When your product consumes 30 percent of America's residential internet bandwidth in the evenings, you need to be careful when launching that same product in a new country. That happened today as Netflix, the 20-million-member movie streaming service, went live in the UK. Chief Executive Officer and Netflix co-founder Reed Hastings is in London for the occasion.
It's 3pm on a warm January afternoon and I'm being led through a luxurious Mayfair hotel in London. "Reed has just stepped out for a walk around the block," I'm told as I'm walked down a black-walled corridor, handed a coffee and asked if I'd signed up to Netflix yet. "Yes, this morning. I watched the first five minutes of Man On Wire." It was the first film listed under "Critically-acclaimed Documentaries", and one I'd been yearning to watch. Netflix knew me too well, too quickly.
Now in a posh movie junket-like hotel suite, Hastings, 51, and fresh from his walk, began to carefully answer my questions. "DVD is declining and streaming is growing," he said, as I asked why he had decided to ignore the DVD-by-post business model his company was famous for. "It was an easy choice. DVDs are a declining business, that's definitely true. But it'll be a long tail; there'll be people who like DVDs in five or 10 years time."
But this decision to be streaming-only meant the company was able to launch in the UK at a very low price point, instantly making customers ask themselves, "Netflix or Lovefilm?" In truth, Hastings sees the UK market differently. "I think of [Netflix and Lovefilm] as two rivals and we'll learn from each other," he explains. "But we're mostly competing with Sky Movies and Sky Atlantic. There's about five million Sky Movies subscribers and we'd like all of them to join Netflix."
It makes for an interesting consumer choice: Lovefilm, for streaming and back-catalogue and renting new DVDs; Sky Movies for streaming blockbusters; or Netflix. That goes without mentioning Tesco-owned Blinkbox or services provided on games consoles. It's an exciting new landscape for UK movie and TV fans, and Hastings is clearly excited by this. "In general the [UK] entertainment business is vibrant. If you look at Sky Atlantic or Sky Movies, these are big businesses that haven't had much competition. And now Lovefilm's getting into streaming and we're both providing some competition."
Netflix is also providing an enormous task to the UK's broadband infrastructure. Using the web-based video player alone, one hour of high-definition Netflix content will require you stream over 2GB of data -- and that's just in 720p resolution. Move over to the Xbox 360 or PlayStation 3, where 1080p streaming is supported alongside 5.1 surround sound, and that number gets only larger. The company's mobile phone applications, available on iPhone and Android, support streaming over 3G networks too, bringing this potential dataflood to the likes of Vodafone and Orange, as well as the broadband ISPs.
I was compelled to remind Hastings of the 30-percent-of-all-US-internet-traffic figure touted a few months ago to see if he twitched. He didn't. "I think it's reasonably accurate for residential bandwidth," he admits. "So we should expect a similar figure for the UK?" I asked. "Yeah, absolutely."
The broadband providers will be pleased indeed. In 2007, at the birth of the BBC's iPlayer, the UK's ISPs feared the ensuing "exaflood" of data caused by the popularity of free downloads of BBC television shows would cripple their aging networks. It was even suggested the BBC should cough up to help pay for the bandwidth. Cough it did, but it wasn't money that came out of this figurative corporate mouth, but the words, "Ha, funny. No chance."
Hastings doesn't think this is about to happen again, however. "As there's more and more streaming -- whether that's Skype or YouTube or Netflix or Sky Go -- broadband providers are investing in more fibre optic. And even just a single fibre optic can carry all of Netflix's streaming." In other words, networks are better able to cope now than five years ago.
So with a healthy rivalry of what feels like Netflix and Lovefilm versus Sky, and the confidence that the UK's networks are able to handle the huge back-end strains of the Netflix system, what's next? "What we want to do is have a passionate base of very happy members," Hastings explains. "Our focus now is member happiness rather than total numbers. If we've got very happy members, it's easier to expand."
Social movie-watching is also a key factor for British customers. "I think some of the most innovative work we're doing in the UK is the social integration with Facebook. The way it works is similar to how Spotify works, where you can see what your friends are listening to, or watching in the Netflix case, and it's really fun. You see a lot of social news applications, that's rapidly growing; and social music. We're cutting a lot of new ground with social video and that's going to be really exciting."
Apparently it's exciting enough to the public, too -- earlier today Lovefilm's account cancellation hotline was too busy to take the call of one customer we spoke to who wanted to move to Netflix.
Personally, there's room for both in my life, plus iTunes, because Netflix doesn't offer game rentals, Lovefilm doesn't do HD on my MacBook and neither offer downloads for offline playback. But really, the true winner will be whichever company loads the remaining 85 minutes of Man on Wire fastest for me this evening.
This article was originally published by WIRED UK
