Rich Fiscus
27 Jan 2009 2:49
About six months ago Roku introduced a set-top box which allowed Netflix subscribers to connect the video rental giant's Watch Instantly service to a TV. It was an immediate success and was followed by an ever expanding list of devices including Blu-ray players, game consoles, and even HDTVs. During the Netflix conference call on last quarter's earnings CEO, Reed Hastings, explained how these strategic partnerships have helped them beat their own growth estimates in spite of the poor economy.
"In hindsight, in Q4 we under-forecast our subscriber growth primarily because we underestimated the positive impact of the introduction of the multifunction CE devices from LG Electronics, Samsung, Microsoft, and TiVo that promote Netflix streaming" said Hastings. He added "The precise impact of the recession is unclear, but it's very clear that streaming is energizing our growth."
Hastings says Netflix is currently "in discussions with nearly every major CE [consumer electronics] manufacturer" in an effort to "broadly cover the Blu-ray category and the internet TV category over the next few years." However, if you're hoping for a PS3 client it's not coming any time soon. The deal with Microsoft for the Xbox 360 client is exclusive.
Not surpringly another factor in all this growth has been a willingness to invest in content. During the fourth quarter of last year Netflix "substantially increased" spending on streaming content and plans to do the same over the course of 2009. Among their goals for this year is to offer content from Starz with nearly all their rental plans.
Leveraging content from providers like Starz will be an important cog in the Netflix streaming machine going forward. In many ways the online video landscape is more akin to the cable television business than DVD rentals. While Netflix can offer the same titles on DVD as any other rental outlet, streaming content is often licensed exclusively to a single company.
Hastings was also optimistic about the role Blu-ray will play in the company's future. He said that around 700,000 Netflix subscribers were renting Blu-ray discs at the end of last year and consumer adoption of the format is "growing nicely." He believes the key to success lies in player prices, saying "if Blu-ray player prices continue to fall as expected, driven by next generation chip design, then wide adoption becomes increasingly likely and with it extended life of disc-based viewing."
One area Netflix isn't going to be getting into any time soon is Video On Demand (VOD). While Hastings acknowledges that many of their customers do have an interest in it, he prefers to stick to a subscription based service rather than a per-viewing or per-title model.
He is happy to see other companies like Amazon filling the VOD niche though. He addressed Roku's decision to add support for the Amazon service, characterizing it as a net benefit for his company. He pointed out that Netflix doesn't really have a product that competes with Amazon Video On Demand, which consists largely of new releases. And of course Netflix should benefit from the Amazon's promotion of devices compatible with both services.