Netflix's Breakout Move

A deal with LG to stream movies to TVs puts it up against Amazon and others in a race for what many predict will be a multibillion-dollar download market

by Cliff Edwards

In the high-stakes race to get downloaded video onto consumers' TVs, Netflix (NFLX) may have just pulled ahead. On Jan. 2, the mail-order movie rental company said it struck a deal with consumer-electronics maker LG Electronics to develop and market a set-top box that would let Netflix users stream movies straight to their TVs.

The service, expected to roll out by fall, comes amid reports that Apple (AAPL) is on the verge of unveiling (BusinessWeek.com, 12/28/07) its own video download service.

Digital Delivery Competitors Aplenty

The partnership with LG would expand on a program implemented by Netflix, about a year ago, that lets customers stream movies to personal computers. Netflix said in August that customers had watched some 10 million movies and TV shows on their PCs. But the Los Gatos (Calif.) company says most subscribers prefer watching long-form content on a big screen and hopes to cut the computer out of the equation altogether.

"It's been wildly successful for the under-25 crowd that lives on their laptops," Netflix CEO Reed Hastings says of the PC download program, which includes some 6,000 of the company's 90,000 titles. "We've been working with various partners on extending that to the over-25 crowd," Hastings said in an interview with BusinessWeek.com.

The LG-Netflix announcement is the latest in a race among companies to capitalize on what many analysts predict will become a multibillion-dollar download market. Technological advances and shifting consumer attitudes are forcing many companies involved in movie distribution to include online content delivery. The majority of U.S. homes now are wired to the Internet with superfast broadband access, while the price of digital delivery is dropping rapidly.

Last summer, Amazon.com (AMZN) and TiVo (TIVO) launched a partnership to let owners of TiVo digital video recorders purchase or rent movies and TV shows from Amazon's Unbox video download service. In August, Movielink, an online on-demand movie service backed by major movie studios including Universal, Paramount (VIA), MGM (MGM), and Warner Bros. (TWX), was acquired by Blockbuster (BBI). And startups such as VUDU and MovieBeam have rolled out their own set-top boxes with movie studio backing.

A Race of False Starts

Cable and satellite providers also have been stepping up their own on-demand and pay-per-view services to keep customers from defecting. Comcast (CMCSA), the nation's largest cable company, recently said its customers will be able to purchase and download many movies the same day they are released to DVD.