Despite the steady flow of bright red mailers to my porch, Netflix
The emphasis on streaming makes sense. Roughly two-thirds of Netflix accounts are now taking advantage of the dot-com's growing digital library, accounting for more than half of the content that is consumed.
Streaming is so important that the company is signing costly digital licensing deals, rolling out a "streaming only" plan, and has even talked Web-tethered television and Blu-ray manufacturers into including a Netflix button on their remotes.
It's a brilliant plan, but what if it's a road to nowhere? What if the push for Netflix streaming that threatens to encourage more "cord cutting" by cable television subscribers can come undone by the threatened cable providers themselves?
It can happen. Meet you up north in the next paragraph.
Netflix has been gushing about its initial success in Canada, where it launched a streaming service that is free of physical discs and regional distribution centers in September. It's going so well that Netflix now expects the service to be profitable within a year.
Netflix's confidence is brimming, and it's gearing up to enter at least one more international market later this year.
There's a problem, though. Canada -- like most of Europe -- doesn't offer its home-based broadband in smorgasbord fashion. Many countries offer tiered pricing. The more bandwidth you consume, the more you pay.
Credit Suisse media analyst Spencer Wang and his team recently completed a Canadian video-streaming study, as retold by Forbes' Bruce Upbin this morning. In kicking the tires of Netflix Canada for a month, Credit Suisse's test home went through 20 gigabytes of data -- or roughly the equivalent of 20 hours of streaming in standard definition. This would seem to be a fair presentation of how someone would take advantage of the service, which runs a flat $8 a month for unlimited streaming.
Unfortunately, tiered pricing means that the Internet provider also takes a cut. In this case, Canadian broadband provider Rogers Communications
South of the border
Paying $1 an hour doesn't seem like a whole lot in this example, but it's already a foreign value proposition. Coinstar's
Tiered pricing would also alter the psychology of the Netflix consumer.
During the holidays, my wife and I streamed the entire second -- and sadly, final -- season of the unheralded Party Down. I don't know how aggressive we would have been in our viewing habits if we had been on the clock.
Streaming through Netflix is a lot like going to a Golden Corral buffet-style restaurant: The quality isn't exactly great, but you almost feel guilty if you don't get back up for seconds. And thirds. And dessert.
The reason why Netflix has succeeded in streaming while Amazon.com
This would all change, naturally, if broadband providers switch to tiered pricing. Install food scales at a smorgasbord, and customers will begin eating less and complaining about the quality.
Is this Netflix's future?
Another reason to loathe AT&T
Wireless giant AT&T
What if this pattern follows into the home? Netflix has already become the iPhone glutton of the Wi-Fi world. A recent Sandvine report pegs Netflix streaming as gobbling up 20% of the country's downstream bandwidth during prime-time hours.
What's stopping broadband providers -- in many cases the country's largest cable television companies -- from taking a page out of the AT&T playbook?
If every Netflix stream had an incremental cost, would you keep watching at the same rate? Would you run back to the open arms of your mail carrier? Would you apologize to the Redbox kiosk that you disparagingly laughed at last month?
Netflix can't be cocky. Then again, Internet providers also can't get greedy. They would risk a groundswell for free -- or nearly free -- municipal Wi-Fi.
Either way, Netflix has met its kryptonite. As a shareholder, I hope it's able to keep away.
How vulnerable is Netflix to metered pricing plans? Share your thoughts in the comments box at the bottom of this queue.
Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Rogers Communications is a Motley Fool Income Investor selection. The Fool has written puts on Apple. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.