April 23, 2008, 12:00 AM

Netflix moves firmly, but cautiously into more web-enabled entertainment

Netflix is transitioning into an organization that will deliver subscribers more Internet-based entertainment content to a variety of web-enabled devices. Netflix will move firmly, but carefully, to the new business model, says CEO Reed Hastings.

Netflix Inc. is well on its way to transitioning from a DVD rental company into an organization that will deliver subscribers Internet-based entertainment content to a variety of web-enabled devices, CEO Reed Hastings told analysts on the company’s first quarter earnings call.

Netflix, No. 18 in the Internet Retailer Top 500 Guide, announced in January a relationship with LG Electronics to develop a new device that consumers can hook up to their high-definition TVs, enabling them to use the Internet to purchase and download movies. Netflix is pursuing deals with four other unidentified consumer electronics companies, which Netflix expects to have signed and in place by the end of the year, Hastings told analysts.

“As we increase our online content spending, our service becomes more attractive to consumers, which in turn makes us more attractive to consumer electronics partners,” he said. “In particular, we want our client software integrated into Internet-connected Blu-Ray players, game consoles, TVs and standalone set-top devices.”

With web-enabled TVs and mobile devices, subscribers can watch movies streamed from Netflix.com just as they can do now on their personal computers, says Netflix. The company has 90,000 DVD titles in its library and more than 6,000 movies and TV episodes that members can purchase and download to their computers.

“We have LG plus three additional partners actively working on integrating our technology into their products,” Hastings told analysts. “Three of the four partners are major companies which each sell millions of devices per year and will enable the Netflix functionality in some of those devices likely in the fourth quarter of this year.”

Despite the deals with additional manufacturers, Netflix is cautious and will not move away too quickly from its current DVD and entertainment content business model. “Nothing about these agreements will be material to our financial results for the foreseeable future,” Hastings told analysts. “We’ll take it year by year and model by model as we and our consumer electronics partners come to understand the opportunity better.”

Netflix reported net income of $13.4 million on revenue of $326.2 million in the first quarter compared with net income of $9.9 million on revenue of $305.3 million in the prior year.

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