Netflix expects video streaming to drown out DVDs

continued from page 1

Question of the Day

Is it still considered bad form to talk politics during a social gathering?

View results

Netflix Inc. is getting more popular on Wall Street, too. Its stock is worth nine times what it was two years ago and rose to another record high Monday. The shares gained $15.28, or nearly 9 percent, to close at $188.32.

Investors love streaming because it should help Netflix make more money. The simple math: The more people stream, the less the company will have to devote to buying DVDs and getting them to customers. This year, for instance, Netflix is expected to spend more than $700 million on postage and handling.

And streaming will make it easier for Netflix to expand into other countries without having to invest in the dozens of DVD distribution centers it has set up in the U.S. By some estimates, more than 500 million households worldwide are equipped with high-speed Internet connections, and that number is expected to grow in the years to come.

As Netflix’s postage and DVD expenses decline, the company is pouring more money into licensing movies and TV shows for its Internet streaming library.

The streaming catalog is still mostly made up of older movies and TV shows at least a season or two behind. Netflix is trying to freshen that lineup. During the summer, it cut a series of deals that will narrow the time between when movies reach the theater screens and Netflix’s streaming library.

All told, Netflix’s commitments for streaming rights totaled $1.1 billion as of Sept. 30, up from $115 million at the end of last year.

No matter how much Netflix invests, the streaming library probably still won’t have as much new material as pay TV and DVDs offer. That is largely because the studios still think they can pad their profits by selling DVDs. As part of that goal, several major studios have persuaded Netflix to refrain from renting many popular DVDs during the first 28 days the discs are on sale in stores.

Sales and rentals of DVDs and Blu-ray discs fell 7 percent to $10.9 billion in the first nine months of this year compared to last year, according to The Digital Entertainment Group, an industry body. Meanwhile, Internet downloads rose 37 percent to $432 million.

Netflix’s popularity is also turning it into a threat to pay-TV, including long-established premium cable channels, such as HBO and Starz. Time Warner Inc.’s HBO so far has refused to license classic TV shows such as “The Sopranos” and “Deadwood” to Netflix.

The total number of cable and satellite pay-TV subscribers in the U.S. fell for the first time ever in this year’s second quarter, according to analyst estimates. Cable companies attributed the decline to seasonal and economic weakness rather than people cutting the cord in favor of Internet video, but the total subscriber figure declined again in the third quarter.

Netflix’s streaming ambitions could suffer a setback if the cable and telecommunications companies that provide high-speed Internet service attempt to impose surcharges on heavy users of Web video.

Streaming through Netflix accounts for more than 20 percent of peak traffic to Internet users in the U.S., according to a recent report by Sandvine Inc.

Attempts by Internet service providers to apply extra fees on customers who use a lot of data have so far been quashed by consumer backlashes, and Hastings is betting extra fees won’t become a hurdle for Internet video. But that doesn’t mean the cost of high-speed Internet service won’t rise if people get hooked on video streaming.

____

AP Business Writer Ryan Nakashima in Los Angeles contributed to this report.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Comments
blog comments powered by Disqus
TWT Video Picks