Netflix Interconnecting with IP Provider

The recent announcement made by Netflix in agreement with Comcast, about directly interconnecting their networks, have gathered reactions and anger from organized social groups and other companies. And I believe that it is also a great time to enlighten our audience about the “interconnection” thing.

Critics viewed it as a direct threat to the principles of net neutrality, which had prohibited internet providers from prioritizing content. But these responses may underscore the lack of technical understanding of how  internet infrastructure works.  Internet is not actually a cloud that oversee the technology world. It is a collection of networks that technically meet, conjoin or interconnect and exchange traffic based on negotiated business arrangements known as peering or transit.  And this is the type of agreement sealed by Netflix and Comcast. Interconnection is not the same as prioritizing content over other content.  That is why their press release states “Netflix receives no preferential network treatment under the multi-year agreement.” 

Netflix Business Model

Netflix started in 1997 by offering online movie rental. In 1999, Netflix’ strategy of introducing a subscription service and offering unlimited video rental for one low monthly subscription fee was quite a good job for it was able to acquire a stable share with 857,000 subscribers in 2002 to 4.2 million subscribers in 2005, which eventually urged the company to stream its video content to directly serve its market.

Sources of Revenue

Netflix generate income from subscribers through membership. It is very popular in its “no commitments, cancel online anytime” policy. In economic perspective, cost is reduced when there’s an increase in the number of production output. Thus, Netflix registered an increase in income when there’s an increase in the number of subscribers. To achieve an increase in the number of subscribers, Netflix invest more in streaming content to keep its customer delighted, and also to differentiate itself from the competition. 

Customer base

Netflix have 40 million subscribers (globally) in 2013 which is approximately 33% higher than the prior year, and is expected to increase more. It is said that approximately 27% of premium cable subscribers are also streaming video customers. Netflix service 41 countries; the U.S., Latin America, Carribean, United Kingdom, Ireland, Nordics (Northern Europe and North Atlantic), and in Netherland last 2013. 

Product and Services

With the objective for continuous service improvements, from mere movie rental to movie streaming, Netflix partners with various network for media infrastructure and streaming platform, and Netflix movies can now be accessed on a broad spectrum of devices such as PS3, Wii, Xbox, PC, mobile, tablet and more.  Its improved interface and more customer-controlled viewing keep Netflix on top.  Netflix also offer Free Trial for 1 month!

Details of their financing

Netflix reported a net income of $112,403 thousands for 12 months ended December 2013 and is spending for continuous improvement for international streaming content and platform.  The installation of streaming infrastructure in other region for expansion further conclude that Netflix is financially well and their model is keeping them as the world’s leading internet television network.

Pricing Model

Netflix streaming plan costs $7.99 a month (which is almost half price of a movie ticket in New York), which allow user to watch video on up to 2 screens at once, including TVs and mobile devices, while a $11.99 a month allows user up to four (4) shows at once.

Any move to offer a cheaper service tier, may be surprising to some analyst who expect that the company will raise prices to eventually pay for the service content.

Human Needs fix by Netflix

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Netflix keep us away from unbearable cold; it provide us means to enjoy movies and manifest our love and closeness with our families and friends. It also boost our self-esteem and confidence; being privileged to choose and view movie on our most convenient time wherever we may be.

Proof of success or failure

This article aims to enlighten the audience on internet and peering works. Also, It further describe Netflix’ successful strategy to achieve continuous increase in the number of subscribers.  These data can also be found in Netflix site, and for further information on net neutrality issue, you may reference the Federal Appeals Court decision.