Netflix is considering adding an option for customers to pay for just its online video streaming service late this year or early next as it sees more and more viewers watching content directly from the Internet, CEO Reed Hastings told Bloomberg.
“We’ve got one singular objective, which is ‘Be successful in streaming,'” said Hastings. “If we do that, that’s a home run.” Netflix has observed that as its users start to watch more content online, they tend to rent fewer physical disks.
Netflix says it has millions of its users watching video online and is focusing heavily on expanding its instant streaming library – it currently has more than 12,000 titles available for instant viewing and over 100,000 titles for rent by mail.
“Millions” is actually a plausible number, as the company recently said 1 million Xbox Live subscribers are using the service. This puts the low number at about 10% of its more than 10 million subscribers utilizing the “Watch Instantly” offering.
“Most companies that are in our shoes fail,” Hastings told Bloomberg. “Most companies that have a sort of generational evolution forward, like AOL from dial-up to broadband, fail. And it’s catastrophic for investors.”
Hastings believes success hinges on transitioning to online video viewing and making this more accessible as the market shifts away from DVDs. This could explain the recent flurry of publicity about Netflix becoming available through a series of set-top boxes, consoles, consumer electronics and even some upcoming TV sets.
Hastings also said Netflix has added more than 600,000 subscribers since the beginning of the year and attributes this to consumers choosing more inexpensive forms of entertainment. This news follows Netflix announcing that it picked up more than 718,000 new users in the last quarter of 2008.
Netflix subscriptions start at $4.99 and streaming becomes unlimited with subscriptions that start at $8.99 – the average movie ticket in the US was $7.20 in 2008, according to Media By Numbers.
While the streaming-only plan price has yet to be set, looking at the current offerings make it seem it could very well be below that $7.20 ticket price. That movie price could easily reach $10 to $15 per person when adding in concessions, making the Netflix offering even more appealing to large families.
Netflix may start pushing more children’s options for its streaming services. On the Watch Instantly section of its Web site, only about five of the films shown are geared toward children. Families with children are going to be some of the biggest penny pinchers as the economy continues to sour, and making a push toward this audience would make a lot of sense. Children’s TV programs also consistently release movies that bypass theaters and go directly to retail and video rental stores.
“Right now, the power of the service is that hybrid message, the best of both,” Hastings told Bloomberg, speaking of the ability to rent DVDs and watch streaming video through a single plan and single payment.
“We’re putting most of our wood behind that. But we recognize at some point in the long term, the streaming will be good enough that an appreciable number of people will find streaming is all they need.”
Hastings said Netflix needs to increase its subscribers so it can spend more capital to expand its library of streaming titles. This involves adding more DVD rental customers, improving the online streaming options and technology and finding a way to embed the streaming options in more consumer electronics.
Netflix is aiming at more deals with HBO and Showtime to follow in the footsteps and success of its deal with Starz. For Starz, Netflix distributes content much like cable does, but it’s an on-demand service with a more user-centered interface, said Hastings.
Netflix is putting itself far out in the lead, which means it will have to stay innovative in its approach to stay ahead of the pack. So far, so good. Netflix pushing its presence in consumer electronics is the way to do just that and seems to be a major goal.
The first streaming service to find its way into popular TV sets will have a huge advantage. Whether it develops its own chipset or comes through a service like Yahoo’s Widgets, the TV is the place to be, and Netflix looks like it’s already aiming at the screen.