Netflix's Move Onto the Web Stirs Rivalries
By TIM ARANGO and DAVID CARR November 24, 2010
In a matter of months, the movie delivery company Netflix has gone from being the fastest-growing first-class mail customer of the United States Postal Service to the biggest source of streaming Web traffic in North America during peak evening hours.
That transformation - from a mail-order business to a technology company - is revolutionizing the way millions of people watch television, but it's also proving to be a big headache for TV providers and movie studios, which increasingly see Netflix as a competitive threat, even as they sell Netflix their content.
The dilemma for Hollywood was neatly spelled out in a Netflix announcement Monday of a new subscription service: $7.99 a month for unlimited downloads of movies and television shows, compared with $19.99 a month for a plan that allows the subscriber to have three discs out at a time, sent through the mail, plus unlimited downloads. For studios that only a few years ago were selling new DVDs for $30, that represents a huge drop in profits.
"Right now, Netflix is a distribution platform, and has very little competition, but that's changing," said Warren N. Lieberfarb, a consultant who played a critical role in creating the DVD while at Warner Brothers.
For the first time, the company will spend more over the holidays to stream movies than to ship DVDs in its familiar red envelopes (although it is still spending more than half a billion dollars on postage this year). And that shift coincides with an ominous development for cable companies, which long controlled home entertainment: for the first time in their history, cable television subscriptions fell in the United States in the last two quarters - a trend some attribute to the rise of Netflix, which allows consumers to bypass their cable box to stream movies and shows.