When Netflix changed its pricing structure in 2011 to charge separate subscriptions for DVD/Blu-ray rentals and online streaming, it lost about 800,000 subscribers. That led to speculation about whether the company could survive the backlash from its then angry customers. However, Netflix seems to be on the rebound. On July 3, Netflix CEO Reed Hastings posted on his Facebook wall: "Netflix monthly viewing exceeded 1 billion hours for the first time ever in June." Richard Greenfield of BTIG Research estimates that 1 billion hours of viewing equates to around 80 minutes of viewing per day for each subscriber. That means that if Netflix were a cable channel, it would the "most watched cable network on television."
Streaming stays front and center for Netflix
Netflix has tried a number of gambits to move its subscribers away from physical DVDs and toward the Internet streaming model. The recent news is certainly good, but whether or not its efforts will be successful in the long-term remains to be seen.
The success of Netflix and other streaming providers at the expense of traditional program sources has not gone unnoticed, and might not go unchallenged for very long. As television stations and cable networks struggle to keep advertisers in a tight economy, they may decide to stop Netflix's access to their shows -- and some, such as Starz, have already done so. That would reduce the Netflix library and possibly lose the company subscribers. Another scenario could involve networks charging higher television series licensing fees to make up for lost advertising fees, which would reduce the profit margin for on demand content and force streaming providers like Netflix to hike prices again.
Still, young viewers, the target audience for many advertising campaigns, are more likely to cut the cord on higher priced cable and satellite subscriptions and go with the lower $8 a month charge to stream videos from Netflix. According to USA Today, Citigroup analyst Mark Mahaney released a report that said, "One-third of Netflix's streaming subscribers watch about as many TV series as they do movies over the Internet."
Citigroup's Mahaney also reports that Internet streaming customers tend to keep their subscriptions and tell others about their positive experiences streaming videos. This means Netflix won't experience the seasonal shifts it often saw with DVD rentals.
The rapidly changing video streaming industry offers mixed blessings for viewers, depending on their viewing habits and the types of content they are interested in. Netflix is one of a number of options, including Hulu Plus and Amazon Instant Video; you can read more about the choices in our report on video streaming.