Netflix has really shown the world of online video who is boss. It was announced on Tuesday that subscribers of Netflix watched more than 1 billion hours of online video last month.
It seems as though the high-speed Internet connections and high-powered mobile devices have changed people's viewing habits. Netflix CEO Reed Hastling announced the milestone a day after Citigroup analyst Mark Mahaney issued an upbeat report about the company's future. Netflix's stock was lifted by more than 6 percent as a result of those factors.
Netflix is trying to sway people away from DVDs in order to save on mailing costs and reduce its investments on a format that it expects to become obsolete. Delivering Internet video is much quicker and less expensive than discs, but the streaming selection is not as extensive as what is available on DVDs. Therefore, Netflix has been spending tens of millions of dollars during the past two years to add more compelling titles.
As of March 31, Netflix had just 2.7 million customers who subscribed only to the DVD rental plan. About 19.1 million are streaming-only customers and the remaining 7.4 million get both.
Netflix has continued to grow in popularity and one of the biggest reasons that Netflix's streaming service is catching on is because it costs just $8 per month to watch unlimited amount of video without commercial interruptions.
"Netflix is starting to cannibalize cable-TV viewership and it could start cannibalizing advertising, too," Michael Pachter, Wedbush Securities analyst, said on USA Today. If that happens, he expects Netflix's licensing fees to rise even higher than the company has been anticipating as studios try to make up for the revenue they lose from cable providers and advertising-supported broadcasters.
The one billion hours of online viewing in the month of June works out to a monthly average of about 38 hours per streaming subscriber. According to Mahaney's report, he said that more than one-third of Netflix's streaming subscribers watch about as many TV series as they do movies over the Internet.
His reports also estimates that 35 percent of iPad owners watched a Netflix-delivered video in June, up from 30 percent in September. Netflix consistently ranks among the 20 most downloaded applications on the iPad.
Pachter believes that his fears about Netflix having to pay even higher licensing fees will work out, forcing the company to either raise its prices or shoulder more losses. He expects shares of Netflix, which is based in Los Gatos, California, to fall as low as $45.
