Netlflix (NASDAQ:NFLX), which is attempting to phase out its DVD-by-mail service in favor of online streaming, made a major stride toward that goal in June when its subscribers watched more than 1 billion hours of streamed content.
Investors liked the news, sending Netflix’s shares up more than 11% in Thursday trading, rising over $80 a share.
Consumers are gravitating toward online streaming as high-speed Internet service becomes more common and mobile devices, especially tablet comuters like Apple‘s (NASDAQ:AAPL) iPad, provide a convenient platform for streaming video, the Associated Press notes.
The company is still trying to rebuild its image after a series of very public missteps alienated subscribers and sent its shares tumbling from a peak of over $300 in July 2011 to below $100 a share this year.
While the switch to streaming video will eventually lead to mailing-cost savings for Netflix, the company has spent large amounts to secure the rights to movies and TV shows. Still, its streaming library remains considerably smaller than the number of titles offered on DVD.
The cost of attracting new content for its streaming service is expected to produce the company’s first annual loss in a decade, but Netflix officials see it as an investment in the future.
However, the strong streaming numbers from last month could ultimately raise content costs as movie and TV studios look to exact higher fees to license their content.
Netflix is also now emerging as a potential competitor to cable TV providers. The company has 26.5 million subscribers worldwide, compared to 22.3 million cable TV subscribers at Comcast (NASDAQ:CMCSA), which also owns NBC Universal, a major content source.
Analysts say increased Netflix streaming may cut into cable-TV viewership, reducing advertising dollars for content providers, which will in turn seek to boost licensing fees for Netflix.