Netflix expands Internet viewing option
SAN FRANCISCO - Girding for a potential threat from Apple Inc., online DVD rental service Netflix Inc. is lifting its limits on how long most subscribers can watch movies and television shows over high-speed Internet connections.
Context & Ripple Effects
This lands eleven days after Netflix announced its plan to strike deals with electronics makers to put streaming on the television itself — the confirmed partnership with LG to develop a set-top box for movies straight off the Internet. Lifting the viewing-hour caps is the software-side half of the same pivot: the catalog has to be watchable without limits before the hardware exists to put it on living-room screens.
The timing is defensive as much as product strategy. Per the report itself, Netflix frames the change as preparation for a potential threat from Apple, whose entry into video would attack the same subscriber base. Analysts had already flagged the fragility of the core business: a Citi note circulating since December 2007 warned — though this remains an unconfirmed analyst estimate, not company guidance — that a postal-rate change could cut Netflix's operating income per subscriber by as much as two-thirds.
First-order effects
- Most Netflix subscribers can immediately watch movies and TV shows over high-speed connections without hour limits, turning streaming from a capped add-on into an unrestricted part of the standard subscription.
- Netflix gets its catalog in place ahead of any Apple move into video, so the comparison when Apple acts will be against an established unlimited offering rather than a trial feature.
Second-order effects
- The LG set-top box effort gains a stronger value proposition: hardware that streams an already-unlimited library, which pressures other consumer-electronics makers to partner or risk ceding the living-room gateway to whoever moves first.
- Rivals built around physical disc delivery face the squeeze from both ends — streaming undercuts their differentiation at the margin, while the rumored postal-rate exposure analysts warned about makes Netflix's own mail business look more fragile than its new Internet option.
Third-order effects
- If the pattern holds, home-video competition shifts from warehouse-and-postage logistics to two contests: securing Internet-distribution rights to studios' catalogs, and owning the device path into the television — with subscription terms like unlimited hours becoming the baseline customers expect.
- The uncertainty is whether studios license broadly enough to make unlimited streaming sustainable, and whether bandwidth and set-top partnerships mature fast enough to replace the disc business before postal or studio economics force the issue.
The trend: Home video is shifting from mail-order DVDs toward Internet streaming delivered through consumer-electronics partnerships, with Netflix racing to convert its rental base before Apple and hardware rivals lock up the living room.