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Netflix Streaming Accounts For More Than A Third Of U.S. Internet Traffic

By Daniel B. Kline – Jun 3, 2015 at 2:00PM

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The company has built not only a large user base, but a very active one.

Netflix (NFLX 1.53%) dominates fixed (non-mobile) Internet traffic in the United States by a commanding margin.

The streaming leader is essentially Lebron James playing against a league made up of mediocre college teams. It's not even the Cavaliers versus a lowly NBA franchise like the Knicks. It's "King" James and his squad taking on Hofstra.

Netflix accounted for 33.81% of aggregate fixed-access Internet traffic in the U.S., according to the most recent Global Internet Phenomena: Latin America and North America report from Sandvine. That puts the company ahead of its five closest rivals combined and more than doubles the traffic percentage for Google's (GOOG 3.28%) (GOOGL 3.13%) YouTube which ranks second at 14.63%.

If you only consider consumption (downstream) traffic and factor out upstream -- which Netflix, since it's not really interactive, requires little of -- the company's dominance is even higher. On the downstream list, Netflix's 36.48% is more traffic than the next eight companies on the top 10 list added together. 

Netflix not only has the largest share of web traffic, it leads the category by a commanding margin over its closest paid rival, according to Sandvine. 

In North America, the dominance of Real-Time Entertainment is due in large part to the continued market leadership of Netflix which saw its share continue to grow, now accounting for 36.5%. Amazon (AMZN 2.55%) Video Instant Video at 1.97% of peak downstream traffic they established themselves as the leading paid OTT alternative video service in North America, without yet having a presence in Canada. 

Amazon probably has a growing audience but it's still a gnat on the back of the elephant that is Netflix.

Source: Sandvine

People actually use Netflix
The streaming leader has built an impressive business and its paid competitors are so small in terms of the traffic they generate that they aren't really competitors. With its 40.32 million paid members in the U.S. as of the first quarter of 2015, Netflix has clearly succeeded in building a user base, but more impressively the company has managed to create a service that people use.

The streaming leader's closest paid rival, Amazon, does not disclose how many Prime members it has, but Consumer Intelligence Research Partners told USA Today in February that it estimated the number in the U.S. alone at 40 million. Given those numbers a relatively small percentage of members of the service actually use it to watch video, That's fine for Amazon, which still pushes free two-day shipping as the key diver for subscribers, but Netflix has created engagement through video alone.

Because customers actually consume video on Netflix that almost certainly makes them more loyal. Think of it like any other monthly subscription-based service. People often retain gym memberships even when they don't use them because they plan to in the future. The same is true for video streaming services, but at some point people drop services they don't use.

It might take a credit card expiring or a financial crisis, but a subscription product that goes unused is vulnerable to being dropped. Netflix does not have that concern because its customers are very clearly using the service as demonstrated by Sandvine's numbers. 

Mobile is a different story
While Netflix dominates in fixed access it only has 3.89% of mobile aggregate traffic, good for eighth place on the list. No other similar, paid rival makes the top 10 at all. This makes sense because the mobile leaders include YouTube, Facebook (META 2.16%) and other brands with short-form, quick consumption content.

Netflix, which features full television shows and movies does not offer much in the way of, short content that people are more likely to watch on a phone or tablet while on the go. This area may be an untapped opportunity for Netflix if were it to ever delve into delivering more clips or other short-form pieces. Netflix could also gain in mobile as network speeds improve and the idea of streaming a movie to a mobile device becomes a bit less odious.

This is great for Netflix
The streaming video leader has built up an impressive user base that actively consumes its content. It has no rival within shouting distance and a subscriber base that seems unlikely to cancel their subscriptions any time soon.

In the U.S. Netflix also has a favorable regulatory climate that protects its web traffic even though it's so large. The company has built a monster and it's well-poised to maintain its position or more likely grow in the future.



Daniel Kline owns shares of Apple and Facebook. He misses Hostra's former nickname The Flying Dutchman.  The Motley Fool recommends, Apple, Facebook, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of, Apple, Facebook, Google (A shares), Google (C shares), and Netflix. 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. The Motley Fool has a disclosure policy.

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