Netflix Adds 7.7 Million Subscribers in 2010 to Pass 20 Million
Netflix is announcing its Q4 2010 earnings (pdf) today and one of the big stories, as you might expect, is the company's explosive growth. According to the letter the company issued to its shareholders …
Context & Ripple Effects
Netflix crossed 20 million subscribers on the strength of 7.7 million additions during 2010, and the quarter's numbers land on top of a deliberate streaming build-out through late 2010: an iPhone/iPad app released in December, a completely new PlayStation 3 experience, an HTML5 initiative to standardize streaming across devices, and a multi-year FilmDistrict deal bringing first-run films into the streaming catalog.
Two threads sharpen why this matters. On January 17, Netflix removed the Add-to-DVD-Queue option from its streaming devices — a clear signal that the disc-by-mail business is being demoted inside the product. And the story traveled with friction attached: GigaOM's same-day pickup framed the subscriber surge against Netflix's complaint that ISPs overcharge users under tiered data plans, making broadband pricing a live variable in the company's growth math.
First-order effects
- Netflix enters 2011 with more than 20 million subscribers, giving it the scale to keep paying for first-run streaming rights like the December 2010 FilmDistrict deal rather than library-only catalog.
- Customers who own Netflix's streaming devices lose direct disc-queue access as of the mid-January change, nudging the installed base toward streaming-only viewing habits on TVs and consoles.
Second-order effects
- ISPs selling metered or tiered data plans now sit between Netflix and its growth: per-gigabyte pricing raises each subscriber's effective cost of heavy streaming, turning bandwidth billing into a competitive issue Netflix has publicly flagged.
- Content owners gain leverage — a 20-million-subscriber buyer chasing first-run films makes streaming windows a bidding item, while pay-TV distributors face a cheap subscription-video alternative reaching living rooms through game consoles and phones instead of cable boxes.
Third-order effects
- If the device-plus-app model keeps compounding, distribution consolidates around software on any connected screen — Netflix's HTML5 work and open-source streaming stack are aimed exactly at making hardware makers interchangeable, eroding the set-top box gatekeeper role.
- Metered broadband is the structural brake on this pattern: whether data caps hold back subscription streaming or get flattened by consumer backlash will shape how far the 2010 growth curve extends.
The trend: Home video is shifting from mailed discs to subscription streaming delivered by apps on whatever screen a household owns, with subscriber scale funding first-run content and ISP data-plan pricing emerging as the key external constraint.