Netflix Mulling Streaming-Only Option in the U.S.24 Sep, 2010 By: Erik Gruenwedel
Netflix Inc. is considering launching a domestic streaming-only service in the coming months, co-founder and CEO Reed Hastings said.
Hastings mentioned the possibility Sept. 23 in an apology (posted on the company website) regarding an awkward joke he made to a reporter in Toronto where he characterized Americans as being too self-absorbed to notice lower pricing for Netflix’s new Canadian streaming service.
“I was wrong to have made the joke, and I do not believe that one of the most philanthropically-minded nations in the world (America) is self-absorbed or full of self-absorbed people,” Hastings wrote.
The $7.99 (Canadian) Canadian service (versus $8.99 in the U.S.) doesn’t include a DVD-by-mail option — still Netflix’s largest revenue driver. In addition, initial content availability to the Canadian service lags significantly with the U.S. service due in large part to restrictions imposed by domestic (not-North American) license rights.
Eric Wold, analyst with Merriman Curhan Ford in New York, said key to a domestic streaming-only option would be price. He believes such a service would emulate Canada’s lower price and fall below $8.99 per month.
“If people are subscribing to Netflix only for the streaming offering, then [it] would see a loss of revenue and margin from those subscribers that migrate to the lower price,” Wold said. “However, if this attracts a new set of subscribers [who] have no need for DVDs, then Netflix could see a resurgence in subscription growth…with much stronger gross margins than what is realized with a DVD-using subscriber.”
Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, doubts a $7.99 streaming-only service in the U.S. would generate much traction.
“The $1 saved to give up DVDs doesn’t sound very appealing, so I don’t see streaming only getting off the ground here at that price point,” Pachter said/
Wold doubts such a service would have an immediate negative impact on Netflix’s packaged media rentals, but could likely be a positive for overall market share expansion and subscriber growth.
“Until they get similar streaming content to what they offer on DVD, there won’t be a huge migration over to streaming entirely…only on the fringe,” Wold said.
Hastings’ apology was the second in successive days for Los Gatos, Calif.-based Netflix, which had to defend the use of hired actors during the Sept. 22 lavish bow of the Canadian service. Media reporters covering the launch thought they were interviewing enthusiastic would-be consumers to the service when in reality the attendees were paid to be effusive.