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Why Netflix Could Rule the World

May 22nd, 2008

As most astute home theater enthusiasts already know, Netflix announced a set-top box this week (made by Roku) which allows consumers to view Watch Now videos from the Netflix website on their home televisions. What’s so amazing about this?

Everything.

This is the first system I know of that offers this many titles (real titles, even though dated) for an extremely low, fixed (non-additional-subscription-or-pay-per-view) fee. While other technology has been around for over a year now that performs IP streaming of Internet TV channels (IPTV) this device actually brings Hollywood movies to your home for NO ADDITIONAL FEES beyond the cost of the box.

And not just Turner Classics, Sundance Films and movies older than dirt.

Contrary to one particularly dense Internet post I read this week, this is most certainly NOT YouTube 2.0.

Here are some points to consider as you ponder why this is such a massive development in the world of home theater:

  1. It doesn’t have a hard drive so that it can SPECIFICALLY not be classified in a way that would increase fees and force it to enter into a pay-per-view scenario
  2. They do not offer their full catalog SPECIFICALLY because you would have to pay additional money to access newer content. It’s not because they are holding back…
  3. Netflix is working with additional partners to bring this service to the home in other products. A strong rumor includes Xbox 360 and LG will more than likely release a TV with this tech embedded within
  4. This IS the greatest thing to happen to consumers since the iPod assuming it progresses
  5. The box supports HD content, so you know this is something being presently worked on
  6. Don’t be too quick to decry the quality of the box. For $99 you get HDMI (with audio), full analogue outs, digital TOSLINK and the capability for future HD content

My personal guess is that Netflix is going through the motions now to figure out how exactly it may to classify this as a “rental method” under its current licensing so that it can bypass DVD shipping for those who opt for a direct-to-TV service. They have a LOT to gain (massively reduced shipping fees for the same income) and almost nothing to lose. Mark my words – they are ALL over this.

Here are some questions and comments I found on some forums that I’ll address to shed light on this new product – in an attempt to generate as much enthusiasm as I have for the technology:

Why charge for the device? Why not have it as part of your rental agreement?

Because Netflix doesn’t manufacture hardware. It’s not in their business model, or this wouldn’t be a product offered to multiple manufacturers and carrying their name and logos. At $99, this device is already practically “free”. Netflix is the “Microsoft” of the “Apple vs PC” war. They are creating the infrastructure and service. Let everyone else make hardware to carry services which will make them money and firmly entrench them on the home market.

Why not make all the downloads full DVD quality, make them download to the drive overnight?

Two things: One, the downloads are already basically full DVD quality if your Internet connection speeds and hardware (router, cabling, wireless network, etc) can support it. Two, if they actually store the movies on a drive they will almost certainly have to charge users in a pay-per-view model due to current licensing arrangements. Storing the movie is (for now, at least) considered a download, regardless of the duration of the stay. I believe the misconception here is that the quality will suck because it’s essentially a “live” stream. Since Netflix recommends at least a 4 mbps load speed you may extrapolate that the downloads are very close to DVD quality (which average 4.5 mbps) at maximum quality. Assuming they use any advanced compression techniques at all (they would be silly not to) it looks like DVD quality downloads should be quite easy to maintain.

Why not have the FULL DVD library available to view?

There is no doubt that Netflix is working on this, however it’s not a “failing” that they haven’t done it yet. The licensing conditions are much different for new releases as compared to older titles. My hope is that Netflix will figure out how to allow several New Release titles out to consumers for limited time download and replacement – simply eliminating the wait time for the post office deliveries. The real trick will be convincing the studios who have to agree to this new methodology.

This is no different than the free on-demand movies available from CableTV

Let’s take a look at the advertisements Cable companies put up to market their free on-demand movie services:

  • Free Movies includes content from Sundance, NBC Universal and Turner Classic Movies.
  • Free Movies on Demand features a variety of classics you can select from and watch on your schedule for free.
  • Comcast FREE on demand movies include titles from Palm Pictures, Sundance Channel and Movie Pass.

Currently it is my experience that CableTV on-demand movies are far more limited and much less relavant than what is offered on Netflix. In addition I have not seen a plethora of TV shows available for instant viewing as there is with Netflix. In comparison, the Netflix movie database is full of far more current and compelling titles. I actually want to watch movies they have available.

Satellite is getting into the game as well, except that it’s a real mess due to the limitations of the format. For example, users need to download enough of the movie to begin watching, which can take anywhere from 2 to 4 hours. As a result, the satellite TV model is more of a pay-per-view, download system than a truly convenient on-demand movie experience. While satellite has an “HD advantage” and is on the forefront of pushing that frontier, their on-demand system is complex and unwieldy – certainly a far cry from setting up a simple $99 box that includes wireless 802.11g networking! And when it’s all said and done, both satellite and cable are offering a lot of PAY options, and very few free options (despite marketing to the contrary)

Anyone not impressed by the new Netflix/Roku device and technology fails to see the true leap that has just taken place. This is the beginning of a new era in movie viewing. I hope that the future holds HD quality streaming and downloads, but for now this is an excellent start.

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  1. jfalk
    May 22nd, 2008 at 13:44 | #1

    I think you’re a generation back in satellite. DirectTV’s new DVRs download pay-per-view from the internet…. including HD. Thus, the difference between this and Netflix/Roku break down to: (1) PPV vs. Subscription (2) breadth of available content and (3) expiration of content (which is really just a subset of (1)). There’s one other difference, which is that the DVR doesn’t include 802.11g, but I just use the wireless bridge of my squeezebox.

  2. miked
    May 22nd, 2008 at 14:05 | #2

    Clint, have you tried netflix instant view?

    While better quality than YouTube it is far from DVD quality. You can believe all their marketing but go try it with a fast internet connection and you will see it is lacking. hulu is actually using better compression technology on their video streams (I believe they use h264) and their video is much higher quality than netflix, which I say simply as a good comparison point.

    Also, netflix might have a grand plan for the future but currently they only have stereo audio.

    So let’s see, old video compression, no surround sound, no HD. And so far all they do is get the data from content providers so they are currently tied to the content providers upgrading the compression and formats. And their SW providers updating the players, Netflix doesn’t do any software, so taking the world by storm with this new techology is going to take quite a bit of time.

  3. May 22nd, 2008 at 15:24 | #3

    Wow, when you put it that way it kinda makes me want to run out and buy something for $329 that charges me $3.99/movie which I have to download.

    Or I could drop $99 and get free access to 10,000 movies now and hope they update their service to HD and surround in the near future.

    And, all kidding aside, some may do both.

    Think of it this way. Would you pay $99 to have someone back up a truck to your house with 10,000 DVDs in the hopes that you may enjoy at least enough to offset the cost?

    Seems kinda silly-obvious to me.

    I’ve actually been pretty pleased with most of the movies I’ve watched online using this service, though I know Tom has mentioned some of it is royally screwed up.

    Now I know how everyone felt when I dissed the HD disc formats. It, *sniff*, hurts so bad…!

  4. jfalk
    May 22nd, 2008 at 15:47 | #4

    It’s you guys that have turned me into an HD snob, making everything else unwatchable. So, as far as I’m concerned, 10,000 DVD- movies are worthless. The $329 is unfair for two reasons… first, nobody pays that… DTV subsifdizes. Second, it also gives you a DVR. I readily admit that $4.99 a movie (remember — they charge an extra buck for HD) is a lot more expensive than a Netflix plan if you watch more than a couple of movies a month… but not per HD film.

  5. miked
    May 22nd, 2008 at 17:33 | #5

    In my mind itunes movies also suck, but I haven’t tried them so I leave that decisions to someone who wants to give apple lots of money.

    Clint, How many months is it going to take you to watch 10,000 movies? You are forgetting this isn’t free, it is $9 a month.

  6. May 23rd, 2008 at 15:18 | #6

    Oh, the $329 reference was actually to AppleTV with a 160GB drive.

    Miked: It’s “free” to Netflix users only, correct. I didn’t mean to imply it was completely free. But 8.5 million users just got a cheap $99 option for getting some cool films in their homes.

    I will refer to cable and satellite on-demand as “free” as well, provided they include it with your regular digital set-top service. And of course, I only mean “free to existing subscribers”.

    I kept calling around yesterday. I am familiar with CableTV on-demand (the lack of selection means it suuucks.) The people I talked to who had satellite told me that on-demand is basically non-existent and in beta stages. We’ll have to see how they compete.

    I don’t care WHO does it, but I get excited when people jump to subscription services over pay-per-view. PPV sucks for movie content, especially old movie content.

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