Last September I asked “Will Netflix DVDs go the way of AOL CDs?”
Netflix is indeed moving towards a “Who needs DVDs?” movie rental and viewing future, long term.
Last June, Netflix filed a “Regulation FD Disclosure” with the SEC confirming a $5 to $10 million investment in “developing its approach to on-line movie delivery.”
Netflix now announces:
Netflix offers subscribers the option of instantly watching movies on their PCs; New feature will be included in subscribers' monthly membership at no extra charge and will have a phased roll-out over next six months.
To start, only about 1.5% of the Netflix 70,000 title strong catalog will be available, approximately 1000 selections.
Reed Hastings, Netflix CEO:
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. 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.
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. The PC screen is the best Internet-connected screen today, so we are starting there.
In announcing the new online “delivery” option, Netflix underscores its competitive differentiation:
Netflix is specifically focusing on the rental segment of electronic delivery, distinct from the download-to-own market and advertising-supported electronic delivery.
The new 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. Following a one-time, under-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. 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 three-megabit-per-second connection.
Netflix says the “new feature will be included in subscribers' monthly membership at no extra charge.” Netflix customers are well advised to read the fine-print when the service is made available, however:
Subscribers on Netflix'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.
In other words, unlimited DVD rental does not equate to unlimited online movie watching.
The New York Times on the market opporuntity:
The impending death of the company, with its online system for renting DVDs delivered by mail, was predicted late in 2002, when Wal-Mart said it would enter the business; again last year, when Apple and Amazon announced movie-downloading services; and again last week, after the introduction of a series of products and services intended to bring Internet video to television sets.
But Wal-Mart left the online rental business in 2005 and now refers customers to Netflix. Meanwhile, none of the movie-downloading services have gained much traction with consumers, the notion of taking Internet video content to TV sets remains a work in progress, and Netflix keeps signing up new customers at a fast clip. It was expected to end 2006 with 6.3 million subscribers and nearly $1 billion in revenue, or about 12 percent of the $8.4 billion annual DVD rental market.”
The (online) market is microscopic. DVD is going to be a very big market for a very long time.