In a story about the announcement that 5 different HDTV manufacturers will be equipped to show Netflix movies, Ryan Lawler reports on the economics of Netflix:
That’s good news from a financial point of view, as streaming video comes with a much lower delivery cost than shipping discs. According to Netflix CEO Reed Hastings at NewTeeVee Live, the company spends about $600 million a year on postage for its mail-order business, but the cost of streaming a video title is much cheaper than delivering a DVD by mail — about 5 cents a gig for bandwidth — or about a nickel per movie.
I’m guessing that two postage for DVDs is 50 cents at bulk rate, and that labor/storage costs for sending out DVDs is probably the same. In other words, it’s cheaper for Netflix to let customers watch 20 movies via streaming than to send 1 DVD in the mail.
(If I assume that I watch 60 movies/TV episodes via Instant Viewing a month — not inconceivable — that still is cheaper for Netflix than having to mail out 3 DVDs a month.
There are disadvantages with instant viewing. Unreliability of the Internet connection (not Netflix’s fault), no DVD extras and the fact that a lot of titles are still not available via Instant Viewing (and may never well be).
These disadvantages are outweighed (I feel) by significant advantages with instant viewing: the ability to watch something whenever you want to, not having to worry about sending back DVDs and the fact that many TV shows are available without advertising.
I guess the real problem down the road comes when Netflix is such a dominant market player that it keeps raising prices. That could happen if Amazon.com buys Netflix, which has been rumored for a while. In that case, a TV that has Netflix capability may seem less important than having a separate piece of hardware which can play Netflix AND other channels (i.e., the Roku).