“There’s a lot of top and bottom line growth left in online DVD rental,” Hasting told investors. And with the Los Gatos, Calif. company’s recession-busting 45 percent profit boost, I don’t doubt that.
But as a Netflix subscriber wading through the “Very Long Wait” for new releases, I can’t help but wonder why the company isn’t letting us stream new releases through its “Watch Instantly” service. It was only back in 2007 that Netflix unleashed the service on us online video junkies. And at the time the proposition was sweet; for no additional charge subscribers could instantly stream select (and mostly dated) titles from their PC. Over time the content library grew, and the service found its way onto televisions via set-top boxes and even the Xbox 360 console. But after a stellar year of growth and an upbeat outlook for 2009, I’m wondering why “Watch Instantly” isn’t slated for bigger (i.e., newer) things.
The answer is deceptively simple. Licensing newly released movies and television is expensive. So much so that even Hastings cited it as a roadblock despite an otherwise stellar Q4.
“Our spending is limited by only what content is available at reasonable prices, and what we can afford in total giving our earnings goals,” he explained.
Okay, fine — I get it. Putting every new release at my fingertips and making it instantly streamable would be an enormous financial burden. Plus, the DVD-by-mail side of the business is still booming — so why mess with a good thing?
But here’s where it gets interesting. Later in the call Hastings mentioned internal research pointing to some advantages tied to the (otherwise costly) streaming service.
“The more subscribers watch online from Netflix, the more likely we think they are to remain subscribers and to watch slightly fewer DVDs a month,” Hastings said. Later in the call there was talk of possibly leveraging “reduced disc usage” down the road, if it continues.
Of course, if this trend rings true, Hastings and Co. have both a retention tool and a means to lower postage costs. Given the implications, it’s still puzzling why new releases aren’t slated to become a part of the streaming service in the near future — especially when Hastings told investors that, “it’s very clear that streaming is energizing our growth.” If “Watch Instantly” is such a tour de force (with the potential to lower expenditures, and possibly offset licensing), then why isn’t it getting even a little new release love?
Netflix took a risk by bringing movies to the browser when it launched “Watch Instantly,” but times have changed. The company is showing solid growth, and the fledgling Watch Instantly service has seen an influx of content thanks to a deal with Starz. It’s clear that the company has high hopes of building critical mass over time, but when it comes to online video — content will always be king.
In the meantime, I’ll continue to man my post at the mailbox.
VB’s research team is studying mobile user acquisition: Chime in here, and we’ll share the results.