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Netflix Streaming Costs Primarily Licensing, Not Bandwidth
Hollywood cashes in on Netflix success
by Karl Bode 09:25AM Friday Jul 30 2010
As CNET explores, Netflix has been doing rather well financially -- which resulted in Hollywood very quickly begging them for more money. Hollywood has also gotten Netflix to do things like delaying new releases for thirty days under the misguided impression that this is somehow going to help save physical DVD sales. As NewTeeVee notes, Netflix spent $66 million in the second quarter of 2010 on licenses for streaming titles, compared with just $9 million one year earlier. That's substantially more than they pay for bandwidth:
But despite a huge increase in the amount of video streams it's serving up through Watch Instantly, Netflix's streaming costs haven't increased proportionally. In the second quarter, the company said costs associated with delivery over third-party CDN networks only increased by $1 million versus the previous quarter. Netflix is benefiting from bandwidth costs continuing to fall exponentially as it grows its streaming business.
So far, predictions by Internet video nay sayers like Mark Cuban that Netflix's model isn't sustainable don't appear accurate. Netflix has eaten these Hollywood licensing costs without raising subscriber rates, though of course things could get more difficult for Netflix once cable TV providers (say ones that also own content empires) realize that streaming Netflix functionality embedded in every piece of hardware could pose a long-term threat.

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Jason Levine

4 recommendations

reply to SixSpeed

Re: Steaming service stinks

Well, I'm only 34 and I find their streaming selection prety good. It could be better but that's more the fault of the studios than Netflix. Netflix is making deals as quick as they can and would toss everything on streaming if they could.

Meanwhile, my 2 sons (age 6 and 3) love Netflix streaming. There are tons of kids shows on streaming (current like Dora and older like Rugrats). I hand the oldest the Roku remote and they go to town watching show after show.

I guess it all boils down to your taste vs what Netflix is currently allowed to stream.

As far as waiting to get DVDs, I've never run into that problem. After I send a DVD back, I typically have a new one in 3 days. I think I've only had one time when the item on the top of my queue wasn't available. Then again, most of the stuff I have on my queue isn't new release material. YMMV.
-Jason Levine