NETFLIX’S STREAMING STRATEGY QUESTIONED

Analysts are questioning Netflix’s strategy of transitioning from mailing DVDs of movies to subscribers to streaming them online. Home Media magazine today (Monday) quoted Michael Pachter of Wedbush Securities as estimating that Netflix’s license fees for streaming movies and TV shows is likely to increase to $500 million this year, while postage and distribution savings will only amount to about $200 million. Pachter noted that some analysts “have assumed that postage savings would exceed the increase in content costs, and we believe that such an assumption is patently wrong.” He went on to note that if Netflix subscribers want to view new releases, they must rent the disc. Otherwise they must wait about one year to stream them online, all of which he said, “suggests that streaming can be a substitute for most catalog DVD rentals, but cannot be a substitute for new release DVD rentals.”