October 21, 2010, 8:07 AM — Now that just about every piece of electronics in your house (except maybe the toaster oven) is able to stream Netflix content, what's the company's next move? As part of yesterday's Q3 Earnings Report, Netflix CEO Reed Hastings shed some light on future plans, which include the possibility of a streaming-only option for the US as early as this quarter.
When Netflix entered Canada a few months ago they opted to do so as a streaming-only service, and with streaming in the US continuing to grow, Hastings said "We are very proud to announce that by every measure we are now a streaming company, which also offers DVD-by-mail." Q3 was a good one for Netflix with subscriber numbers growing 58% on a year-over-year basis. Hastings says that while DVD-by-mail shipments are growing, streaming is growing much faster. He said in some markets, such as the San Francisco Bay area, disk shipments have actually dropped while streaming usage grew dramatically and subscription numbers rose.
Clearly Netflix has always seen streaming as its future (Hastings once said something along the lines of – and I paraphrase – 'The name of the company isn't Mailflix') and it continues to invest heavily. For the three months ending September 30th, 2010 Netflix spent $115,149,000 in acquiring streaming content. Compare that to only about $10 million in the three months ending September 30th, 2009. Hastings points out that Netflix currently spends about $500 million a year on postage, so as the 'by-mail' business fades it'll free up plenty of money for acquiring more streaming content.
So back to next steps. Canada is the first step towards more international coverage. Netflix's Canadian operation is on track to becoming profitable late next year. Assuming that goes according to plan then they'll look to expand to other international markets in the second half of 2011. Speaking of Netflix in the US, Hastings said:
Our success with our pure streaming offering in Canada at $7.99 has encouraged us to test this model in the USA. If our results are as strong as we think they will be, then we will look to start this offering later in this Q4. Pure streaming could become our core offering in the USA, and DVD would be offered as a supplement for an additional charge, like we offer Blu-ray today. We'll know by the holiday season if consumers would prefer this more streaming-centric approach.
You can find the full earnings release and management commentary on the Netflix site.
Hastings never mentioned pricing for a streaming-only version of Netflix in the US; given how affordable Netflix is to begin with (a 1 disk-by-mail, unlimited streaming account costs just $8.99/month) would they actually cut that price, to $7.99/month perhaps? Hulu's device-streaming service, Hulu Plus, costs $9.99/month and the content contains ads (and, with the caveat that it is still in its testing phase, the streaming quality isn't nearly as good as Netflix's).
The bottom line for consumers who are fans of the service is this: Netflix is profitable and continuing to increase its investment in its streaming library. There'll be plenty of good TV and movie content making its disk-less way to our living rooms for the foreseeable future.