Thanks to its digital strategy, Netflix is sitting on top of the world.
Tectonic changes have gripped the video-rental business over the past year, giving Netflix a clear victory over its brick-and-mortar competitors. As Blockbuster and Movie Gallery are waylaid by money problems, Netflix -- by firmly embracing instant streaming -- is charting the industry's future.
And by taking its place as a New Media pioneer, it could create headaches for the cable and DVD retail business.
"We’re heading down the freeway in a Ferrari, and we’re fine-tuning the engine and polishing the chrome,” Steve Swasey, vice president of corporate communication at Netflix, told TheWrap. “We’ve built the three legs of the stool -- convenience, selection and now we’re working on device ubiquity.”
These are heady times for the company. Thanks in no small part to its revolutionary streaming-distribution system, Netflix has become the biggest player in the rentals game. For as low as $8.99 a month, customers have access not only to the company's storehouse of DVDs, but to 20,000 movies and TV shows that can be streamed live.Thanks to a recent deal with Epix, this also includes making major movies from Paramount and Lionsgate available 90 days after their premium pay-TV window.
The service is a big hit with customers. In the most recent quarter, 61 percent of subscribers watched more than 15 minutes of a streaming TV show or movie, up from 37 percent in the same period last year.
But it's not just streaming. Overall, Netflix couldn't be in better shape. Revenues rose 27 percent to $519.8 million last quarter, up from $408.5 million in the same period last year.
More importantly, the company added more than a million subscribers to its rolls in the last quarter, taking it to over 15 million. It anticipates having between 17.7 million and 18.5 million by year's end.
It's also inked longstanding pacts with Relativity, Starz, and Nu Image, and signed release-window deals with studios that have assuaged Hollywood fears that the subscription business is cannibalizing DVD and Blu-ray sales.
But while tensions with the studios have eased, there are many who believe Hollywood should be worried about the changes that Netflix's business represents. A number of analysts and even industry members believe its streaming business, coupled with the growth of video-on-demand services like Hulu, could represent a shot across the bow of the paid-television industry.
“The more consumers find they can get more of the programing they want to watch at a reduced monthly cost, the more consumers are going to disconnect their cable and satellite,” one industry executive told TheWrap. “Why pay $150 if all you watch is ESPN and CNN?”
“They’re the big bad wolf,” the industry executive said. “They are disrupting the eco-system.”
Netflix maintains it doesn't present an existential challenge. "Netflix customers love movies, and just because they use our service doesn't mean they won't buy discs or pay for movie tickets or even go to a kiosk," Swasey told TheWrap.
