Netflix Partners With LG to Bring Movies Straight to TV
SAN FRANCISCO — Netflix, the DVD-by-mail company with more than seven million customers, has a new strategy that may one day make those red envelopes obsolete. — The company wants to strike deals with electronics companies …
Context & Ripple Effects
Netflix's move with LG lands at a vulnerable moment for its core business: in December 2007 Citi analysts Mark Mahaney and Tony Wible warned that a potential postal rate change could cut Netflix's operating income per subscriber by roughly two-thirds, and the company has acknowledged pressure to accelerate its transition to a purely digital model. The November 2007 NBC Universal streaming deal already put current-season shows like Heroes online the day after broadcast; this partnership extends that digital push from the PC into the living room.
The story traveled widely on day one — paidContent framed it as 'TVflix,' and the Wall Street Journal covered the same tie-up — signaling that the market reads this as Netflix's first serious attempt to make its seven-million-subscriber base reachable through consumer electronics rather than red envelopes.
First-order effects
- Netflix gains a direct-to-TV delivery channel that reduces its dependence on the postal system just as analysts flag postage costs as an existential risk to DVD-by-mail economics.
- LG gets exclusive early access to Netflix's catalog as a differentiator for its TV hardware against rivals selling undifferentiated screens.
Second-order effects
- Other consumer electronics manufacturers face pressure to strike their own streaming deals rather than cede the connected-TV shelf to LG, turning content partnerships into a hardware arms race.
- Set-top box and cable operators lose their position as the default gateway between broadband video and the television set.
Third-order effects
- If device-embedded streaming becomes the norm, distribution power shifts from physical media logistics toward whoever controls the software relationship on the screen — making content licensing breadth, not warehouse capacity, the binding constraint on subscription video services.
The trend: Television makers are becoming the primary distribution gateway for internet video services, pulling subscription content companies out of physical media and onto the screen itself.