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Internet Connected TV's in the US Reaches 40%

35% of Netflix Users Watch Video from the Internet

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Leichtman Research Group (LRG ) recently published the results of a survey measuring the adoption of Internet connected televisions in the United States. According to the results of the survey, almost 40% of all U.S. households have at least one TV connected to the Internet. This is an increase from 10% last year, and 5% two years ago.

LRG is a research and consulting company based in Durham, NH specializing in research and analysis of trends in broadband adoption, media and entertainment products and services. According to a press release from the company, the results were based on a survey in which 1251 nationwide households were asked a series of questions about their use of Internet connected TV's.

According to the report, Neflix subscribers form the largest group of Internet TV users, with 35% of Netflix customers watching Internet video with a connected device on a weekly basis. By contrast, this rate is only 5% in consumers who are not Netflix subscribers.

Some of the highlights in the report:

  • Overall, 16% of all adults use Netflix’s Watch Instantly feature weekly — compared to 12% last year, and 4% two years ago
  • 79% of Netflix Watch Instantly customers use it to watch movies and television shows on a TV set, and 59% of this group access Netflix via a video game system
  • 50% of Netflix subscribers are satisfied with the service, and 11% are likely to stop subscribing to Netflix in the next six months
  • 7% of Netflix subscribers are likely to switch from their multichannel video provider in the next six months — compared to 12% of non-Netflix subscribers
  • 13% of Netflix subscribers would consider reducing spending on their multichannel video service because of Netflix — compared to 21% last year
  • 16% of all adults watch full length TV shows online at least weekly — compared to 12% last year, and 10% three years ago
  • Among all mobile phone owners, 19% watch video on their phones weekly — compared to 15% last year, and 6% three years ago
  • 9% of all adults watch video on an iPad/tablet computer weekly — compared to 2% last year
  • Overall, 1.6% of households in the sample paid to subscribe to a multichannel video service in the past year and do not currently subscribe. Yet, just 0.1% of the sample dropped service in the past year, do not plan to subscribe again in the next six months, and say that they don’t subscribe because of Netflix or because they can watch all that they want on the Internet or in other ways.

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According to Bruce Leichtman, president and principal analyst for LRG:

“Video is increasingly being watched on different platforms and in different places, yet these emerging video services still generally act as complements to traditional television viewing and services rather than as substitutes. Among all adults, reported time spent watching TV is similar to last year, and there remains little evidence of a significant trend in consumers ‘cutting the cord’ to their multichannel video services to watch video solely via these emerging services.”

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Numbers Encouraging for Netflix, but Competition Still Comes From Many Fronts

This report provides Netflix with a bit of good news after a series of badly executed policy changes over the past year which incensed customers, and caused a mass exodus. Netflix now faces competition from many different fronts. According to Netflix – its toughest competition now comes from “multichannel video-programming distributors” (MVPD), such as Comcast, Time Warner Cable, satellite providers like DirectTV and Dish Network; and even wireline video providers, like Verizon Fios.

Competition from companies in the video streaming field includes Hulu Plus, Amazon Prime, and even network television studio sites such as CBS and NBC. Although traditional style video rental stores are almost obsolete, the Redbox model of low-cost video rentals from kiosks airports, grocery stores, and convenience stores - and in some markets, Blockbuster Video also are competitors.

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In addition to all of that competition – Netflix has also been competing with many of their own business partners. This was evident last year with Starz, who control pay-cable rights to movies from Walt Disney Studios and Sony Picture. The original Starz/Netflix deal was made in 2008. At the time, Starz saw the Netflix deal as an additional revenue stream – an estimated $30 million per year for the studio. At that time, online video streaming was a rather small market which would not compete with its traditional television business. However, as evidenced by a recent Sandvine report – this was not the case, and Starz now sees Netflix as a competitor to their subscription TV service.

Netflix Revenues and Customers Have Experienced Substantial Growth

It was just a little over a year ago, when things couldn’t have been better for Netflix. Profits were up 88%, and the company added 36 million subscribers globally, with 22.8 million US subscribers. Netflix reported $320 million profit on $2.1 billion in revenue in 2010, and had a market capitalization of $13.3 billion.

The fact that Netflix faces so much competition Starz, which controls pay-cable rights to movies from Walt Disney Studios and Sony Pictures, signed its current agreement with Netflix in 2008. At that time, online video was watched by only a small number of tech-savvy young people and the estimated $30 million per year the cable network received was seen as new revenue that would have little impact on its traditional television business.

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