Netflix has certainly had a rocky road when it comes to broadband content downloads. They announced a partnership with TiVo way back in 2004, which ultimately fizzled and died. They finally launched their online streaming service in January, over two years later. But the service is still hamstrung by limited content options, the fact that is is streaming and not a download service (so no taking films with you on your laptop for the plane, etc), and that it is tied to a Windows PC. Again and again we’ve seen that most people just don’t want to sit in front of their PC to watch movies. And most people don’t have a PC connected to their TV – and the streaming service doesn’t work over a Media Center Extender.
Netflix is facing competition from Amazon Unbox, which has TiVo to get content on the TV, Apple, which has Apple TV, and Microsoft, which offers downloads to the Xbox 360 – as well as supporting download services such as Movielink and Akimbo on Windows, and some of that content can be viewed over a Media Center Extender on a TV. Then, of course, there are new boxes like VUDU, and Sony is planning to launch content downloads for the PlayStation3.
Netflix needs to do something to stay competitive if they want to play in the broadband content market. Aside from persistent rumors that they’re continuing to work on their own STB – which is just begging for failure – what are they doing?
Well, in their earnings call on Monday (transcript from Seeking Alpha), CEO Reed Hastings had this to say:
In terms of enabling the viewing of online content on the television screen, we are exploring a variety of options, including Internet connected, high definition DVD players, Internet connected game consoles, and dedicated Internet set tops, with a variety of partners, trying to understand the best ways to provide inexpensive viewing of online content on the television.
Reed also said that they don’t plan any major changes to cash flows next year, including no big hardware subsidies. That seems to hint at a box – for what other hardware would they be subsidizing?
Barry McCarthy, CFO, later added:
As Reed mentioned last quarter, we expect to debut Internet delivery to the TV next year, and that will involve increased investment in content as we expand our library of titles and more Netflix subscribers choose Internet delivery.
This is interesting – earlier tonight I suggested VUDU might look at Blu-ray and HD DVD players as hosts for their service. The hardware in these units is quite powerful, and they already have some (small) storage. Working with a CE partner a company like VUDU or Netflix could help develop units with on-board storage (hard drive), or USB or eSATA ports for an add-on for those users looking to use the service. (Storage is needed for downloads, and even just buffering streams. And drives are still much more cost effective than sufficient flash memory.)
Internet connected game consoles certainly narrows it down – PS3, Xbox 360, or Wii. Yeah, I know, some of the older consoles were Internet connected, but they lack storage and performance. So while it might be possible, it is unlikely. The Wii doesn’t seem to be a good fit, based on it’s features and the way it is marketed. The PS3 would fit, but Sony is a media company and might want to go it alone on downloads. Whereas Microsoft is known to be open to partnering for content downloads.
Dedicated set tops? Is this another hint of a doomed Netflix branded STB? OK, maybe I shouldn’t keep saying doomed – if they can make one cheap enough, say $99, it will probably do fine. But if they’re not going to use hardware subsidies, hitting a low price point is going to be hard. There was a little more during the Q&A:
Tony Wible – Citigroup
Reed, I appreciated your comments on the call about the potential for one of the channels to get to the TV being a box, but that you would not carry subsidies on that box. Could you elaborate a little bit more on what you meant by that? Are we talking about partnering with a third party or — how would that box work relative to the other models?
Weâ€™ll fill you in more I think on our next quarterâ€™s call. The main thing I wanted to get across is that we werenâ€™t contemplating any radical moves on a cash flow, kind of put that one to rest, and that still gives us a lot of flexibility in how to operate and how to be effective, and weâ€™ll be able to give you a fuller update a quarter from now.
So, it sounds like we may be hearing more about a box, and their Internet plans in general, in three months.
There was no mention of TiVo, which makes it curious that the next day BusinessWeek ran this article on Netflix, which ends with:
Netflix does have an agreement in place with TiVo (TIVO) to deliver movies to the popular TV set-top box, but that deal has yet to amount to much revenue, says Chad Bartley of Pacific Crest Securities. “Netflix’ management has alluded to the fact that they’d like to work on getting downloaded content from the computer to the TV,” Bartley says. “That’s going to mean some kind of partnership, whether it’s with TiVo or one of the game console makers out there.”
The only agreement with TiVo I know of is the one from 2004, and the companies have said that agreement is dead and buried. They could certainly resurrect it, or forge a new agreement, but there has been no indication that I’m aware of that TiVo and Netflix are actively working together again. I would love to hear that it is true, and maybe we’ll hear something at CES in January. TiVo certainly makes sense as a partner, aside from the game consoles, TiVo has the most STBs out there. Cable and satellite boxes don’t count, since they offer their own VOD/PPV services and aren’t exactly open to other content providers.
I found the Seeking Alpha transcript after following a link trail from Gizmodo.