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Xbox Live + Netflix: A Win Win?

Ever since Microsoft integrated the Netflix streaming service into its Xbox Live network last November, Xbox 360 owners have been seemingly flocking to Netflix. Wedbush Morgan Securities analyst Michael Pachter believes there's a great synergy between Xbox Live and Netflix. He estimates that over eight million Xbox Live Gold members connect to the Internet in their living rooms and are "a click of the mouse away from becoming Netflix subscribers."

He estimates that 800,000 of these Xbox Live households were already Netflix customers when the streaming service debuted and as many as 200,000 of these customers joined Netflix in the last half of the quarter. This has obviously been a great boon for the video rentals company, and Pachter doesn't expect the trend to slow down any time soon.

"…we think that subscriber growth will continue at super-normal levels for quite some time. We believe that the Xbox Live Gold membership is a proverbial gold mine of potential members, and expect to see as many as 1 million join as Netflix members in the next year," he said. "Beyond that, we note that Microsoft is still selling a large number of Xbox 360 units (we estimate that it will sell another 5-6 million in the U.S. in 2009), with conversion of around 35% of these owners to Xbox Live Gold membership."

All in all, it's a win-win for Microsoft and Netflix. Microsoft is able to offer a compelling video streaming service, making its Xbox 360 hardware more attractive for the center of the living room, and Netflix limits its churn of existing customers while also lowering operating costs as more subscribers view streaming content instead of selecting shipment of physical DVDs.

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