Silicon Valley News

Wednesday, February 25, 2009

iGriot: Netflix defying recession with streaming service

Netflix has helped breathe new life into movies with limited commercial appeal. Hotel Rwanda, for example, did poorly at the box office in 2004. Today, it is one of the top ten rentals at Netflix.

Netflix stock is near its all time high as the company considers dropping its mail-order business in favor of a service which would only deliver television shows and movies over the internet. Streaming is a fairly new offering for the company. It is free with any traditional subscription. The web service is quickly gaining popularity. In January, Netflix said, "about one-fifth of the company's nearly 10 million subscribers used its "Watch Instantly" service. Profits were up a surprising 45 percent in the most recent quarter. "It's very clear that streaming is energizing our growth," says CEO Reed Hastings. More analysts, including Jim Cramer, are now trumpeting Netflix stock.

This new paradigm will be a challenge. Netflix reportedly spent some $70 million in 2008 for IT streaming infrastructure. It plans to spend even more this year. The company has only a small percentage of titles to stream compared to its large library available for mailing. Broadcast networks and pay cable channels get new releases sooner. Netflix is in talks with studios to gain access sooner to new releases.