Netflix dominates streaming rivals with growing video share

Netflix captured 33 percent of prime-time Web viewing

Netflix captured 33 percent of prime-time Web viewing based on Internet traffic in September, eclipsing Amazon.com Inc., Hulu LLC and Time Warner Inc.'s HBO Go. (Credit: Handout)

Netflix Inc., the world's largest video-subscription service, increased its dominance of the online viewing market in a study, defying predictions that newer players would carve into the company's market share.

Netflix captured 33 percent of prime-time Web viewing based on Internet traffic in September, eclipsing Amazon.com Inc., Hulu LLC and Time Warner Inc.'s HBO Go by a multiple of at least 18, Sandvine Inc. said in its "Global Internet Phenomena Report" released today.

"People are absolutely using their Netflix service," said Dave Caputo, chief executive officer of Waterloo, Ontario-based Sandvine, a network services and research company. "I don't know whose library is better or bigger, but it's very clear that people use Netflix a lot more."

The findings feed a debate between investors who laud the company's early lead and international expansion and skeptics who cite slowing U.S. growth and losses in new foreign markets. Billionaire Carl Icahn said last week he holds an almost 10 percent stake in Los Gatos, Calif.-based Netflix and views the stock as undervalued based on its market position and growth prospects.

Netflix rose 1.7 percent to $77.68 at the close in New York. The stock has gained 12 percent in 2012 and is down 74 percent from a July 2011 closing high of $298.73. The company adopted a so-called poison pill takeover defense this week to prevent Icahn from buying more shares.

The rising popularity underscores the strategic advantage Netflix has gained with its online service and efforts to make streaming accessible on everything from televisions and game consoles to mobile devices. Sandvine said the company should maintain at least a 10-fold lead over competitors through 2014.

PEAK VIEWING

The company's share of peak Internet viewing traffic has climbed from 20.6 percent in the second half of 2010, Sandvine said. It stood at 32.7 percent a year ago. By comparison, Amazon's market share amounted to 1.75 percent in September, while Hulu garnered 1.38 percent and HBO Go had 0.52 percent, according to the study.

U.S. households have more than doubled their monthly Internet use over phone and cable lines in the past year, consuming the equivalent of 81 hours of downloaded video, according to data compiled from 200 Sandvine customers.

Netflix CEO Reed Hastings said on Oct. 23 that despite more competition, many of his 30 million customers continue to watch more thanks to a mix of "better exclusive content, better member experience, and a clearer brand identity."

"We are working to expand these advantages to win even more of these moments of truth when consumers decide on any given evening what service they turn to first when looking for entertainment," Hastings said.

Joris Evers, a spokesman for Netflix, declined to comment on the Sandvine report.

PAST PREDICTION

In its 2012 first-half report, Sandvine predicted Netflix's service had peaked amid competition from Amazon Prime, HBO Go and so-called TV Everywhere services from cable and satellite providers. Amazon, based in Seattle, grew from virtually nothing in streaming a year ago to become the ninth-largest bandwidth user, according to Sandvine's Caputo.

"I thought the competitive threat would've been more significant against Netflix, but they seem to be holding their own," Caputo said in an interview.

Amazon, the world's biggest online retailer, provides video streaming to customers who subscribe to its Prime service, which offers free shipping. The company yesterday gave customers the option of paying $7.99 a month for Prime instead of a $79 annual fee, a move described by analysts as an attempt to boost holiday shopping online.

Competing Services Hulu, the Los Angeles-based website owned by Walt Disney Co.'s ABC, Comcast Corp.'s NBC and News Corp.'s Fox, offers some shows for free and others under a $7.99 monthly subscription plan.

Two competitors seen by Icahn as potential Netflix acquirers found growth with their own services. Google Inc.'s YouTube, the No. 2 site, jumped almost 3.5 percentage points to represent 14.8 percent of peak downstream traffic. No. 5 Apple Inc.'s iTunes rose to deliver 3.92 percent from 3.05 percent a year earlier.

In two-way communications, Microsoft Corp.'s Skype ranked third in traffic, with 4.76 percent of the market, an increase from 4.27 percent a year earlier on growing use of the video- conferencing service.

On mobile devices, YouTube was the biggest user of bandwidth, according to the report. Google's Play service came in seventh, followed by Netflix and iTunes.

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