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Thursday, June 9, 2011

Netflix Hits the Ground Running

Since launching their streaming-only service in Canada in September of last year, Netflix has made quite a splash. Eight percent of Canadian households have subscribed to the service; by comparison, it took Netflix five years to reach that same milestone in the United States (where they offer DVDs and Blu-rays by mail in addition to their streaming service).1

Successful Strategy
Netflix offers an array of movies and television shows through its streaming service. The move is obviously paying off. In addition to the subscriber numbers mentioned above, Netflix is now the top user of Internet bandwidth in North America.2

By offering only the streaming option in Canada, Netflix saves the costs associated with purchasing and mailing physical discs; however, those savings are offset by the cost of licensing material to stream.3

Significant Challenges
Expanding their service into Canada wasn’t a matter of simply flipping a switch for Netflix. One challenge they’ve had to deal with is the common practice by Canadian Internet service providers of capping their users’ bandwidth usage. These caps range from 2GB to 175GB per month, depending on the subscription level. An hour’s worth of streaming video from Netflix generally consumes about 2GB of data, which can eat away at a subscriber’s limit in a hurry.4

While Netflix CEO Reed Hastings opposes data caps in general, the company has come up with a compromise to allow users to work within their limits. The company now offers, by default, a slightly lower video quality option that consumes 2/3 the bandwidth of their full-quality signal.5 Users wishing to use the full-quality stream instead may do so by changing their account preferences.

Another impediment to Netflix’s service in Canada is the size of their offering. As of now, they lack the rights to rights to stream in Canada much of the material they offer in the U.S.; as a result, their selection is only about 1/10 of what is available to our neighbours to the south.6 Netflix is aggressively seeking to expand the material they can offer for streaming. For instance, they’re currently in negotiations with CBS to offer that network’s programming to customers in Canada and Latin America, should Netflix expand in that direction.7

What Does This Mean for Libraries?
While the convenience of the streaming option may keep some viewers glued to their Internet, the current limitations of the service in Canada provide plenty of room for libraries to lure patrons with DVDs and Blu-rays. By maintaining robust collections, libraries can offer far more viewing options than Netflix’s limited options. Even as their selection expands, viewers will want to look elsewhere for content in order to keep from exceeding their data caps. Beyond that, as we reported last month, studies show that consumers still prefer DVD and Blu-ray over streaming video. With all this in mind, it seems likely that patrons will be turning to libraries to fulfill their DVD needs for the foreseeable future.


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