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Is There Any Money in Streaming?

29 Nov, 2010 By: Stephanie Prange

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Drowned out by the Wall Street hype about the growth of digital delivery, industry pundits (myself included) have often wondered if the economics of streaming content would ever work out.

Netflix’s bow of a $7.99 streaming-only subscription in the United States this week, on the heels of Hulu’s rollout of its “premium” service at the same price (after a price drop), may finally enlighten us. Each move starts to give the industry some way of quantifying the streaming offerings out there.

I was a big critic of Netflix’s decision to offer streaming at no extra charge at the outset, concerned that when you offer something for free, consumers are reluctant to pay for it afterward. I may be proved wrong in my initial reluctance to giving customers something for free. But I think most would agree that the ultimate test is a streaming service that makes a profit without leaning on the old-fashioned disc rental business (in the case of Netflix) or on free, unlimited access (in the case of Hulu).

Still, Netflix has somewhat muddied the streaming waters by offering the streaming-only service at the same time it raises prices for disc rentals. If you want to rent Blu-ray discs from Netflix, there’s an even steeper premium.

Each is taking a big gamble, and it will be interesting to see which has its finger on the pulse of the consumer. We are getting much closer to finding out if there is actually any money in streaming.

One anecdote from my own life: My mother recently signed up for Netflix. She checks e-mail only about once a month, so the idea of her streaming anything seems remote. When she gets wind of the fact that the price may go up, I’m not so sure she will stay on. Will other disc renters feel the same way? Will the sub price for streaming plus disc rentals plus the premium for Blu-ray make some re-evaluate Netflix’s offering? A dollar or two to rent a disc from Redbox may start to look really inviting.

In a poll at hackingnetflix.com, by Nov. 23 nearly half of respondents said they wouldn’t change their Netflix plan, while about a third said they would downsize their plan to save money and about 10% would drop DVD rentals to go streaming-only; 10% said they would quit Netflix.

Still, the jury is out, and I give credit to Netflix and Hulu for trying to quantify their product. I’m ready to get past the hype and move toward digital profit. The ultimate goal is an entertainment industry in which content owners, creators and distributors can make a decent profit.

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