Netflix Hitting Its Online Stride?

Couch potatoes rejoice?

Not just yet. Movie rental company Netflix just introduced a $99 set-top box capable of streaming movies over the Internet directly to televisions in the home. The Netflix Player by Roku has enough flaws in its early incarnation to limit its uptake to early adopters. Still, it could over time stem defections from the core mail-order business as a variety of competitors, including cable and Apple, ramp up competing video on demand offerings.

The Netflix Player would make available about 10,000 of Netflix’ more than 100,000 titles. The “watch it now” feature has been growing in popularity, but until now has been available only on pcs with robust Web connections.

Technically, Netflix will be able to boast it has more titles available than anyone else for streaming (AppleTV, Vudu and Comcast have, or will have later this year, about 6,000 titles available each). But the problem for Netflix is that many of its titles are older studio catalog movies and TVs shows—not the new releases that are most popular in consumer rentals. What’s more, the rival services offer a combo of high-definition and near DVD-quality downloads, whereas Roku says there won’t be any high-definition Netflix movies out of the starting gate.

Another downside: users still must order their queue on the pc instead of getting automatic updates to the menu like those on Vudu’s $295 box, or the $229 AppleTV.

On the plus side, movie rentals off the Netflix Player are structured as essentially a freebie to anyone of the 8.2 million total subscribers who already have an unlimited DVD rental plan (starting at $8.99 a month). The other movie rental boxes charge $3 or more per rental, and have windows in which you must watch a title.

Netflix also has a nice recommendation system based on your previous viewing choices that make discovery of things that might interest you easier than the sometimes cumbersome menu search system offered by competitors.

When you add up all the negatives and positives, it looks like a good interim step for Netflix as it ramps up its hybrid model of video delivery in packaged DVDs and streaming media. The move keeps them on track for the day when more consumers will choose Internet delivery over packaged media. And the relatively cheap price of the box and free streaming raises the bar for competitors, who could be forced to respond with their own price cuts.

To better compete against cable companies, Netflix also plans to market a video delivery service built directly into LG Electronics HDTV models later this year. If it strikes more deals along those lines and expands its streaming library to new titles, it could negate the advantage that Comcast and other cable providers have because their VOD services are built into the set-top boxes many consumers must have anyway to watch regular TV.

Netflix recently raised its fiscal 2008 revenue guidance and reaffirmed net income goals. The company reduced churn, or subscriber turnover, to 3.9 percent from 4.4 percent a year earlier.

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