DVD rental service Netflix (NFLX) has been one of the big recession winners. While the economy has tanked, Netflix shares have more than doubled since late December.
But what about the future when it’s streaming movie videos online instead of mailing DVDs in red envelopes. Won’t that cost a bundle?
No, says streaming media analyst Dan Rayburn. He estimates that it costs Netflix about $0.06 to stream a two-hour movie in standard definition, and about $0.09 to stream a hi-definition movie. (Via its partners like Limelight Networks and Level 3.) That’s very cheap compared to the postage they have to spend on DVD envelopes, which Rayburn estimates at $0.78.
What could potentially be more costly? Netflix’s licensing fees for online content.
Rayburn: In other online video offerings I have seen content owners charge a one-time flat fee per video, a fee each time the video has been watched, a one time licensing charge for a specific number of plays or many various other licensing models. I’ve seen licensing costs as high as $4 per movie, per play, and I’ve seen pricing on the other end of the spectrum at a few pennies per play. That’s why many of the content licensing deals Netflix has in place are a one time cost no matter how many movies are watched.
Most of Netflix’s current streaming content is old, “catalogue” content, and some is via a deal with Starz. But very little is new-release content, which would seemingly cost much more to stream than “Full Metal Jacket.” So Netflix’s streaming rights costs could certainly go up as it adds more new stuff: The company says it plans to “substantially increase” spending on streaming content in 2009.
But it’s going to be a long time — several years, at least — before streaming takes over DVD rentals as the bulk of Netflix’s business. So who knows what costs — or subscribership, or competitors — are going to look like then.