Christine Persaud
Published: 04/26/2011
Netflix ended its first quarter posting some impressive figures, including 23.6 million subscribers globally, and just over 800,000 in Canada. In total, 3.3 million domestic subscribers were added during Q1.
While this is slightly below what the streaming video provider had anticipated for north of the border, the company says that it’s still “learning the seasonality curve and nuances specific to Canada.”
Netflix launched in Canada in September of last year.
But during a recent meeting with Reed Hastings, CEO in Toronto, he told Marketnews that he was pleased with the results in Canada thus far, and was looking toward adding more content, and making further refinements to the service. For example, a French version of the site for the Francophone market is in the works, and will include exclusive French-language content.
The factor that arguably most impacts subscriber growth and service usage in Canada, as also discussed with Hastings, is data caps imposed by Canadian Internet Service Providers. So much so, in fact, that Netflix included a Google screen shot of a Rogers data cap warning in its letter to shareholders as an example of this potential deterrent to customers.
“Absolutely this effects us,” admitted Hastings.
To combat this, Netflix added a feature last month that would allow subscribers to select a pared down encoding option that would result in the consumption of 9 GB for 30 hours of viewing versus 30-70 GB. While there’s an admitted degradation in quality, chances are the trade-off will be an accepted one for most. And in fact, as a default setting for new subscribers, many may not even notice it. Netflix says initial response since the announcement was made a month ago has been positive.
What will really help to continue to set Netflix apart, however, in both Canada and the U.S., are features like its affordable price ($7.99/mo.), convenient access through everything from network-capable flat panel TVs to all three popular gaming consoles, and, arguably most important, content. In Q1 in Canada, Netflix added significant titles to its roster, including popular TV series licensed from Sony like Breaking In and Mad Love; and shows from Fox like Prison Break and Arrested Development. Other agreements, like its exclusive syndication rights for all previous seasons of the AMC series Mad Men, and exclusive rights to Media Rights Capital’s House of Cards, which will debut in 2012, may also prove fruitful. They also paint Netflix as a viable competitor as a sole or initial distribution method for content, whether that’s movies, TV shows, or Web-exclusive fare.
Netflix says it will continue to focus on its bread and butter of library titles, and prior seasons or complete series versus new episodes, thus serving as a complement to cable/satellite providers instead of a replacement. Those who tend only to have a Netflix subscription, the company claims, were previously those who relied solely on free broadcast TV. In other words, they weren’t subscribing to cable/satellite anyway. Not only this, but Netflix feels that in offering previous seasons and old series, the company is actually helping to boost interest in provider services. That’s an argument this writer can get behind.
Still, there are ways that Netflix simply won’t be able to avoid finding itself directly competing against provider services. For one, many providers are now offering their own on-demand options whereby entire previous seasons or already-aired episodes of a TV show are available for free viewing. Bell’s Fibe TV, for example, offers previous seasons and episodes of series on a number of networks; from MTV to CTV; as well as library movie titles either for free or on a pay-per-view basis. Rogers has its Rogers On Demand Online service that offers the same. Netflix sees others competitors in the U.S. being Hulu Plus, Amazon Prime, and a possible new venture from Dish Networks, which it anticipates will emerge following the company’s recent acquisition of Blockbuster in the U.S.
One thing’s for certain: the market is certainly moving toward an on-demand, online accessible model; more so today than ever before. “Since last year,” notes Netflix in its letter, “online video use has more than doubled.”
Netflix expects to add more subscribers this year than last, but going forward, doesn’t expect to see double the growth like it did this quarter. In Canada, the company will increase its content spend through Q2, and expects to achieve profitability by Q3. Hastings told us there’s no specific plan as to when or what will be added; content will be examined on an as-needed basis based on available budget and consumer demand, and, will, of course, also depend upon licensing deals.
It’s almost easy to forget that Netflix is also involved in the physical DVD rental business, and the company admits that shipments have expectedly been on the decline. And while the focus will continue to be on the streaming service going forward, the company won’t be abandoning DVD altogether. “DVD rental is still a great business for us,” reads the letter, “and we are working on solution to make sure DVD continues to be a profitable business for us in the years ahead.”
While that may be the case, it’s clear that streaming will prevail, and DVD will eventually go the way of the VHS.
