Netflix Partners With LG to Bring Movies Straight to TV
Netflix customer Carleen Ho returns three DVD movies in Palo Alto, Calif. The company announced a deal that would allow it to send movies over the Internet straight to television sets. By BRAD STONE
SAN FRANCISCO — Netflix, the DVD-by-mail company with more than seven million customers, has a new strategy that may one day make those red envelopes obsolete.
The company wants to strike deals with electronics companies that will let it send movies straight to TV screens over the Internet. Its first partnership, announced Wednesday night, is with the South Korean manufacturer LG Electronics to stream movies and other programming to LG’s high-definition televisions.
The partnership will extend a novel feature from Netflix, announced a year ago, that allows paying subscribers to watch any of 6,000 movies and television shows on its Web site free. But that service can be accessed only with a personal computer.
Reed Hastings, chief executive of Netflix, said he hoped to strike other such deals and that Netflix would soon be viewed as a movie channel that might appear on myriad devices.
“We want to be integrated on every Internet-connected device, game system, high-definition DVD player and dedicated Internet set-top box,” he said. “Eventually, as TVs have wireless connectivity built into them, we’ll integrate right into the television.”
The move could help transform Netflix from a successful company with a cumbersome dependence on physical media and the Postal Service into an important player in a rapidly emerging digital media landscape.
That landscape has recently been characterized by a frenzy of experimentation, as technology and media companies try to figure out how to bring the unlimited media choices of the Internet to the traditionally restricted confines of the television.
The players include cable, satellite and telephone companies. Newer entrants include Amazon.com, which lets customers buy movies over its Unbox service and download them to their TiVo boxes. Wal-Mart, which experimented with movie downloads on its Web site, pulled the plug on the service last month when Hewlett-Packard, its partner in the project, stopped supporting the technology.
Then there is the digital media heavyweight Apple. At the annual Macworld expo opening on Jan. 15, the company plans to announce a deal to allow users of its iTunes service to rent films from some Hollywood studios and watch them on their computers and iPods.
Richard Doherty, research director of the Envisioneering Group, a market research firm, said Netflix’s model had the virtue of being free to existing subscribers and relatively easy for consumers to understand. “You’re already a subscriber and you don’t pay anything extra. That’s called a slam dunk in most businesses we follow,” Mr. Doherty said.
The companies said LG products with Netflix’s movie service would begin shipping in the second half of this year. They did not say which devices would have it.
Mr. Doherty, who was briefed on the Netflix announcement and LG’s other plans to be unveiled at the Consumer Electronics Show in Las Vegas next week, said LG could integrate the Netflix service into a future version of its dual-mode HD DVD/Blu-ray DVD player, which now sells for $799, and a new line of high-definition TVs with wireless connections to the Internet, among other products.
Mr. Hastings said the new service would combine the benefits of an Internet browser with the luxury of watching movies and TV shows on large, high-definition TV screens. He said subscribers would be able to go to the Netflix Web site to create lists of movies they wanted to see. The Netflix service on the TV would offer a simple way to watch those movies.
“We think we have solved the real fundamental problem, which has been that choosing movies on a television has been extremely challenging,” Mr. Hastings said. “Video-on-demand companies worked at it for a long time, but choosing movies on the TV just doesn’t have the power of the Web.”
The Netflix streams will not initially be in high definition, and there are some limits to how many programs customers can watch. For example, customers who pay Netflix’s most popular $17-a-month rate are entitled to watch up to 17 movies on their PC, though a spokesman said the company had been experimenting with unlimited digital viewing.
Netflix says it is able to offer the online service free to subscribers because when customers watch online, the company does not have to spend the money to mail them a DVD.
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.
Michael Gartenberg, an analyst with JupiterResearch, said the move was a wise one. “Software and services companies that get into hardware and try to sell hardware usually don’t end up doing particularly well,” he said.
Mr. Hastings said that the company’s new digital effort did not augur the end of its valuable DVD-by-mail business, which helped the company earn around $1.2 billion in 2007. “If anything, we are going to see some extra life and growth in DVD rental,” he said. “This doesn’t reflect a view that DVD rental is going to shrink any time soon.”
