The Future Of Netflix’s Business Is Streaming, But Is It Viable?

GamePolitics reports that along with Netflix’s plans to spin off Qwickster, the company’s plan to move into video game rentals is dead, mostly because the company believes that streaming is the future:

If you were hoping that Netflix was still considering renting video games like it does with disc-based movies, let that hope die tonight. Netflix CEO Reed Hastings said today on a call to discuss the latest quarter’s earnings, that the idea was dead and laying in a shallow grave right next to the one about renaming its disc-based rental service to “Quickster.” The company’s streaming subscriber base outnumbers DVD users by two to one, and in the last quarter they lost 2.76 million DVD subscribers. So the whole idea of renting games would go against where the company expects the bulk of subscriber base to end up soon: streaming only. If you’ve watched any of its recent launches in new regions like Canada and the UK, you’ll note that those areas are streaming only.

But over at Wired, Tim Carmody sounds a note of caution of what that move towards streaming means for Netflix’s financial health:

That 24.4 million includes 21.67 million streaming subscriptions in the US (just slightly up from 21.45 million last quarter) and 11.17 million DVD-by-mail subscriptions — which is quite sharply down from 13.93 million last quarter. Still, those DVD-by-mail subscriptions contributed $194 million of profit on only $370 million in revenue. Streaming, meanwhile, brings in $476 million in revenue, but only nets $52 million for Netflix’s bottom line…Outside the US, meanwhile, Netflix is streaming-only — and still not profitable at all. Netflix lost $60 million on its international streaming business last year, with slightly under 2 million subscribers — a loss that more than cancels out its total profit from all 21.67 million US streaming customers.

He also points out that companies like HBO and Amazon, which have build their own proprietary streaming platforms, are holding onto their most valuable subscribers, which gives them an advantage against Netflix, which is shedding the people who make it the most money.

This, I think, is where Netflix’s original programming comes in. If Netflix can build properties that it owns entirely and are valuable enough to draw in new subscribers, or that other platforms want to distribute, that could be a valuable source of revenue for the company. Or, that content could provide leverage with the legacy media companies that would allow Netflix to push back on some of the price increases it’s faced as the company has re-upped content deals. Either way, there’s no question that reports of Netflix’s death were premature. But the company is confronting challenges that will be important not just for Netflix, but for the future of the streaming industry as a whole.