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The Real Cost of Netflix Streaming is the movie

The Real Cost of Netflix Streaming is the Movie, Not the Bandwidth

Despite my summary, it would not be feasible to distribute a blockbuster, like Shrek X , to everyone who wants it on release day. With the numbers that are typical for such a blockbuster release, it would take more than the world’s currently available bandwidth for several weeks.

Even Netflix continue to see growth in physical media delivery, expecting that to continue until 2014 before streaming takes over.

But it is an interesting data point that the costs of the rights are much more than the cost of the actual delivery of on-demand streams to subscribers.

But despite a huge increase in the amount of video streams it’s serving up through Watch Instantly, Netflix’s streaming costs haven’t increased proportionally. In the second quarter, the company said costs associated with delivery over third-party CDN networks only increased by $1 million versus the previous quarter. Netflix is benefiting from bandwidth costs continuing to fall exponentially as it grows its streaming business.

With the DVD side of the business, delivery costs outstrip programming costs:

But expenses associated with DVD delivery offset its reduction in purchase costs. According to Netflix, the costs of its DVD-by-mail business increased by $23.1 million in the second quarter. Due to the vast increase in its subscriber base, the number of discs shipped grew 9.3 percent, despite a 20 percent decrease in the number of DVDs per sub. Those costs could increase even further next year, as the U.S. Postal Service has announced plans to increase postage rates (again).