Netflix Expands Business Model with Internet Viewing Feature

Hoping to evolve its mail-you-movies subscription service business model, as content providers increasingly move to Internet-based options, Netflix Inc. has announced plans to stream movies for customers to immediately view through broadband links connected to their PCs.

NetFlix said it will make the new feature, which will be included in its monthly subscription fee, available to its subscribers in a phased roll-out over the next six months.

The company said it expects to make the new feature available to all subscribers by the end of June. However, the hours available for instant watching will vary based on subscribers' monthly plans. For example, subscribers on the entry-level $5.99 plan will have six hours of online movie watching per month.

Those Netflix subscribers on the company’s most popular plan, $17.99 for unlimited DVD rental and three discs out at a time, will have 18 hours of online movie watching per month.

The company said subscribers will continue to receive DVDs by mail from its market-leading catalog of over 70,000 titles and will have the additional option of instantly watching about 1,000 movies and TV series on their PCs.

"We named our company Netflix in 1998 because we believed Internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery," said Reed Hastings, the company's CEO. "While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step.”

Hastings’ comments could be debated as many content houses already provide rental and download to buy or burn options to Internet users. While NetFlix’s original business model is unique and widely-popular, waiting for the mail to receive content is under fire from direct-to consumer Internet practitioners.

"Over the coming years we'll expand our selection of films, and we'll work to get to every Internet-connected screen, from cell phones to PCs to plasma screens,” said Hastings. “The PC screen is the best Internet-connected screen today, so we are starting there."

Adding electronic delivery to its model will extend its life, but industry experts are questioning the long-term viability of the practice for those who have Internet connections. And content owners and the recent Consumer Electronics Show said the download to buy option is the fastest growing one among their subscribers.

For its part, Netflix is standing pat, saying the introduction of immediate viewing is part of its plan to lead movie rental by adding electronic delivery to its existing DVD delivery platform. Netflix is specifically focusing on the rental segment of electronic delivery, distinct from the download-to-own market and advertising-supported electronic delivery.

How It Works

The immediate viewing feature differs from current services in that it does not require the often lengthy downloading of a large video file. The Netflix feature uses real-time playback technology that allows video to be viewed at virtually the same time it is being delivered to a user's computer.

NetFlix said that, following a one-time, less than 60-second installation of a simple browser applet, most subscribers' movie selections will begin playing in their Web browser in as little as 10 to 15 seconds. Movies can be paused and a position bar gives viewers the ability to immediately jump to any point in the movie. In all, the instant watching feature requires only Internet connectivity with a minimum of one megabit per second of bandwidth.

Obviously, as NetFlix said, the more bandwidth a consumer has, the higher quality the video displayed, ranging from the quality of current Netflix previews to DVD quality with a 3Mbps connection.

Netflix Inc. www.netflix.com

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