There are few companies that can scare Apple. And while they might not admit it, Netflix is one player that matters. Netflix has announced a partnership with LG to make a set-top box for streaming movies to your TV, competing directly with Apple.
Digital Journal -- Downloading movies over the Internet is still considered to be the Holy Grail of technology by many media and industry experts. The market is young, it's worth billions and nobody has quite figured out how to convince people to drop Blockbuster in exchange for downloading and watching movies on TV. But many are trying.
The newest in the video download market is the "world's largest online movie rental service," Netflix. Teaming up with LG Electronics, the two are developing a set-top box so consumers can stream movies and other programs from the Internet to an HDTV. No computer needed.
Netflix is a movie rental company from which consumers in the U.S. can rent and return movies by mail, or download video to a computer.
"Internet to the TV is a huge opportunity," said Netflix Founder, Chairman and CEO Reed Hastings 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 is not the first company to get in this ring, as Apple currently sells Apple TV which connects its iTunes library directly to your TV. And this is where the industry will likely find its key to success.
The big problem with video downloading is it's niche appeal -- few people want to watch a full-length movie on a computer screen, and your average mom or pop has no desire to hook up a computer to a TV screen. The key to success is making the technology mainstream and easy enough to use that it's just pushing a button. A video download box that connects right to your TV is nothing short of the revolution that will eventually change video rentals forever.
Netflix announced it will deliver a home entertainment service through technology embedded in an LG network player scheduled for release in the second half of 2008. With the Consumer Electronics Show (CES) just around the corner, Netflix's pre-announcement is a brilliant way to steal the show and get the lion's share of publicity, as journalists from all over the world will come to an LG-Netflix booth simply to see the unit that could make Apple CEO Steve Jobs shake in his boots.
Apple's iTunes has had an edge over competition for a long time because of control; the company was smart and developed a market where it owned the technology to deliver content, and control of content itself, so that every movie and iPod fanatic would be hooked to iTunes as though it were an umbilical cord. There is not shortage of competition, but Apple has branded itself well in this arena. The only problem is: Netflix has as well. The company has control of content and an upcoming piece of hardware could be the sleeper in the woods.
"Consumers crave compelling and immediate content, and the Netflix online streaming movie feature can provide instant gratification," said KI Kwon, President of the Consumer Electronics Division of LG Electronics USA, Inc. in a statement. "This alliance underscores LG's goal of developing smart technologies that deliver flexibility, convenience and control to consumers."
What is key now is the pricing scheme, how well it will be promoted and what kind of exposure the technology will get in retail stores.
As for pricing: Netflix says it will offer a "hybrid" service that gives Netflix subscribers -- more than seven million of them -- access to movies and TV series for a single, low monthly fee. Subscribers can watch movies streamed directly from the Netflix website on their HDTVs at home, as well as watch them on PC.
The company says it boasts a catalog of more than 90,000 DVD titles it currently delivers by mail, and a growing section of 6,000 movies and TV shows it can deliver over the Internet to PCs and now TVs.
A Netflix employee sorts through mail. Netflix rents movies online and through the mail, offering 90,000 titles and more than 55 million DVDs total.
The deal also brings the LG name into the consumer TV ring, which in the long-run could do wonders for the company's sales. Partnering with Netflix, LG will get a chance to get in consumers' faces and it could see a nice bump to its bottom line for sales of its other products. It also makes Netflix seem less niche, as co-developing with a company as large as LG will give consumers who have never heard of Netflix a bit more confidence in the brand.
In the future, if Netflix or competitors could build this technology right into a TV (no set-top box required), the download market could move forward at breakneck-speed.
The whole announcement carries with it quite a bit of potential, and in the end, giving consumer choice could lead to competition driving prices down even further.
Netflix certainly could steal the show at CES and emerge a big player in 2008, but I would like to end this by offering Netflix one bit of advice: Don't let your legal team get involved in writing a press release. The release, which was issued to media worldwide, comes with a disclaimer that completely pulls the carpet out from underneath an otherwise exciting announcement. Someone in legal decided to add the following statement to the media release:
This press release contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding the development of a set-top box for delivery of content over the Internet to television sets, the delivery of a compelling online home entertainment service, Netflix's strategy and positioning in online delivery of content, and the future of Internet to the television. These statements are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation; the risk that the development of the set-top box or its associated online delivery service may not meet technical requirements, consumer expectations, or otherwise be implemented by the parties; that certain studios will not grant either of the parties necessary rights or otherwise impose limitations on such rights that might impede implementation or hamper consumer adoption, Netflix's ability to create other partnership opportunities for the delivery of digital content to the television, and possible technological or content licensing impediments. Other risks and uncertainties that could impact Netflix performance are included in Netflix's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2007. Netflix undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
How is that for a buzz killer? Netflix is either afraid of over-promising, or worried it cannot deliver and such a huge disclaimer makes an eager consumer base unsure. I'm not sure I've ever seen such a curious legal disclaimer as part of a product announcement, and not something I would repeat. Save the fine print for somewhere else.
