Metrics related to the subscription streaming video company Netflix are few and far between. The company issues occasional â€œmilestones,â€ but it can be difficult to get a sense of how it compares with other services or programs.
In a frequently cited estimate released in January by BTIG Financial Analyst Richard Greenfield, Netflix would rank 15th in hours if it were a TV â€œnetwork,â€ and second only to CBS, in Netflix homes. Two months later, a report issued by The Diffusion Group (TDG) compared Netflix with service provider video on demand (VOD). The research firm estimated that in Q4 2011, U.S. subscribers of Netflix watched 80 percent more streaming video hours than were viewed in the same period on U.S. PayTV (cable and telco) VOD platforms.
The point of reference for that comparison is the 1 percent of U.S. TV viewing that goes to VOD. That number represents a failure, in the opinion of TDG Analyst and author of the report Bill Niemeyer. â€œOperators have failed to take advantage of VOD to build subscriber satisfaction, generate ad revenues and head off competition from over-the-top (OTT) providers like Netflix,â€ said Niemeyer. (The paid report is titled â€œMaking Ad-Supported VOD Work.â€)
Some North American MSOs, including as Comcast and Rogers, are now trying to buck trend of neglect as far as advertising goes, but on the whole Neimeyer said ad-supported VOD has been a â€œsignificant missed opportunity.â€
Neimeyer said that VOD viewing has been â€œedging up slightlyâ€ simply because of the expanding footprint of digital cable, but that compares with Netflix, which is â€œrocketing upwards.â€ Given time, Netflix streaming could become 100 percent, or twice the amount of VOD viewing.
How did Niemeyer derive that figure? First he started with the 2 billion hoursâ€”the milestoneâ€”that Netflix announced in its Q4 earnings report. (Greenfield did the same when backing into his number.) From 2 billion, he took 94 percent for U.S. subscribers. The number for total VOD usage comes from growth extrapolated from Rentrak data for 2009 and 2010. Finally, he divided that number four to get to Q4.
So Netflix outperforms VOD in hours, what is the significance? One thought is that the divergence could be greater. Given that Netflixâ€™s DVD library is five times larger than its streaming library (100,000 to 20,000) and that content providers have been making it more difficult for the company to secure streaming rights, the delta between VOD and Netflix streaming could have been larger.
â€œNetflix doesnâ€™t have valuable streaming properties,â€ said EVP of Televisual Applications at MPG Mitch Oscar. â€œWith DVDs, they have real value. On streaming side, they are very limited.â€
In other words, if Netflix were less limited in what they had to stream, the hours could likely be much higher. But if the quality and quantity of content are no longer improving, then why is it that Netflix streaming continues to grow? Or could it be approaching a plateau?
Another thought counsels keeping these numbers in perspective. Both VOD and Netflix streaming represent a very small fraction of overall TV viewing.