Netflix clearly sees online video streaming as its future, and the future of media distribution as a whole. Which is why it’s upping the money it’s spending on acquiring ‘Watch Instantly’ content, money it’s saving on delivering DVDs by post.
Netflix’ Changing Business
Things are changing for Netflix, partly forced, partly by choice. A business built on the idea of delivering DVDs to customers by mail is now evolving into one built, and growing, on the idea of streaming content to customers via the Internet.
Netflix’ increase in publicizing and populating ‘Watch Instantly’ has seen the number of customers signing up to the service growing, and revenue growing as a result. Obviously. There is, however, a consequence to this: more money being spent on streaming content.
Acquiring Content Costs Money
It’s hardly a revelation that acquiring content costs money, but quite how much it costs is a little surprising.
Its latest earnings report for Q2 2010 (ending June 30) shows that Netflix has considerably upped the amount of money it’s spending on content for the streaming part of its service.
In the last quarter alone, Netflix spent $66 million on streaming content, up from just $9 million spent during the same period last year. For the first six months of 2010 Netflix spent $116 million, up from $31 million on a year before.
On the flip side, Netflix spent $24 million on DVDs in the last quarter, down from $43 million on a year before. The cost of sending DVDs to customers increased to offset this reduction in the cost of purchasing content.
The good thing for Netflix is that the increased spending on streaming content has persuaded more people to sign up for the subscription service, which includes DVD rentals and access to ‘Watch Instantly’.
Netflix‘ future is definitely in streaming content. And it knows it. The good thing is Netflix is leading the way in what is set to become the norm for more companies. So it’ll be a great thing for Netflix to succeed.