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Thursday, January 03, 2008

Netflix and LG announce a hybrid set-top box

A lot of folks I've spoken to lately are pessimistic that any stand-alone set-top box can make a dent in the market...including products from Apple, Vudu, or Building B. These people are of the opinion that the only boxes that can succeed are those deployed by cable and satellite companies.

I have a sense, though, that one way to succeed in the stand-alone set-top box market is to sell a hybrid box ... one that slices and dices, serving several two (or more) purposes. I own a Toshiba-made box, for instance, that plays DVDs and acts as a TiVo. What would get me thinking about upgrading? A new box that plays high-def DVDs, sucks down Internet video, and also acts as a TiVo.

Netflix and LG Electronics are heading in this hybrid direction with their announcement today that new boxes from LG will support streaming movies, delivered over the Net, from Netflix's service. CNet says the box will also play Blu-ray and HD DVD discs. From that story:

    [Netflix CEO Reed] 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.

Netflix has about 6000 movies available for streaming today, compared with 90,000 DVDs available for rental, according to the Wall Street Journal.

In the NY Times coverage, Hastings says, “Eventually, as TVs have wireless connectivity built into them, we’ll integrate right into the television.”

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  • For this to work, Netflix will likely need to offer licensing fees to
    studios and indie producers for their films which are competitive
    with (or greater than) the premium cable window (Starz, HBO,
    Showtime, etc.), because that is essentially who they will be
    competing with in the short term.

    Related to this, Netflix has recently begun trying to re-negotiate all
    their streaming licenses from a per-stream to a flat/fixed fee. However,
    unless and until they begin paying higher licensing fees to both
    studios and independents, whether flat fee, per stream or a combination
    of both, Netflix will continue to have trouble acquiring streaming
    rights for the most desirable films (many under long-term exclusive
    output deals), especially if they want to provide them, 24/7, streaming
    to their subscribers.

    This could get especially challenging for Netflix if the cable companies
    want, and are willing to pay an extra premium for the streaming rights,
    in addition to what they're already licensing/acquiring.

    An alternate possibility to Netflix's aggressive entry in this area might
    be a leveling off of licensing fees and a slight shift of leverage to content
    providers, who may be able to negotiate simultaneous, non-exclusive
    deals with both a premium cable net and Netflix.

    I applaud their effort, but hope they're ready to dip into their war chest.

    By Blogger Unknown, at 12:10 PM  

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