Netflix Debuts PC Video Streaming Service

The Netflix DVD-by-mail service said today it will begin delivering entertainment over the Internet. The company said that it has made streamed films and TV shows available to a random subset of its customers and that over the next six months it plans to extend the service to all its subscribers.

"We named our company Netflix in 1998 because we believed Internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery," said Reed Hastings, the company's CEO, in a statement. "While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step."

For Cynthia Brumfield, president of media research consultancy Emerging Media Dynamics, Inc., the time is rather late, with Netflix having been beating to the punch by the likes of Apple, Amazon, CinemaNow, Movielink, and Wal-Mart, to name a few. Just today, the founders of Skype re-branded their new peer-to-peer "piracy-proof" streaming video platform, currently in beta testing, Joost.

"Netflix is really just now entering the film-over-the-Internet distribution business and there are so many others that have come before Netflix and in many respects are farther along," said Brumfield. "But it's good news for Netflix because finally they're on the Internet. I mean their name is Netflix and one would think they'd be an Internet distribution company. But of course until today they've been strictly in the physical DVD realm."

The DVD realm is not a bad place to be. It is after all where the money is. Despite a report last October from Emerging Media Dynamics that estimated that the sales and rental of movies over the Internet would "skyrocket" to deliver nearly 60 million in unit sales and over a half a billion dollars in revenue by 2010, such numbers represent only 2% of home video rental and sales revenue for the motion picture industry in 2005.

"It's going to be a big business but it's still going to be very small in comparison to the DVD business and very small in comparison to the worldwide theatrical distribution business," said Brumfield, noting that half a billion dollars is the equivalent of one or two Hollywood blockbusters.

And at the moment, Apple owns most of this emerging market. In 2007, Apple's iTunes will account for 76% of the Internet film download market, according to Brumfield. "Apple accounts for the lion's share of people buying full length theatrical films on the Internet," she explained. "Over time, we're projecting their sales will decline proportionately as some of these other sites gain steam."

At last week's Macworld Conference in San Francisco, Apple CEO Steve Jobs said that Apple had sold 50 million TV shows and 1.3 million feature-length films since it launched its video-capable iPod in October, 2005. Apple's dominance may be one reason that Netflix is careful to point out that it is in the movie rental market rather than the digital download market.

"We see Netflix as well placed to play in the movie rental market," said Neil Hunt, chief product officer for Netflix. "If you look at the other competitors out there, there are strong players in the download-to-own market. That compares with yesterday's world where people purchased DVDs for $20 or thereabouts. We see a rental segment where they come to Netflix and rent them for $2 or $3 dollars. And we see an ad-supported segment where you get the thing delivered for no fee, but with ads stitched in the middle."

Netflix subscribers with Windows computers will be able to access to the new service at no additional cost. Their subscription plans will determine the number of hours of free online viewing available to them.

"What we've delivered today changes the business model from the traditional pay-per-view, where you have to make selection and pay a $4 fee to watch the movie," said Hunt. "The model that we're proposing is it's included with your subscription. With an $18 subscription you'd get 18 hours of movie viewing and you can spend that 18 hours to watch a few minutes of this or a few minutes of that, or you can watch a few movies all the way through."

Netflix initially will be offering subscribers 1,000 titles from its 70,000 title library for viewing through an Internet-connected PC. That's four times as many as the number of movie titles Apple currently offers through iTunes. Eventually, the company expects to add more titles and to support to the Mac operating system and other platforms.

"We want to get to all Internet-connected screens, all the way from connected cell phones to the plasma TV in your living room," said Hunt. "The PC is just the first step on the way."

It may also be a dead-end. Cable and telephone companies are racing to roll out high-speed IPTV service with pay-per-view service around the U.S. If they can manage to deliver a user-friendly service at a reasonable price -- quite a challenge for an industry insulated from the sort of customer-centric focus that has arisen among hyper-competitive Internet companies -- they may find there's a receptive audience among those who'd rather avoid the difficulties of moving content from computers to televisions.

But since Netflix isn't trying to build a bridge between computers and TVs, as Apple is with its new Apple TV media hub, its new service clearly adds value for its subscribers. And it's hard to argue with that.