Netflix's streaming video keeps making inroads

Catherine Sapiro doesn't need to pay for cable TV to watch favorite shows like "MI-5" and "Top Gear." She just streams the shows off the Internet onto her computer using Netflix.

"I actually stream more than I watch on the discs now," the Richmond District resident said. "I tell people that it's got a great variety of programs and there are things I have watched that I could have never found when I went to a regular video rental place."

The past year was a remarkable one for Netflix Inc. in many ways, in large part due to subscribers like Sapiro, whose transition from DVDs to online video illustrates why the Los Gatos firm is now focused on beefing up its 4 year-old "Watch Instantly" streaming feature.

Netflix stock did slump at year's end as analysts questioned whether potential roadblocks, such as higher costs to license movies and TV shows for streaming, could slow the company's momentum in 2011. Still, it's not hyperbole to say the firm that sent one-time video rental king Blockbuster into bankruptcy court is now playing a bigger role in redefining home video entertainment.

Netflix spokesman Steve Swaysy said the firm is just riding the crest of a technology-fed desire by consumers for "instant gratification. And instant video is a part of it."

When it launched in 1997, Netflix pioneered the concept of renting DVDs by mail and a website instead of from a brick-and-mortar store. Four years ago this month, it added online streaming.

Subscribers get unlimited streaming for monthly fees that start at $9.99, which includes one rented DVD . Last year, Netflix added another subscription level - $7.99 per month for streaming only, without DVDs.

$2 billion in revenue

Netflix has projected to top $2 billion in revenues and 19 million subscribers in its final figures for 2010, which would be up from $1.7 billion in revenues and 12.3 million subscribers in 2009. The company also launched a streaming-only service in Canada, the first step of a planned international expansion that may continue in late 2011.

The company's stock price soared by as much as 245 percent during the year, from $48 per share in January to as high as $209 on Dec. 1, before closing the year Friday at $175.70 on the Nasdaq Stock Market.

Moreover, Fortune named chief executive officer Reed Hastings as the magazine's Businessperson of the Year.

And for icing on the cake, Standard & Poor's added Netflix to its S&P; 500 as one of several firms that displaced stalwarts like the New York Times Co. and Eastman Kodak Co. on the prestigious stock market benchmark.

But perhaps the biggest news came in August, when Netflix agreed to a five-year deal worth nearly $1 billion with the Epix pay TV channel for the rights to stream more than 3,000 films from Paramount Pictures, Lionsgate Entertainment Corp. and Metro-Goldwyn-Mayer Inc. The newest films become available 90 days after they debut on Epix, a joint venture of those studios.

Netflix also cut a deal last month with the Walt Disney Co. to stream some ABC-TV, Disney Channel and ABC Family shows. Netflix previously had content from Disney and Sony Pictures as part of a $30 million deal in 2008 with the Starz premium cable channel. That deal expires later this year.

In all, Swaysy said, Netflix has streaming access to films that brought in about 49 percent of the 2010 box office revenues, including the new Christian Bale film "The Fighter," and popular TV programs like "The Office," "Lost," "Grey's Anatomy" and "Hannah Montana."

Netflix also benefited from a rising tide of Internet-ready consumer electronics, such as Blu-ray players and video game consoles, that can be directly connected to TVs. In addition, the newest breed of TV monitors come Wi-Fi-enabled.

Variety of devices

More than 200 of these devices are Netflix-enabled, putting Netflix alongside HBO or Showtime. "So the lines between Netflix and other channels are blurring," Atul Bagga, an analyst for Think Equity LLC.

Indeed, the research firm NPD Group last week said 57 percent of consumers who have purchased Internet-connected TVs are already using them to access Netflix.

The rise of Netflix, however, has unnerved some executives in Hollywood and at cable and satellite providers because of the threat posed to their profits.