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Netflix Feeds Stream Machine

1/09/2012 12:01 AM Eastern

Netflix subscribers streamed more than
2 billion hours of TV shows and movies in the fourth quarter
of 2011 — a record, according to the company.

Now, the company is scrambling to expand its content
lineup to ensure customers keep streaming even more
video, especially after a marketing gaffe last year that left
many subs hopping mad.

Netflix is eager to ramp up new streaming content as
its deal with Starz Entertainment comes to an end next
month. That pact is set to expire Feb. 28 — and when it
does, dozens of titles from The Walt Disney Co. and others
will vanish.

Even though pay TV operators claim Netflix isn’t spurring
widespread “cord-cutting,” the streaming service
must be cutting into traditional TV viewing time to some
extent, according to BTIG analyst Rich Greenfield.

If Netflix were a cable network, it would have represented
the 15th most-watched channel in the fourth quarter,
ahead of CNN, FX, HGTV, Discovery Channel and others,
Greenfield wrote in a research note. Still, Netflix would have
accounted for just 2.4% of total time spent watching TV.

“While Netflix may be very popular in Netflix homes,
it is rather meaningless when put into the context of total
television viewing,” he said. However, Greenfield added,
“If you assume Netflix is eating into traditional TV viewing,
its share could rise meaningfully.”
Netflix executives have downplayed the loss of Starz
(which the company said accounts for less than 8% of minutes
viewed). And while CEO Reed Hastings has said he
doesn’t expect to spend heavily on securing exclusive content,
Netflix’s actions indicate original programming will
play an increasingly important role.

Next month, Netflix plans to debut Lilyhammer, an original
series starring Steven Van Zandt as a New York mobster
who is relocated to rural Norway. Van Zandt, known
for his turn as mafia consigliere Silvio Dante in HBO’s The
Sopranos
, is one of the show’s executive producers. Lilyhammer
was developed and produced by Oslo, Norwaybased
Rubicon TV AS.

All eight episodes of Lilyhammer will be available to
Netflix streaming subscribers in the U.S., Canada and
Latin America on Feb. 6.

In another move into original content, Netflix last year
acquired the rights to at least 26 episodes of House of
Cards, an adaptation of a BBC miniseries starring Kevin
Spacey
, set to debut on the Internet-streaming service in
late 2012. Netflix reportedly outbid the likes of HBO and
AMC for the show from executive producer David Fincher.

The bulk of Netflix’s streaming diet, however, will continue
to be older, nonexclusive TV shows and movies. The
company noted that in 2011 it signed multiyear agreements
with CBS, 20th Century Fox, Lionsgate, Miramax,
Open Road Films, NBCUniversal, Dreamworks Animation,
MGM and the Disney-ABC Television Group, among
others.

In the second half of 2011, Netflix suffered a massive
customer backlash after it raised prices by splitting up
DVD and Internet-streaming plans. As a result, the company
expects to post flat revenue and a net loss for 2012.

The company lost a record 800,000 net subs in the U.S.
in the third quarter of 2011 and said it anticipated losing
at least 2.6 million DVD subscribers in the fourth quarter.

In Lilyhammer, New York mobster Frank “The Fixer”
Tagliano (Van Zandt) enters the federal witness protection
program after ratting out his boss. Tagliano, a sports
buff , wants to move to Lillehammer, the Norwegian town
that hosted the 1994 Winter Olympics. While he imagines
the mountains of Norway will help him escape his past,
“reality, of course, turns out to be spectacularly different,”
according to the producers.

Separately, last week HBO confirmed that as of the first
of the year it is no longer selling DVDs of its original series
directly to Netflix, which means Netflix will have to buy
those DVDs through retail channels. The premium network
— which has never licensed TV programming to Netflix for
streaming — made the move as part of its strategy to maintain
exclusive access to pay TV subscribers.

September