Online movie rental service firm Netflix Inc. is broadening its content delivery further from its original postal model, through a partnership with consumer electronics firm LG Electronics. The result will be a set-top box for consumers that can stream movies and other programming directly from the Internet to high-definition TVs.
The collaboration is expected to deliver a new online home entertainment service via technology embedded in an LG networked player planned for the second half of 2008.
“Internet to the TV is a huge opportunity,” said Reed Hastings, founder/CEO of Netflix, in a statement. “Netflix explored also offering its own Netflix-branded set-top boxes but we concluded that familiar consumer electronics devices from industry leaders like LG Electronics are a better consumer solution for getting the Internet to the TV.”
Netflix users can currently receive 90,000 different DVDs by mail or download 6,000 titles to their PC.
A New York Times article reported that Netflix said it was able to offer the online service for free, because when consumers watch online, it doesn’t have to spend money to mail them a DVD.
The upcoming LG product will allow Netflix subscribers to watch movies streamed from the Netflix Web site on home theater HDTVs, integrating the Internet with the TV, even if consumers do not have a home computer.
Currently, the Netflix distribution model centers on its DVD by mail. Recently, the company’s signature mailer envelope faced scrutiny as the USPS Office of the Inspector General released an audit which did not name Netflix as the problematic mailer, but stated that approximately 70% of the approved First-Class, two-way DVD return mail pieces from one DVD rental company were problematic to the system. Netflix responded by saying that while the report is vague, the company is continually re-evaluating its envelope format.
The foray into a direct-from-Web model comes as consumer video consumption models are beginning to change and video distribution companies are vying for attention. Two weeks ago, Wal-Mart, one of the nation’s largest DVD sellers, discontinued its online video downloading service due to Hewlett-Packard cutting the core technology that ran the service.
It is rumored that computer maker Apple Inc. will soon be joining the video rental market with a new service that lets video rentals be downloaded through its iTunes online store. If Apple releases this service, then its own set-top box, the Apple TV, which was introduced last year with very little consumer adoption, could become more popular and compete with Netflix’s offering.
