The country's most popular movie-streaming service is now working with the country's largest content-delivery network.
"We chose Akamai as our primary content delivery network because we need a strong partner to deliver movies instantly and to be able to meet our ever-increasing demand," Andrew Rendich, head of Netflix operations, is quoted as saying in yesterday's press release.
This may certainly be true, but there is probably something else at play here.
Two weeks ago, StreamingMedia.com's blog broke the story, indicating that Akamai would be charging Netflix just $0.015 per gigabyte for the first three or four months of the deal in exchange for handling at least 51% of Netflix's streams. That cutthroat rate is a third of Limelight's rate (and a fourth of what Akamai normally charges, according to NewTeeVee).
Neither party is confirming the price break required for Akamai to get the Netflix account, but let's see if this move has an impact on Akamai's margins going forward. Let's also see where things stand once Akamai's discount presumably ends.
As a global leader, Akamai would be a great partner to have -- all things being equal. Netflix has already committed to expand into an unannounced market outside the U.S. later this year, and Akamai would be an asset if the international launch includes the streaming component of Netflix's service.
In its latest quarter, 48% of Netflix's 12.3 million subscribers had streamed at least 15 minutes of video. It's included at no additional cost to unlimited DVD rental plans, so it's simply a matter of either having the mind-set to watch a flick on a computer or have the networked home theater appliances to make it happen.
Streaming is a growth vehicle at Netflix, since only 28% of its subscribers were watching Web-served video during the same quarter a year earlier. Netflix's ability to stream through existing Blu-ray, DVR, and video game consoles including Microsoft's (Nasdaq: MSFT ) Xbox 360 and Sony's (NYSE: SNE ) PS3 will only grow Netflix's demand for reliable content delivery.
So congrats to Akamai for getting its foot in the door. Now let's see if it can avoid stubbing its toe.
Is the content-delivery network industry too competitive to generate long-term profitable growth? Will Netflix stick with Akamai if the discounting ends? Share your thoughts in the comment box below.