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Big News from Netflix

August 11, 2010 | Author: Ibex Marketing

The Motley Fool declares “game over“. I agree, though the seeds for this domination were planted a long time ago.

What’s the big deal? Netflix has agreed to pay $1 billion to Epix over the next five years in return for the right to stream movie titles over the Internet for its Watch Instantly service. Who is Epix? It’s a new premimum movie channel owned by Paramount Pictures, MGM, and Lionsgate.

So what? The cool thing about Watch Instantly is that for a single-disc Netflix subscription for $9 a month, you can watch all the streaming content that you want. Until now, this has been a case of large portions of middling quality, as the catalog has been mostly older classics and also-ran titles. A recent deal with Starz has boosted the quality a tad, but this new deal will provide a major boost to the quantity and quality of the content available online from Netflix. The service gets to stream recent titles from these major movie studios, and it could start as soon as September 1.

And more Watch Instantly viewers will mean less money spent on discs and postage. Some sources report that Netflix spends $600 million a year on postage (and the rates are about to go up again), so it doesn’t take too many new members using just Watch Instantly to make this billion dollar deal look like a bargain. And you can be sure that this new deal will attract more subscribers. Netflix streaming is already supported by Windows Media Center, many network-connected TVs and Blu-ray players, as well as all three major video game consoles. Not to mention TiVo and Roku boxes and the iPad. Who needs a computer in the living room?

Netflix is a juggernaut, growing its subscriber rolls, and rapidly slicing away at the expensive part of its business: the handling of physical discs to distribute rental movies. They could not have been in this position without the success of their postal rentals, but it is clear that they have the numbers to make the transition to electronic delivery. It will be very hard for anyone to scale up to a competitive position that could threaten the Netflix dominance any time soon.