Six Out Of 10 Digital Movies Are Streamed via Netflix

[PSound]

Was the 25% estimate PSound was calculating based on DVD + Blu-ray + Digital/VOD DEG totals that included packaged media sellthrough and rental?



This is what they reported and the growth rate of Blu-ray was two to three times higher than that of the Digital/VOD segment from 2009 to 2010 and it was Blu-ray's growth of $0.8 B (from 1.5 to 2.3) that covered more than twice of the $1.8 B shift/attrition in DVD (from 15.8 to 14.0) while Digital/VOD only increased $0.4 B (from 2.1 to 2.4).

Part of that is that the Digital/VOD segment had a base of about $0.7 to $ 1.0 Billion in revenues to build on that was mostly cable/sat/hotel PPV/VOD revenues that existed before 2006. In reality since 2006 Blu-ray has gone from $0.0 B to $2.5 B an increase of $2.5 B while Digital/VOD has only increased from a legacy mostly cable/sat PPV/VOD base of $1.0 B to $2.1 B an increase of $1.1 B in the same period from 2006 to 2010.

So in the same period since 2006, Blu-ray has grown $2.5 B and Digital/VOD has grown only $1.1 B according to DEG. Thats Blu-ray growing 2.5/1.1 = 2.27 X faster than or 127% faster than Digital/VOD since 2006.




EOY 2010 DEG stats

$14.0 B (-11.4%) DVD sell through and rental (-11.4% down YTY)
$02.3 B (+53.3%) BD sell through and rental (+53.3% up YTY)
$02.5 B (+19.0%) Digital/VOD sellthrough and rental including cable/sat PPV/VOD (+19.0% YTY)

100% $18.8 Billion total (-3.09% down YTY)



http://www.dvdinformation.com/pressr...011/f_Q410.pdf

And all of that calculation does not attribute a single dime of Netflix revenue towards digital, while pushing it all towards physical. We know that is not an accurate representation of the revenue split.


Likewise, if you take Netflix digital consumption out of the equation you end up with Digital accounting for 10% of all Home Video consumption while generating 13% of all Home Video revenue.

[Ray Von]

The DEG opts not to estimate and split Netflix revenue. If you don't think the DEG is estimating numbers in their reporting, why not ask them for details about Wal-marts contribution to sell-through.

Netflix is a member of the DEG, and as such likely contributes to the DEG's data. Wal-Mart is not a member of the DEG, so it's unlikely they contribute.

The DEG has opted not to estimate the revenue split between physical and digital for Netflix.

Since Netflix is a DEG member, why would the DEG need to estimate their revenue like they do for a non-contributor like Wal-Mart?

A more pertinent question would be, why doesn't Netflix provide the split? If indeed they don't.

This diversion into the DEG is taking us away from the original point though - do you now appreciate that your original claim that internet streaming could account for 25% of revenue, apparently arrived at by your adding the DEG's total digital revenues for 2010 to Netflix's total revenue's for 2010, is fatally flawed?

And has been repeatedly stated, consumption and acquisition costs are the only two meaningful metrics that can be used for determining revenue split for a subscription service.

I kind of agree, which is why I'm puzzled that you constantly attempt to assign an (apparently arbitrary) value to Netflix's streaming, and compare it to revenue from other sources. Previously I've seen you allocate 50% of Netflix revenue to streaming, which I personally think is a little high but at least I can see how you've got there. Now though, you appear to be allocating 100% of Netflix revenue to streaming.

Consumption is certainly a meaningful metric, but if we're going to draw comparisons to other content it has to be weighed against the value of what is being consumed. Likewise, acquisition costs need to be judged in the same way.

It's already happened.

I'm not sure it has. Looking at their 2010 financials, their digital content acquisition costs increased almost three-fold from 2009 to over $400 million, revenue increased by around $530 overall.

Digital content acquisition costs look set to eclipse their physical acquisition and postage costs, and for the foreseeable future they'll have to support both.

The fact that Netflix is likely to grow 8-12 million subscribers and see their overall disc shipments go down is proof positive. Their revenue is going to increase > 50% while their physical shipment cost (that used to consume 1/3 of all revenue) is going down.

Between 2009 and 2010 Netflix's subscriber base increased ~60%, revenue increased ~30%. How do you calculate they can generate a greater than 50% increase in revenue on a subscriber increase of around 60% at best, and with the lower $7.99 plan to boot?

12 million subs x $8 x 12 months = ~$1.1 billion. Now, that is around 50% of 2010's revenue, but unless Netflix had exceptional growth on January the 1st, the only way I can see that they'll be able to achieve a greater than 50% increase in revenue is to increase subscription charges considerably, or recruit a large number of users on higher value with-disk subs. They're your figures though, I'll leave it to you to explain how they'll do it.

Your enthusiasm for Netflix is admirable, but don't let it lead you into the realm of fantasy

Ray Von

[PSound]

Netflix is a member of the DEG, and as such likely contributes to the DEG's data. Wal-Mart is not a member of the DEG, so it's unlikely they contribute.

Since Netflix is a DEG member, why would the DEG need to estimate their revenue like they do for a non-contributor like Wal-Mart?

A more pertinent question would be, why doesn't Netflix provide the split? If indeed they don't.

This diversion into the DEG is taking us away from the original point though - do you now appreciate that your original claim that internet streaming could account for 25% of revenue, apparently arrived at by your adding the DEG's total digital revenues for 2010 to Netflix's total revenue's for 2010, is fatally flawed?

I completely agree, which is why I'm puzzled that you constantly attempt to assign an (apparently arbitrary) value to Netflix's streaming, and compare it to revenue from other sources. Previously I've seen you allocate 50% of Netflix revenue to streaming, which I personally think is a little high but at least I can see how you've got there. Now though, you appear to be allocating 100% of Netflix revenue to streaming.

I'm not sure it has. Looking at their 2010 financials, their digital content acquisition costs increased almost three-fold from 2009 to over $400 million, revenue increased by around $530 overall.

Digital content acquisition costs look set to eclipse their physical acquisition and postage costs, and for the foreseeable future they'll have to support both.


Between 2009 and 2010 Netflix's subscriber base increased ~60%, revenue increased ~30%. How do you calculate they can generate a greater than 50% increase in revenue on a subscriber increase of around 60% at best, and with the lower $7.99 plan to boot?

12 million subs x $8 x 12 months = ~$1.1 billion. Now, that is around 50% of 2010's revenue, but unless Netflix had exceptional growth on January the 1st, the only way I can see that they'll be able to achieve a greater than 50% increase in revenue is to increase subscription charges considerably, or recruit a large number of users on higher value with-disk subs. They're your figures though, I'll leave it to you to explain how they'll do it.

Your enthusiasm for Netflix is admirable, but don't let it lead you into the realm of fantasy

Ray Von

This entire sub-thread started when AV_Integrated tried to state that Digital was responsible for 25% of consumption but nowhere near that percentage of revenue.

Of course that is absolutely ludicrous. I presented one model that took into account Netflix revenue. Since we don't actually have that split, I also presented a model that is probably more accurate.

One that takes out Netflix usage and calculates Digital revenue. With those numbers you end up with Digital generating 13% of Home Video revenue while being responsible for 10% of content consumption.

I hope the DEG will soon begin making the proper estimates to break out Netflix digital revenue. They certainly have the means and raw data to do so.

[Kosty]

The DEG opts not to estimate and split Netflix revenue. If you don't think the DEG is estimating numbers in their reporting, why not ask them for details about Wal-marts contribution to sell-through.

The DEG has opted not to estimate the revenue split between physical and digital for Netflix. Everyone know that the result means that portion of the report (the digital/physical split) is inaccurate.



And has been repeatedly stated, consumption and acquisition costs are the only two meaningful metrics that can be used for determining revenue split for a subscription service.



It's already happened. The fact that Netflix is likely to grow 8-12 million subscribers and see their overall disc shipments go down is proof positive. Their revenue is going to increase > 50% while their physical shipment cost (that used to consume 1/3 of all revenue) is going down.

I do not think it is valid to assume that the DEG EOY 2010 or previous DEG quarterly reports had zero allocation for Digital/VOD from the Netflix revenue stream.

Where did you get that idea from?

AFAIK, that allocation and the methodology that DEG has used or will use for the most part in splitting off Netflix's or Redbox or Blockbusters DVD rental Blu-ray rental or streaming usage into those various reporting segments is a blackbox to us that we only see what the results are.

But until the implementation of the streaming only plans, where all previous Netflix subscribers had joined Netflix with a disc out plan and streaming usage was low and clearly a free bonus, it was obviously the correct call to allocate most if not all of Netflix revenues toward DVD and Blu-ray rental.


But since the last half of last year, where Netflix streaming usage exploded and obviously more and more consumers are migrating to that part of the Netflix offerings and clearly streaming only customers are being acquired with streaming only plans, it would seem that DEG would probably already have allocated some of that revenue stream into the Digital/VOD category in the 4Q 2010 statistics.

Where is the information that DEG has not already done that in the 2010 statistics?

It seems that you may just want to claim that the 2010 stats for Digital/VOD was undercounted by DEG by just assuming that they did not already do that to some degree for Netflix already.

[Kosty]

And all of that calculation does not attribute a single dime of Netflix revenue towards digital, while pushing it all towards physical. We know that is not an accurate representation of the revenue split.


Likewise, if you take Netflix digital consumption out of the equation you end up with Digital accounting for 10% of all Home Video consumption while generating 13% of all Home Video revenue.

How do you know that DEG is not already allocating some of Netflix revenues for 2010 to that Digital/VOD category? It would seem that they obviously would have done that in the 4Q 2010 since Netflix is a DEG member IIRC and the streaming only plans new customers would clearly fall into that category as well as some reasonable allocation of existing legacy customers using the enhanced streaming services. It may not be to the level you would do, but it would seem reasonable that DEG would have already started doing that in 2010 and thats its to a degree already allocated somewhat in those 2010 statistics.

At any rate, before 2010, the allocation would have been much smaller under any reasonable estimate.

[PSound]

How do you know that DEG is not already allocating some of Netflix revenues for 2010 to that Digital/VOD category? It would seem that they obviously would have done that in the 4Q 2010 since Netflix is a DEG member IIRC and the streaming only plans new customers would clearly fall into that category as well as some reasonable allocation of existing legacy customers using the enhanced streaming services. It may not be to the level you would do, but it would seem reasonable that DEG would have already started doing that in 2010 and thats its to a degree already allocated somewhat in those 2010 statistics.

At any rate, before 2010, the allocation would have been much smaller under any reasonable estimate.

The numbers don't add up if they were allocating Netflix revenue to digital.

I expect if/when they start doing that there will also be discussion around it. It is going to be a massive swing based on Netflix subscriber consumption and acquisition costs.

[luclin999]

The numbers don't add up if they were allocating Netflix revenue to digital.

Unless their 2010 revenue from streaming alone just wasn't as much as you think it should be.

[Kosty]

The numbers don't add up if they were allocating Netflix revenue to digital.

I expect if/when they start doing that there will also be discussion around it. It is going to be a massive swing based on Netflix subscriber consumption and acquisition costs.

The numbers do not add up to you based on how you would allocate it or your probably aggressive assumptions. That seems to be just an assumption on your part.

They very well could have already done so, I would say probably already have done so in the 4Q 2010, but that they just made the professional analysis judgement that the magnitude was less than what you would have done.

Just because the numbers might have been smaller in magnitude than you expected does not mean that they have already started to do it already. Nor does it mean that when they do it more so in the future that you might be disappointed in their allocation.

It all seems to be just an unsubstantiated assumption on your part. Unless you have something more that your commentary that the magnitude is smaller than you expected.

[vikingfan]

Unless their 2010 revenue from streaming alone just wasn't as much as you think it should be.

That's exactly it.

[Kosty]

I would find it hard to believe that if Netflix provided or openly provided data on revenues generated from streaming only subscribers that DEG would not have allocated that revenue stream into the Digital/VOD category for 4Q 2010.

But the amount of revenues and the magnitude of the actual figure might just be less than you expected.

[PSound]

I would find it hard to believe that if Netflix provided or openly provided data on revenues generated from streaming only subscribers that DEG would not have allocated that revenue stream into the Digital/VOD category for 4Q 2010.

But the amount of revenues and the magnitude of the actual figure might just be less than you expected.

Netflix has openly provided data on subscriber consumption, and the studios and networks know exactly how much they have received from Netflix for rights to their streaming content.

If the DEG had used that data, then the revenue jump would have been very significant.

There is absolutely no way that the DEG is looking at subscriber consumption, Netflix subscriber revenue and revenue to the studio (much like they would with Wal-mart estimates) and allocating it between OD and Digital. The shift would be dramatic.

Eventually they will have to make that shift, and they will almost certainly disclose the change to account for the massive drop in OD revenue and the massive jump in VOD revenue. They may even go as far as splitting Digital revenue into three categories (VOD, EST and SVOD).

[Lee Stewart]

I would find it hard to believe that if Netflix provided or openly provided data on revenues generated from streaming only subscribers that DEG would not have allocated that revenue stream into the Digital/VOD category for 4Q 2010.

But the amount of revenues and the magnitude of the actual figure might just be less than you expected.

It's 2.56M X $7.99 X 1.5 (time period available)

[luclin999]

I would find it hard to believe that if Netflix provided or openly provided data on revenues generated from streaming only subscribers that DEG would not have allocated that revenue stream into the Digital/VOD category for 4Q 2010.

But the amount of revenues and the magnitude of the actual figure might just be less than you expected.

Keep in mind that they didn't even have a "streaming only" plan available until the very end of 2010 so its also possible that Netflix could not come up with a reliable formula to disentangle the revenue from streaming from their standard plans and thus the only revenue that they could reliably report as "digital" may have been from what little they earned from the Streaming only subscriptions at the end of the year.

[luclin999]

It's 2.56M X $7.99 X 1.5 (time period available)

...or about 30 million which could easily be included in the DEG numbers without being extraordinarily noticeable.