More on Netflix, Video Streaming and The Long Tail

Netflix, founded in 1997, is now the world's largest online movie rental service.

In 2006, David Leonhardt of the NY Times wrote a very informative article about how Netflix was using the phenomenon of the Long Tail to build a remarkable 21st Century business.

Since 2009, in addition to the little red envelopes that deliver DVDs to customers through the mail, Netflix has been making deals with a variety of hardware companies to make its online streaming "Watch Instantly" service more or less ubiquitous. The "Watch Instantly" option still doesn't offer all of the top 100 films. Some observers predict that the studios may have to begin offering more films through Netflix as more customers demand their online films arrive via Netflix, a service they are wired to receive. However, in 2011 Netflix was unable to make a deal to continue offering the films from the Starz network - even though Netflix was reportedly willing to pay 10 times the amount they had been paying for annual licenses to stream that content.

Another indicator of the challenges facing Netflix (as the streaming business matures) can be seen in a Sept. 2011 drop in their stock price. In mid-2010 Netflix reported over 15 million subscribers (up 42% in one year) and they projected that they would end 2010 with 17.7-18.5 million subscribers, with more than half of all those customers streaming at least some video. Netflix met those predictions as streaming became very popular. But, in July 2011, Netflix changed its service plan, increasing the cost of receiving physical DVDs (for a time, their streaming-plus-DVD plan cost only $9.99, but after July 2011 it will cost subscribers $15.98 to get DVDs and streaming). The resulting protests, from streaming customers who also wanted physical DVDs and didn't want to pay extra for that option, had a small effect on Netflix's bottom line, with Netflix lowering their predictions on the number of subscribers (24 million customers -- down from the 25 million previously predicted for the third quarter of 2011). But the stock price for Netflix took a big hit tumbling over 20% in just two days in mid-September 2011.

It should be noted that Netflix subscribers can choose from over 100,000 DVD titles and a still growing library of choices that can be watched instantly. Netflix also lets users rate movies on a one- to five-star scale and make online recommendations to their friends. The company's servers also sift through the one billion ratings in its system to tell customers which movies they might like, based on which ones they've already liked.

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