Netflix To Offer Streaming-Only Service By 2010

Netflix may allow customers to pay solely for online-video streaming by late this year or 2010.

The news comes as more viewers watch content directly from the Internet, Chief Executive Officer Reed Hastings said.

The largest U.S. mail-order movie service has “millions” of its more than 10 million subscribers watching video online, and is investing more this year to expand its library available on the Internet. Netflix has more than 12,000 titles for immediate viewing, compared with 100,000 for DVD-by-mail.

Currently, customers pay a fixed amount to have access to both DVDs and “streaming” movies, which begin when the customer presses play on the movie’s image on the Netflix Web site.

The company’s success hinges on its ability to transition to online video from DVDs, Hastings said yesterday in an interview in San Francisco. Netflix faces a challenge similar to the one AOL had as it lost subscribers who shifted from Internet service via a telephone connection to high-speed access, he said.

“Most companies that are in our shoes fail,” Hastings said. “Most companies that have a sort of generational evolution forward, like AOL from dial-up to broadband, fail. And it’s catastrophic for investors.”

Shareholders may be pricing doubts about Los Gatos, California-based Netflix’s ability to bridge the gap from DVDs to online video into the stock, Hastings said.

“A reasonable discount for that is not inappropriate at all,” he said. “In the last year, we picked up some momentum on, ‘Hey, maybe Netflix is going to make it.’”

Televisions, Game Consoles

The shares are up 39 percent in the past 12 months, and are trading near their all-time closing high of $40.70 in April 2008. They fell 22 cents to $37 at 4 p.m. New York time in Nasdaq Stock Market composite trading.

Netflix is aiming to broaden its online-video streaming to televisions from computers through media including Microsoft Corp.’s Xbox 360 video-game console and a service from TiVo Inc. One million Xbox 360 users have downloaded Netflix software, Hastings said yesterday in an interview with Bloomberg Television.

The company has added more than 600,000 subscribers since the beginning of the year, as cash-strapped U.S. consumers sought inexpensive entertainment. Subscriptions start at $4.99 a month for a plan allowing customers to rent one disc at a time, while the average price for a movie ticket in the U.S. was $7.20 last year, up 4.7 percent from 2007, according to researcher Media By Numbers LLC.

Hastings declined to specify how much the streaming-only plan would cost.

‘The Best of Both’
“Right now, the power of the service is that hybrid message, the best of both,” he said, referring to customers’ ability both to watch online video and to order DVDs under a single plan. “So we’re putting most of our wood behind that. But we recognize at some point in the long term, the streaming will be good enough that an appreciable number of people will find streaming is all they need.”

Netflix needs to increase subscribers so it can spend more to expand its library of titles for online streaming, Hastings said. That involves drawing in more customers renting DVDs by mail, improving the online-streaming technology for computers and getting its software embedded in consumer devices, he said.

Netflix is seeking to make licensing deals with channels like Time Warner Inc.’s HBO and CBS Corp.’s Showtime, Hastings said. Last year, the company began distributing content from Liberty Media Corp.’s Starz Play subscription movie service.

“We’re distributing Starz Play essentially like cable does, except it’s through our user interface and it’s all on demand,” he said. Netflix also streams TV content.

The company will add a record number of subscribers this quarter after doing so last period, Hastings said. Netflix gained 718,000 customers in the fourth quarter.

“We’ve got one singular objective, which is ‘Be successful in streaming,’” he said. “If we do that, that’s a homerun.”

Story source: bloomberg.com