Netflix is due to spend $2 billion on content for the streaming side of its business by the end of 2011. But that’s an acceptable amount given what ‘Watch Instantly’ is doing for its numbers.
Netflix
is heading in one direction, and that is up. While successful as a DVD rentals-by-mail company, it’s only been since the company starting offering ‘Watch Instantly’ streaming that it’s really come into its own.
Netflix now considers itself as “primarily a streaming company,” and that has been confirmed by a new streaming-only subscription plan. While this appears to be good for business, content does cost money; big money at that.
$2 Billion Streaming Bill
We found out in August that Netflix had spent $66 million on streaming content in the previous three months. The bill for the same quarter a year before was just $9 million. But this is the tip of a very large iceberg.
Later that same month Netflix signed a multi-year deal for content from Epix thought to be worth around $1 billion over the next five years.
Overall the company is now looking at a bill of $1.2 billion, but according to MediaMemo, Barclays analyst Douglas Anmuth thinks this will rise to $2 billion by the end of next year, mostly as a result of the current Starz deal coming to an end and having to be renegotiated.
Why This Is OK
Although $2 billion is a lot of money by anyone’s standards, it’s an acceptable bill for Netflix to have for two reasons.
1. As people stream more content online thanks to these deals, they rent less and less DVDs from the company, and the bill to mail these out to addresses around the U.S. decreases.
2. It’s the quantity and quality of Netflix’ streaming content that is enticing record numbers of people to sign up to the service. So the more content Netflix secures, the more subscribers paying $7.99-per-month upwards they will get.
Conclusions
Streaming is the future, and Netflix is taking full advantage of this fact and surfing the first waves of the coming revolution. The bill for content may be going upwards as quickly as Netflix is, but it’s actually a small price to pay for the position in the marketplace this is buying the company.
