Netflix eyes a digital download prize
Netflix Inc. wants to be the leader in digital downloads of movies and television shows, but until the market is further along the company will concentrate on a hybrid DVD/online subscription service to generate business.
“As big and important as online is for movies, at least for the next 10 years we think that a hybrid DVD/online subscription service will be the winning offering,” CEO Reed Hastings told analysts on the company’s recent first-quarter earnings call. “We have 75,000 titles on DVD and it may take a full decade for all of those to get cleared for online.”
Hastings, who is speaking at the Internet Retailer Conference & Exhibition, June 4-7 in San Jose, as Keynote Speaker on June 6, adds, “There is the window issue where the DVD gets great advantages and another reason we think a hybrid service is critical. We intend to be the leading subscription service, and hybrid DVD/online is our key advantage,”
Netflix, No. 21 in the Internet Retailer Top 500 Guide, sees the digital download market evolving into three distinct segments. One segment will consist of advertising-supported free content embracing the YouTube.com business model. Another segment – download digital files owned by the user – is the model Apple Inc. is using to sustain its successful iTunes business.
The third segment – online subscription viewing – is the niche Netflix is targeting. “This segment is akin to video rental and pay television,” Hastings told analysts. “This is the online segment we are leading.”
Netflix will spend as much as $40 million on digital download initiatives in 2007. “We thought it would take us six months to get online video fully rolled out to our nearly seven million members, but we completed the rollout in less than three months,” Hastings told analysts. “Since launching 90 days ago, we have increased the number of TV shows and movies from 1,000 to over 2,000 and we think we can be at 5,000 by year end.”
In January, Netflix announced the next phase in its march toward the electronic delivery of rental films and TV shows to TV screens: an “instant watching” feature using real-time playback technology that allows subscribers to view a rental film on a PC screen almost as soon as it’s delivered. The company expects its Internet TV strategy to take shape in 2008. “The big opportunity for Netflix online video arrives when we can deliver content to the television without requiring a laptop or a media center PC as an intermediary device,” Hastings told analysts. “We are working hard with various partners to make this a reality in 2008.”
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