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Though critics balk at its success, Netflix continues to wow

By: Michael Bordieri
Posted: 5/20/2011 12:55:00 PM
Referenced Stocks: CBS;CMCSA

Since its founding, Netflix (NFLX) has been hailed as an industry changer and a fad. Critics attack its pay model and rapid pace of growth as untenable, while supporters contend its streaming service represents the future of media. Which side, though, is right?

The user base for Netflix has grown precipitously over the course of the past decade. During its first fiscal quarter this year, the company added 3.6 million users, boosting its audience to 23.6 million people - nearly the same as cable titan Comcast ( CMCSA ).

Still, critics of Netflix argue that user base growth will inevitably slow and that its $8 per month fee is far too low to sustain the high costs of securing licensing deals with content producers. In December, Time Warner (TWX) chief executive Jeffrey L. Bewkes made headlines when he belittled Netflix's burgeoning market clout.

"It's a little bit like, is the Albanian army going to take over the world?" Bewkes said during an interview. "I don't think so. At $8 to $10, it doesn't have the economics to support high-value programming."

However, Netflix has inked deals with a variety of content distributors like Miramax and CBS ( CBS ) this year alone, increasing the number of titles available in its already expansive instant streaming catalogue. Moreover, adhering to a low monthly pay model and aggressively growing its streaming library has proven successful thus far: A report released this week found that Netflix now accounts for 30 percent of all North American Internet traffic during peak usage times - a 10 percent surge from October 2010.

With an untapped global market still left for it to conquer, Netflix has plenty of room to grow. Further, throughout its history the company has swatted away concerns about its ability to compete against established industry titans simply by overtaking them.

Blockbuster was the first company to fall victim to Netflix. Is Comcast next?