How A Focus On Technology Can Drive Significant Growth For Netflix

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Netflix‘s (NASDAQ:NFLX) focus on original programming appears to be paying off for Netflix, as the popularity of its original content has helped drive significant subscriber growth. Despite intense competition, Netflix has been able to grow its subscribers at a steady pace, and saw a nearly 50% year-on-year rise in international subscribers between December 2015 and December 2016. While high-quality content is a significant driver of this growth, the company is also focusing on technology to make the streaming experience better and cheaper for its subscribers. The company is likely to spend $1 billion on technology this year to improve content delivery. As it expands further into international markets, consumption of Netflix’s content on mobile devices is on the rise. The company is now focused on innovation to ensure that users get a better experience on these devices, aiming to use advanced encoding techniques and adaptive encoding that can utilize less data. This is important for the many users whose mobile data plans include caps on data usage.

While Amazon does not publicly reveal data consumption for Amazon Instant Video, it is estimated that one hour of video in standard definition (SD) quality consumes around 0.9GB of internet data.  Hulu is lower at 0.65 GB, and SD video quality on Netflix consumes around 0.7GB of data in an hour. However, high quality videos on Netflix  can consume up to 3GB of data per hour. The company is investing in technologies which can reduce this data consumption without compromising quality. This could lead to higher content consumption, and potentially drive subscriber growth.

Emerging markets are going to be key drivers for Netflix’s long term growth. In many of these regions, consumption of video content is higher on mobile devices and Wi-Fi connections than many developed markets, so the company’s focus on mobile video optimization and data consumption makes strategic sense. If Netflix can show its subscribers that using its service will use significantly less data than those of its competitors, it could drive substantial subscriber growth.

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