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Why I'm Watching Netflix Again

By Sree Sreenivasan | December 13, 2010 12:40pm
A chart from SiliconAlleyInsider.com comparing the stock performances of Netflix and Apple, as of Nov. 18, 2010. This is the reason CEO Reed Hastings is Fortune's
A chart from SiliconAlleyInsider.com comparing the stock performances of Netflix and Apple, as of Nov. 18, 2010. This is the reason CEO Reed Hastings is Fortune's "Businessperson of the year."
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By Sree Sreenivasan

DNAinfo Contributing Editor

In November 2001 I did my first video and Web review of Netflix for WABC-TV. Back then, online delivery services of various kinds had gone through a boom-and-bust cycle. I had to assure my viewers that this was worth paying attention to, despite the demise of companies such as Kozmo, Urbanfetch, NYDelivery.com, etc. 

Here's what I wrote, in part:

Netflix is a service that delivers DVD movies to your house via the mail. For a $20 monthly charge, you can rent as many movies as you like -- holding on to upto three at a time. Here's how it works. You sign up for a membership that's $19.95 a month and then select, online, 10 films you would like to watch. The company then snail-mails the first three that it has available. It also includes postage-paid envelopes, so all you do is stick each back in the mail when you are done with it. When they receive a movie, then send you another from your list of selections. There are no late fees and no long-term contracts.

This system works well and is easy to use. It can be harder to get popular titles, which may be out in circulation — but with more than 10,000 titles in its collection, there must be something you want to watch. They do not have VHS tapes — those are more expensive to mail; DVDs sent without the fancy boxes cost just 34 cents to mail (they pick up that bill).

Fast forward nine years and most consumers need no explanation of Netflix. In fact, there are other services that are described as "Netflix for" something else, such as a Gamefly, which is the "Netflix for video games." Yet Netflix's future is in jeopardy as it fends off cable TV providers and other competitors bent on overtaking its pioneering success in the on-demand and streaming movie business.

My wife and I stopped subscribing to Netflix after a year or so, preferring Time Warner Cable's on-demand offerings. But a few months ago I began testing Netflix again and was very impressed.

At a family gathering on Thanksgiving weekend, I signed up my sister-in-law for for the $9.99 one-disk plan that includes more streaming movies than the $7.99 streaming-only plan. Within minutes, the family was watching the Jackie Chan classic, "Drunken Master."

When I mentioned on Facebook that I was back on Netflix, I got some interesting comments, including these:

Renata: Yep! Can't beat it! Haven't had cable on the entire weekend!

Carla: We stream on Wii all the time. We've been contemplating getting rid of cable, because of it.

Jan: Streaming is only okay and could be MUCH better and so could the selection....

Arpan: Lots of excellent foreign language films on Netflix streaming that you'd otherwise be hard pressed to find, given that local video stores like Kim's Video, etc. are disappearing. For example, they have had the Swedish film version of "Girl With A Dragon Tattoo" on there for some time now, even though it only recently hit American indie theaters like Landmark.

Clearly, others are noticing the service, too. Netflix ended October with 16.9 million members in the U.S. and Canada and predicted it would gain another 2.1 million to 2.9 million customers by year's end. According to the Associated Press, that means Netflix could enter 2011 with more than 19 million subscribers, doubling the service's size in two years.

Wall Street has also noticed. As the chart above shows, the stock price has been on a tear lately, closing just around $195 Friday (its 52-week low was $48). 

On Friday, the S&P announced that Netflix was among the companies being added to the S&P 500, with old-fashioned firms like the New York Times, Kodak and Office Depot moving out.

But it's not all smooth sailing. Today's New York Times has provocative article by Tim Arango, "Time Warner Views Netflix as a Fading Star," explaining the fight between content providers (who think Netflix paid too little for content in its early contracts and will not be able to maintain its growth after the next round of contracts. 

PaidContent's Andrew Wallenstein points to research that suggests Netflix's roughly $200 stock price is way overvalued (it should really by closer to $78) due to the rising cost of content and new competition, particularly from Amazon which has its own on-demand movie service.

Wallenstein also writes about a topic that could badly effect online streaming — the potential rise of a cable companies' metered model for Internet usage, based on the amount content being downloaded and consumed.

Barring that metered model, believe that the subscription numbers are going to keep going up as younger people become more willing to pay for content.

According to a recent study (Ipsos OTX MediaCT’s LMX MOTION), one out of two 18-34-year-olds is interested in a fee-based video watching option:

As content providers push more aggressively to monetize their content, it is becoming more likely that consumers will have fewer content options available to stream for free. When analyzing differences by age, it was clear that young adults (18-34 years old) were driving growth in paid viewership through digital platforms, with over half (51%) interested in

viewing their regularly watched programs through a fee-based Hulu, Netflix or iTunes option.

In a future column, I will take a look Hulu and its new paid-paid service Hulu Plus ($7.99 a month).

What do you think? Post your comments below or on Twitter @sree.

Every week, DNAinfo contributing editor Sree Sreenivasan, a Columbia journalism professor, shares his observations about the changing media landscape.