Netflix: The Future Is Streaming

Streaming seems like a huge improvement over the old DVD-by-mail route … too bad that there’s only two or three movies that come out each year that I actually care about watching.

Netflix expects its DVD-by-mail business to peak in 2013, at which point it believes its Watch Instantly streaming service will be driving its growth. That’s the gist of a slideshow posted on the company’s jobs site that details its plans to transform itself into the leading streaming subscription service for TV shows and movies.

According to the Netflix Business Opportunity slideshow, the company sees streaming as a “huge potential market,” pointing to the 100 million households that have pay-TV subscriptions in the U.S. Netflix had 14 million subscribers by the end of the first quarter, a number it expects will rise to 17 million by the end of the year. And it believes that as both it and the Internet improve, it can boost that figure even more.

“To have profitable growth in such a huge market, you find a segment in which you can gain and maintain leadership,” the slideshow says. “Netflix [sic] segment is consumer-paid streaming of movies and TV shows.”

With greater adoption of streaming video, Netflix says it can put more money toward building the catalog of content available through its Watch Instantly service. Its cost of goods sold in 2009 was $1.4 billion, of which more than half was spent on postage and handling. But as the company’s DVD-by-mail business peaks — which it expects to happen around 2013 — Netflix will be able to spend more money on licensing content. By 2020, if it can continue to aggressively grow its subscriber base, it expects to be one of the world’s largest licensors of movies and TV shows.

The goal, it says, is to “have content so broad, engaging and affordable that everyone subscribes to Netflix.”

All that said, Netflix has a detailed list of the competitive threats it faces in the online streaming business, which includes cable, satellite and IPTV providers that are bundling on-demand video services through TV Everywhere initiatives; cable programmers like HBO and Epix that could go straight to the consumer with their premium original content; Hulu, which is expected to launch subscription services any day now; and giants like Apple and Amazon, which could launch subscription services of their own.

The company also says it faces potential threats from piracy, $1 DVD rentals, ISPs increasing the price of their broadband services, high CPM-targeted advertising, very cheap pay-per-view services and content producers selling their content directly to consumers.

Despite all these competitive threats, Netflix believes it still has a winning value proposition for leading the subscription streaming business. But at the end of the day, the company boils down its success to one key messag: Its business depends primarily on keeping its customers happy. “It’s pretty simple,” the slideshow says. “If subscribers keep raving about Netflix, we will prosper.”

Related content on GigaOM Pro: Slow and Steady, Netflix Pulls Ahead in Streaming Video (subscription required)

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Western Telematic, Inc. (WTI) designs and manufactures Remote Console Server products, Switched PDU products and A/B Fallback Units. WTI products are designed to solve common network problems and manufactured to endure.

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