What's on iTV? NetFlix or MacFlix?

I've been thinking about iTV a lot lately and something occurred to while watching 60 Minutes on Sunday. Apple could use Macworld Expo to announce a partnership with Netflix on the iTV.
In a previous piece I asked: iTV: What the heck is it? - and you had plenty of answers (media center, Airport TV, media hub, Internet appliance, etc.). Later I speculated that iPhone was a diversion from the real Macworld Expo show stopper, an upgraded iPod or the mythical iTV.
The mysterious iTV product is an extremely rare breed - an unannounced product that Steve Jobs actually talked about. Clearly iTV will be announced next month, Steve practically told us as much, but he said very little else about the product.

During the 60 Minutes interview with Netflix founder Reed Hastings, Lesley Stahl point blank asked him about downloading and he was carefully vague. But Stahl later said that Netflix's download service would debut in January. January?! The timing is perfect to coincide with MWSF.

While I can definitely see Hastings being introduced by Steve Jobs during his January 9 keynote address, there's another big factor at play here. Netflix is a potentially huge competitor to iTunes. Apple already sells downloadable movies via the iTunes Store so the potential conflict may be too much for Apple to resolve. Do they build, buy or partner for video downloads and streaming?

Apple may think that they can do the video thing on their own due to their success with the music side of the business. So what does Netflix bring to the table? For starters, they have a billing relationship with millions of customers who like to rent movies. Second they have distribution deals in place with all of the major movie studios. Third, they have the a first mover advantage (just ask Blockbuster Online/Total Access).

Apple should partner with Netflix (at least initially) and offer a free three month subscription to NetFlix Online with each iTV sold. Apple would get access to Netflix customers via a limited-time exclusive engagement and Netflix would get access to the frothing Apple customers waiting to snap up the US$300 iTV boxes. Make the movies seemlessly transfer to the iPod and it's a home run.

Perhaps the most telling part of the 60 Minutes segment, was a brief interview with Bruce Eisen, president of CinemaNow:

"But right now, for most people who would go to your site to download a movie, they would have to watch it for the most part, on their computer?" Stahl asks. "Right," Eisen says. "You hit the nail on the head. Using it is easy. Connecting it to the TV where most people do want to watch it isn’t easy yet."

There's your smoking gun kids: the "connecting it the the TV" part which Eisen says "isn't easy yet." iTV could be just the piece of hardware that makes connecting movie downloads to your TV easy.

Movie downloads at a (home) theatre near you?
For Apple it comes down to build vs. partner. Will Apple forge ahead with their own movie downloads (MacFlix)? Or will they partner with someone like NetFlix to stream their movies to iTV?

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