Shares of Netflix Inc. (NASDAQ: NFLX) have risen about 7% today and it’s hard to say whether the main cause is speculation that Yahoo! Inc. (NASDAQ: YHOO) might buy the company or a report on viewership of the company’s streaming videos.

Because Yahoo just appointed a new CEO today and it seems pretty unlikely that the company would decide to buy Netflix without at least checking with the new guy. The rationale for the Netflix buy is that Yahoo needs the content in order to compete with the likes of Amazon.com (NASDAQ: AMZN), Google Inc. (NASDAQ: GOOG), and Apple Inc. (NASDAQ: AAPL). The truth is that Yahoo needs a lot more than content to get back in the game with those giants.

Also favoring an acquisition is Netflix’s low market cap, currently around $4 billion. Even Yahoo with its $19 billion market cap could afford to snap up Netflix. But that assumes that the bidding wouldn’t rise substantially and quickly once Netflix is put in play.

The other, more likely reason, for Netflix’s share price jump today is the company’s report that its 20 million subscribers watched more than 2 billion hours of streaming video in the fourth quarter. Now that’s an impressive number, but it needs a little context, which is missing from Netflix’s announcement. The company only noted that 2 billion hours is the highest number the company has ever recorded.

The Netflix report implies that each subscriber spent one hour every day in the fourth quarter watching a Netflix stream. That’s about 20% of the time that an average American spends in front of a TV set. That is not a small number — and it will only get larger.

This report from Nielsen on TV viewing habits at the end of 2010 put the Netflix number in perspective. Americans spent an average of 15 minutes a day watching DVDs and nearly half an hour watching digitally-recorded programs. Both of those disappear when streaming content becomes more pervasive. And the more than four hours spent with live TV will end up getting chopped as well.  If you were still wondering why the cable and broadcast networks and the movie studios are fighting Netflix so hard, here’s some evidence of what the networks and studios have to look forward to.

The numbers seem to vindicate Netflix and CEO Reed Hastings, who made the right bet but handled the switch to streaming badly and cost the company billions in valuation and 800,000 customers.

Netflix shares are up nearly 7.5% at $77.67 in a 52-week range of $62.37-$304.79. Netflix may never make it back to $300/share, but it won’t be because the company made the wrong bet.

Paul Ausick

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