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Netflix Looks Toward Streaming

28 May, 2008 By: Chris Tribbey

DVD will continue to be Netflix's bread and butter for another 5-10 years, but the company is preparing for a future where discs play second fiddle to online video streaming, CEO Reed Hastings said during an investors meeting May 28.

“We've been looking forward to these years for a long time,” Hastings said of video streaming. “Our view is that the studios are going to publish DVD and Blu-ray [Disc] for another 20 years … but I don't think there's going to be another physical optical disc.”

Netflix launched a $99 TV set-top box for streaming movies earlier in the month, but Hastings admitted that the company has to contend with a lot of players in digital delivery who have gotten a head start.

“Our DVD shipments will probably peak in 5 to 10 years … the streaming can be thought of as defensive, protecting our turf, or offensive,” he said.

Currently, Netflix's online streaming service is offered for free to subscribers, and offers 10% of the more than 100,000 titles the company offers on DVD.

Hastings predicted the company could draw more than 20 million subscribers to its streaming service, compared to the 10 million DVD-by-mail rental subscribers the company aims to have by next year. Hastings said Netflix aims to have between 5 million and 10 million Netflix-connected TV households by the end of 2009, and that streaming would allow for the elimination of postage, a full third of the company's overhead.

Hastings said Netflix will slowly, but steadily, spend more on its streaming services in the next few years, despite the figures Netflix has on its former subscribers. Only 3% of the people who quit the service do so because they are downloading or streaming video, while 35% quit because they're satisfied with cable or satellite, and 32% quit in favor of other rental services, according to Netflix.

On May 29, analyst Lloyd Walmsley of Thomas Weisel Partners downgraded Netflix due to increased competition from Blockbuster. He pinned the stock at $35, according to The Asscoiated Press.

Netflix was responsible for $1.2 billion in rental revenue in 2007, compared to Blockbuster's $2.4 billion.

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