earlier. This growth reflects the increased selection of available content; the introduction of a monthly plan that prices unlimited streaming cheaper than basic cable; and the fact that more people have hooked their TVs up to the Internet.
Netflix’s successful transition from mailing DVDs to streaming content is impressive. Its once-robust rival Blockbuster failed to do so—and went bust. Both businesses were built around distributing disks or videos. But Netflix’s knack for technology—evident in its superb movie recommendation algorithm and the way users smoothly stream on devices ranging from PCs to the Wii—allowed it to build barriers around its business.
This is evident in the $8 billion company’s latest quarterly figures. While subscriber numbers grew more than 50 percent over the past year, fewer of them left the service every month. Netflix also spent less than it did a year ago on finding new customers.
But the Internet switch has brought a whole slew of new rivals like Hulu and cash-rich tech behemoths Apple, Amazon and Google’s YouTube into the business. That raises the risk of sharp competition resulting in a price war at the same time Hollywood studios, cable channels and TV networks demand more for allowing their content to be streamed.
Netflix can rest a bit easier knowing that it has avoided the DVD’s fate. But at 44 times estimated 2011 earnings, investors are expecting the firm to avoid newer dangers.