For several years, it seemed like Netflix was in the process of merely killing off the brick and mortar video rental store. As it turns out, this was an understatement: Netflix is in the process of consuming not just video rental stores but the entire internet. With 16 million subscribers as of this October, Instant Netflix is now responsible for 20% of all primetime internet traffic. The service streams video to computers, handheld devices such as the iPad, video game consoles, set-top boxes, televisions, and just about anything and everything else with a screen and an internet connection. Furthermore, out of the 16.9 million people subscribed to Netflix, only 1.8 percent are responsible for this huge amount of bandwidth being consumed every month.
Most signs point to this trend continuing as time passes. To watch Netflix develop as a business in the 2010s will be to watch Netflix cease to be a provider of physical media, moving entirely to the streaming media system it has made so popular recently. As of November 22, Netflix now offers a low cost, DVD-free rental policy for users solely interested in streaming the website’s online content, a marked transition from when the service was a convenient bonus of having a Netflix DVD or Blu-Ray rental account.
In addition, Netflix has raised the cost of its shipping plans, built on how many discs at a time one has (plans can range from 1 disc at a time to upwards of 10) by $1 for lower tiers and by several dollars for plans offering large amounts of physical media. All of this points to the fact that Netflix will gradually phase out the DVDs that it built its reputation (and remarkable selection) on and instead solely function as a provider of online content, an ultimately more cost-effective, environmentally sound, and—for many customers—preferred means by which to receive content.
As a consequence, Netflix will quite possibly face two major hurdles in the next several years. The first is the company’s risk of losing customers who opened Netflix accounts in order to receive actual DVDs. Many users prefer the fidelity and bitrates of DVD (and especially Blu-Ray) over streaming video which lacks the definition and resolution. There are also those who will find themselves alienated by price increases and perhaps by increasing unavailability of certain films. Losing access to Netflix’s huge selection of films may quickly drive users to other similar services or to specialty physical stores where such shops still exist (I, for example, joined Netflix in 2005 originally so that I could rent movies that I otherwise couldn’t ever find in the town of 3,000 in which I was living at the time).
The real struggle for Netflix’s growth, however, will be the one over bandwidth. As Netflix’s streaming service’s market share continues to grow, its users will continue to move huge amounts of data—a problem considering the increasingly restrictive internet access policies that attempt to meter bandwidth.
Despite these potential hurdles, however, Netflix has found a way to capitalize on emergent streaming media and plentiful bandwidth, leading to a service that its customers have found more useful than the one that the company once offered, and one that still has a fair amount of room to grow. The company’s change in strategy has so far worked extremely well for them, and it’s likely to keep them going well into the next several years.
Andrew Hall is a guest blogger for Pounding the Pavement and a writer on the subject of technical schools for the Guide to Career Education.
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