Netflix’s usage on mobile devices is hampered by data caps
The shift from PCs to mobile has been going on for quite some time. Many companies have increased their presence on mobile to tap into this growing market. That’s the reason we’re seeing companies like Google (GOOG) and Facebook (FB) ramp up their investments on mobile, as they see it as the future of the device industry. However, that’s not true for Netflix (NFLX). Netflix’s usage on mobile devices hasn’t picked up due to the data caps of between 2 GB to 5 GB generally applied by telecom companies like Verizon (VZ) and AT&T (T), as videos typically consume more bandwidth. Netflix usage on mobile is mainly restricted to Wi-Fi access.
Netflix believes bandwidth costs could go down with the advent of 4G technology
As the above chart shows, the traditional PC (notebook and desktop) market will continue to decline, while the tablet and mobile phone markets will see strong growth going forward. So mobile becomes an important device for Netflix to run its service on. However, Netflix believes that with the advent of 4G technology, bandwidth costs could go down, eventually leading to uncapped plans on mobile.
During the conference call to discuss Q1 2014 earnings, Reed Hastings—chairman, president, and chief executive officer—when asked whether he thinks wireless has become a bigger part of the story in terms of actual time spent watching, answered, “There is a funny dichotomy. So there is a good amount of watching on a mobile phone, but unusually when it’s on Wi-Fi, because of the data caps. So wireless plan, cellular plans generally have data caps between two and five gigabytes, which you can use up pretty quickly and consumers are very aware of whether they are on Wi-Fi or not, and so they are using their mobile phones and tablets, but mostly on Wi-Fi rather than on cellular. Now if with 4G, we see more competition and lowering prices and eventually uncapped plans as they try to compete with wired, then we could see more of that but right now, that’s not what we are seeing in wireless.”