Why Netflix Gained 3 Million Subscribers

April 24, 2012

Shaking off last year’s Qwikster and price increase debacles, Netflix added nearly 3 million streaming subscribers for the first quarter of 2012. According to their 2012 Q1 letter to shareholders, Netflix now has a total of 26 million streaming subscribers and over 10 million DVD subscribers in the United States. Netflix is now projecting that the service will add a total of 7 million net subscribers in 2012.

What triggered the return of customer growth? Consumers have decided that $8.99 per month is a good deal for the unlimited viewing of over 50,000 TV episodes and movies. As previously discussed, the keys to winning in streaming video are content, cost and convenience. Looking through that filter, here’s some highlights from their investor letter and call.

Cost: Keeping it simple: Netflix reiterated is commitment to a single streaming offering for a single price and shows no interest in offering a tiered product.

Content: Netflix also stated they are committed to growing the streaming library including more original series. Recently, I’ve been enjoying the old episodes of Star Trek: Deep Space Nine as well as Lilyhammer, the Netflix original series (which was renewed). It appears Netflix had enough content to weather the loss of Starz titles. Some of the titles coming this quarter include: Transformers: The Dark Side of the Moon, Thor, The Rum Diary, Drive and In the Land of Blood and Honey. If they keep the content fresh, the subscribers will stay.

Convenience: There was very little in the call about the Netflix user experience including devices. Netflix stated that it was their best quarter in terms of the most hours streamed overall and per member. The fact that Netflix is on pretty much any device with network connectivity drives that number up.  Try to think of a device that Netflix is not on in the world of game consoles, Blu-ray players, Smart TVs, smart phones and tablets (the only ones I can think of are desktop Linux and the Playbook tablet).

Netflix did mention they are still working on personalization but did not give any hints when we would see it (a previous call said it would be in 2012). There was an interesting tidbit stating that the personalization initiative wasn’t seen as a way to generate more revenue. Reading into it, I assume a family wouldn’t have to pay extra if each person had their own instant queue and specialized recommendations. All of those connected devices bought for Christmas probably converted into some significant subscriber sign-ups.

Netflix also stated they exploring other opportunities to integrate with other payment systems. With the release of the latest Apple TV software, you can pay for Netflix with your iTunes account. Netflix said they are exploring similar partnership with ISPs and cable companies.

Netflix doesn’t think bandwidth will be an issue as the service grows and stated one fiber optic cable can handle all of the Netflix traffic during its peak usage, Saturday night. True for the backbone of the Internet, but there’s still a lot of work to be done to upgrade the last mile to the home. In addition, Netflix also took up the issue of net neutrality and called out Comcast for not subjecting its own Xfinity app to its bandwidth cap of 250 GB. To finish up, based on my own experience the service has been a lot more reliable in 2012 versus 2011. And that’s another important way to retain subscribers.

Tags: Netflix, streaming

5 Responses to Why Netflix Gained 3 Million Subscribers

  1. Travis Ehrenstrom on May 2, 2012 at 4:40 pm

    I used to be a former Netflix diehard. I loved there streaming service and thought any other services were irrelevant. After the price increase of last year and the streaming vs. discs debacle I finally decided to try out alternative options. I stream mostly from my PS3 and iPad, and decided to try out Hulu Plus, Vudu, and Amazon instant video. I’ve found that by diversifying my library through these three service providers, that I have access to much more content and have been spending a lot less per month. For example, my old netflix bill was around $20 a month, and my current bill is usually around $18. Granted that Vudu is a pay per view service, but I think for the content it provides, I find myself more excited to watch the content that’s readily available, compared to digging through Netflix’s sub-par streaming content.

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