Netflix Is Now Primarily A Digital Video Company

[Commentary] Netflix added nearly 2 million subscribers in the quarter, almost four times as many subs as they added the same quarter last year. Yeah, four times as many.

While Comcast and Time Warner announced net subscriber losses. At the same time, the cost for Netflix to acquire a customer has fallen 26% in the past year. Funny how when you digitize the customer relationship and the product at the same time, all your costs go down.

In Q4 a majority of Netflix subscribers will watch more content streamed from Netflix than delivered on DVD. With that transition in the business from mostly DVD to mostly streaming, this will be the last quarter the company will report this metric.

In other words, if you are a Netflix customer on a four-DVD plan and you churn through those DVDs at a rate of one a week, you're watching about eight hours of DVD content a month from Netflix. To beat that in digital, you have to watch at least two hours of streamed video from Netflix a week. That two-plus hours is coming from somewhere. Is it coming from YouTube? Unlikely. Given how much of Netflix viewing is happening on an Xbox 360 or other living room device, Netflix Watch Instantly represents the first IP-delivered video source that is competing directly with linear television, on the television screen. With this going on, how cute is it that the industry is instead concerned about whether Hulu video shows up on a few Google TVs? Here's what this means: Netflix is now a digital video streaming company first that happens to also offer DVDs by mail. The percent of subscribers that watch instantly is no longer just material to the business, it is the business. This should not come as a surprise, after all the company is named Net-flix.

[McQuivey is an analyst at Forrester Research]