Many people know Netflix (Nasdaq: NFLX) as the company that put Blockbuster out of business, and the company that delivers DVDs to your home, and even more recently as the content streamer of choice. Most people nowadays stream Netflix on nearly every single electronic device they have. For example, all new TVs feature Netflix streaming, as do DVD players, media players, computers, tablets, and smartphones. The only things left that don't stream Netflix yet are your coffee machine or toaster. Of course, unless you own one of these.
As it stands, Netflix has more than a lion's share of the content streaming, at around 60% market share. When you consider how many Internet-connected media devices are already capable of running Netflix, you begin to realize the overall power that Netflix has yet to tap into. With its market penetration, it has the potential to compete with existing distribution models to deliver original content.
Currently, Netflix serves as a secondary content distributor, meaning that it's delivering content that has technically already been delivered in the past by some other distribution company. This is what Netflix is attempting to change with House of Cards. In 2012, Netflix will have exclusive rights to distribute the series, starring Kevin Spacey, and will make 26 episodes available to Netflix subscribers.
Netflix not only can directly make money from this series, but it can repeat the same thing again and again if the initial pilot works out. If the content is good enough, Netflix will inevitably gain subscribers. They can repeat the same shift that premium channels, such as HBO, have successfully achieved when they started drawing viewers away from the main networks.
The more subscribers Netflix has, the better its economies of scale and the more money it can make. Ultimately, Netflix has a the right idea and knows that physical media is already on its way out. It's only a matter of time until all content delivery is digital anyway. Netflix is simply trying to prepare for that day by becoming an original content deliverer now.
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