Apple, Companies, Entertainment, Software Programs

Eclipsing iTunes Ten Times, Netflix Thinks World Domination

Netflix is "talking about other regions in the world" and planning to "continue our international expansion next year," spokesman Steve Swasey told CBC last week.

If you were wondering about the scale of such an undertaking, Netflix is going to "allocate significant dollars to it," Swasey said.

AdWeek chimed in with an unnamed source claiming the company is hiring big marketing agencies left and right in preparations for a global advertising offensive.

Our US readers may wonder why all the fuss, but folks oversea are tingling with anticipation as Netflix brings its vast library of Hollywood movies and TV shows to international viewership.

But what does Netflix’s global expansion mean for other players in the rental business?

Netflix in August began streaming movies and television shows to Canada, its first execution outside the US. A few weeks later CEO Reed Hastings said Canadian operation will break even by September 2011. Earlier this month we learned about Netflix’s deal with Disney, of which Apple’s boss Steve Jobs is the largest individual shareholder, that lets the company stream online video content from the Disney Channel, ABC Family and ABC TV.

In another nod at Netflix’s growing dominance, Apple supported Netflix with the recent Apple TV hardware refresh. The Californian gadget maker is adamant that its set-top box remains a hobby business, but that didn’t stop them from issuing a statement last Tuesday announcing they would be selling a millionth Apple TV later that week. The statement also mentioned that iTunes users were "renting and purchasing over 400,000 TV episodes and over 150,000 movies per day."

iTunes has been selling video rentals and purchases since 2005. It failed to take the leadership position in this space as it doesn’t work across a wide variety of devices like Netflix, supported by more than 200 devices in the US.

Should Netflix roll out globally, however, incumbents like iTunes might face an insurmountable obstacle. And don’t forget that other entrants like cloud gaming startup OnLive plan to stream Hollywood entertainment in 2011 as well.

The iTunes Store exists nearly eight years, while Netflix has been running its mail-in DVD operations for twice as long. Netflix says it has more than 16 million members in the US and Canada and enjoys support from more than 200 enabled devices in the US alone. The company’s killer product is an unlimited access to streaming movies for eight bucks a month, contrasting the couple of bucks for a single movie rental or 99 cents for a television show rental on iTunes.

Even though Apple doesn’t break down iTunes Store sales by content type, Gleacher & Company’s analyst Brian Marshall pegged Apple’s video rental business at just one-tenth of the size of Netflix’s streaming operation.

The analyst praised the fact that Apple’s five-year-old rental business rakes in more revenue than sales of purchases.

He wrote that users iTunes rent about 475,000 movies and TV show episodes a day on the service versus 5.1 million Netflix rentals. iTunes rentals and purchases account for $60 million and $50 million per quarter, respectively.

Apple keeps about 30 percent of the proceeds, meaning iTunes rentals earn the company about $110 million of revenue per quarter – not too shabby, but certainly paling in comparison to the $550 million in revenue Netflix reported for its most recent quarter.

Summing up, looks like nobody – not e=even Apple – can stop Netflix from dominating the global scene for on-demand Hollywood entertainment. Beg to differ? Meet us in comments.