Netflix Pays More In Movie Licensing Costs Than Bandwidth

Posted Jul 30, 2010

A crucial part of Netflix’s growth is their Watch Instantly service. Netflix is spending a vast amount of money in their streaming video services. In a recent 10-K filing with the SEC, Netflix revealed that they spent $66 million in the second quarter to license streaming titles for their Watch Instantly service. The year before that, Netflix spent $9 million.

Because Netflix has new and better content, they were able to increase their subscribers to 15 million, a 42% increase over this past year. Netflix’s CDN costs in the previous quarter only increased by $1 million. This is not proportionate to the cost increase to the licensed movie titles. This means Netflix is spending a lot more on licensing movie titles than actual bandwidth.

Fortunately Netflix is saving tons of money on DVD shipping too. Netflix spent $24 million on DVDs this past quarter. During the same quarter in the previous year, Netflix spent $43 million.