Well, it seems like Netflix is finally making a move to bring their Internet streaming service to the TV, as hinted at in their last quarterly call, and they’d partnered with LG Electronics to do it. They’re reportedly developing a set-top box with LG Electronics which will allow users to view streaming movies directly on their TV.

Personally, as I’ve said repeatedly in the past, I think a dedicated STB is a bad move. Unless they can make it dirt cheap, and I mean $99 or less, I don’t think a dedicated client STB is a good option. Remember, this is simply a device which provides access to a service you have to pay for via your subscription. And if it is just going to handle the streaming, then it doesn’t need to be that powerful.

But it sounds like they may have taken the route I’ve suggested before, making this a service that will be included on other boxes:

The leader of online DVD rentals will be entering an increasingly crowded and confusing market when it rolls out the new device via an LG-networked player sometime in the second half of 2008.

And:

Pricing and other specific details of the LG product were not available, but a person with knowledge of the situation said LG would likely embed the receiver into its $799 dual-DVD player, which supports the competing Blu-ray and HD-DVD high-definition DVD formats.

So they may be embedding this as a thin software client into LG’s DVD and/or Blu-ray product line. That would follow from what was said on the conference call, and it seems to make more sense than producing a dedicated Netflix STB. Certainly, a DVD or Blu-ray player which also happened to support the streaming service is a much better value proposition than a single-purpose streaming STB.

Actually, that’s another issue, I don’t know that Netflix’s streaming service is going to hold up to being displayed on large screens. It certainly is not going to be HD content as very, very few people have broadband connections fast enough to stream real HD content. Even if limited to 720p using H.264 it would be tough to stream real-time without massively over-compressing the stream. This is probably going to be limited to SD content, maybe 480p streams upscaled by the player – like a DVD. In a world increasingly going HD, that seems iffy. Especially with competitors like VUDU going HD, and Amazon Unbox/TiVo expected to go HD soon as well.

On the other hand, being a streaming-only service does reduce their hardware requirements, particularly in storage, and that could make it easier for Netflix to land additional partners. All HD DVD players have network interfaces, and a growing number of Blu-ray players do as well. TiVo is still a possibility, reviving their old partnership, though likely only on the Series3 and TiVo HD as the older boxes can’t handle the newer codecs. (And streaming MPEG-2 is unlikely.) Just about any media center extender product would be a candidate too. But the first thing to come to mind for me was actually the Sling Media SlingCatcher product, now due in 2008.

Hastings said the LG partnership was the first of many such deals for Netflix. “We’d like to see a hundred Netflix-capable boxes,” he said, noting he also was exploring partnerships with makers of Internet-connected game consoles, cable and satellite companies.

Still a lot of unanswered questions. But we’ll probably see and hear some more at CES next week.

From EngadgetHD.

EDIT/UPDATE: The New York Times has an article today which offers a bit more info. It confirms that the streams will not be HD, at least initially. And it has this:

The deal with LG is something of a strategy shift for Netflix. The company had been experimenting with building its own Netflix-brand set-top box. Last spring, to help create the device, the company hired Anthony Wood, the founder of ReplayTV and a pioneer of the digital video recorder.

But Mr. Hastings said that integrating Netflix into other companies’ devices made more sense. He said Mr. Wood would soon leave Netflix to return to another company he founded, Roku.

So it does seem that Netflix had been toying with their own STB, as rumored for a while. But they came to the same conclusion I’ve expressed all along – something like this is better as a service embedded in other boxes, than part of a standalone box. Standalone boxes that do nothing but download movies have not done well – see Akimbo and Moviebeam, Akimbo morphed into a service for Windows and dropped the boxes, Moviebeam is dead. I don’t think VUDU will be successful either, unless they can sell the box for $99 or less – then maybe. But it is still better to be a value-add on a box with other features.