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Netflix Hitting Its Online Stride?

Posted by: Cliff Edwards on May 20, 2008

Couch potatoes rejoice?

Not just yet. Movie rental company Netflix just introduced a $99 set-top box capable of streaming movies over the Internet directly to televisions in the home. The Netflix Player by Roku has enough flaws in its early incarnation to limit its uptake to early adopters. Still, it could over time stem defections from the core mail-order business as a variety of competitors, including cable and Apple, ramp up competing video on demand offerings.

The Netflix Player would make available about 10,000 of Netflix’ more than 100,000 titles. The “watch it now” feature has been growing in popularity, but until now has been available only on pcs with robust Web connections.

Technically, Netflix will be able to boast it has more titles available than anyone else for streaming (AppleTV, Vudu and Comcast have, or will have later this year, about 6,000 titles available each). But the problem for Netflix is that many of its titles are older studio catalog movies and TVs shows—not the new releases that are most popular in consumer rentals. What’s more, the rival services offer a combo of high-definition and near DVD-quality downloads, whereas Roku says there won’t be any high-definition Netflix movies out of the starting gate.

Another downside: users still must order their queue on the pc instead of getting automatic updates to the menu like those on Vudu’s $295 box, or the $229 AppleTV.

On the plus side, movie rentals off the Netflix Player are structured as essentially a freebie to anyone of the 8.2 million total subscribers who already have an unlimited DVD rental plan (starting at $8.99 a month). The other movie rental boxes charge $3 or more per rental, and have windows in which you must watch a title.

Netflix also has a nice recommendation system based on your previous viewing choices that make discovery of things that might interest you easier than the sometimes cumbersome menu search system offered by competitors.

When you add up all the negatives and positives, it looks like a good interim step for Netflix as it ramps up its hybrid model of video delivery in packaged DVDs and streaming media. The move keeps them on track for the day when more consumers will choose Internet delivery over packaged media. And the relatively cheap price of the box and free streaming raises the bar for competitors, who could be forced to respond with their own price cuts.

To better compete against cable companies, Netflix also plans to market a video delivery service built directly into LG Electronics HDTV models later this year. If it strikes more deals along those lines and expands its streaming library to new titles, it could negate the advantage that Comcast and other cable providers have because their VOD services are built into the set-top boxes many consumers must have anyway to watch regular TV.

Netflix recently raised its fiscal 2008 revenue guidance and reaffirmed net income goals. The company reduced churn, or subscriber turnover, to 3.9 percent from 4.4 percent a year earlier.

Reader Comments


May 21, 2008 10:50 AM

Ultimately, the success of Netflix's VOD service will depend on whether they are able to provide newer releases at fixed monthly rates and not on the Roku box. I can watch their instant movies just fine by connecting my laptop to the LCD TV. Apple charges $3.99 for most new movies rentals, which, in my opinion, is too high. I think whoever comes out with a good subscription based model for VOD first will win.


May 21, 2008 1:14 PM

The Watch it Now feature in Netflix's collection is limited at best. The selection of movies is dated.

May 21, 2008 2:17 PM

Each stage of the evolving ability to see and use movies on your own has revealed new levels of interest in film that were not apparent previously. While most people might merely want an easier, more convenient way to watch the most popular, recent movies, there are many more layers of interest. I've used NetFlix VOD service in recent months and have seen some of the best movies I've seen in years, none of them mass, popular hits.

One problem I can see is the expectation for high quality images. Once you've gotten used to HD, it is difficult to go back to lower resolution. The movie studios are going to fight tooth and nail to preserve the theater movie going experience, and its revenue stream. That's one reason HD movies for sale on disc are priced so high, to prevent the demise of movie theaters.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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