Written by Patrice Samuels, Research Analyst

Pay-TV operators are all too familiar with the cord shaving and cord cutting phenomena that had their subscribers migrating to online video services like Netflix and Hulu. While the largest pay-TV provider Comcast lost more than 37,000 subscribers in the first quarter of 2012, Netflix’s gain of approximately 1.7 million subscribers over the same period made the company the leading subscription video service in the U.S., in terms of subscriber numbers.

Netflix crossed another milestone in the online movie business last month, when it was determined that the company’s jump from 0.5% market share in 2010 to 44% in 2011 toppled the position of Apple’s iTunes, whose market share fell from 60.8% to 32.3% over the same period.

The company’s domination of video services has continued. On Tuesday, Netflix’s CEO Reed Hastings pointed out that Netflix Instant Video subscribers watched an average of 80 minutes of Netflix per day, which now makes the service more popular than traditional U.S. cable networks.

This success of Netflix comes despite losing 800,000 subscribers to drastic price increase, less than one year ago, the fact that the movie titles available on Netflix are significantly older than those available on Apple’s iTunes, and that pay-TV operators are offering complementary TV Everywhere services online.

So what is Netflix secret sauce? Is it the massive promotional efforts, increasing content library and expanding device ecosystem that the company credits? Or is it the precise recommendation engine that employs real people to watch and thoroughly tag every piece of content? Or is it that they have found a niche in the market, that is highly desirable and whose value propositions other services have yet to replicate? Hopefully the joint venture between Verizon and Redbox, whose impending streaming video service is anticipated to be very similar to Netflix, will give us some more insight into this.