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Netflix downloads are really cheap… and postage is expensive

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).

In any case, I still love my Netflix and Roku combination  . In the recent Roger Ebert piece on  Top 20 films of the decade, 5 of them are available for instant viewing.

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  • Denver Website Designs 7/10/2010, 9:43 am

    I think the best thing about Netflix DVDs is that these can be easily ripped off into the higher resolution “avi” formats (or “mkv” formats if you have superior quality website video plug-in) and then can be easliy uploaded over the website to share with the customers…I have seen many online stores who rent such kind of “DVDs” for specific times over the internet….

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