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Netflix Wades Deeper Into On-Demand Stream With CBS, Disney Deals

By Jeff Meisner
Sep 23, 2008 11:41 AM PT

Online movie rental company Netflix has signed distribution deals with two heavy hitters from the TV world -- the CBS Television Network and the Disney-ABC Television Group.

Netflix Wades Deeper Into On-Demand Stream With CBS, Disney Deals

Los Gatos, Calif.-based Netflix will soon have a stable of new and syndicated television shows that Netflix users can stream over the Internet -- "CSI," "NCIS," "Hannah Montana," "Wizards of Waverly Place," "Star Trek," "Family Ties" and "MacGyver," among others.

Though known mostly for its online DVD rental business, Netflix launched an on-demand style service about 18 months ago, through which subscribers can watch streamed video content on their PCs, TVs and other devices such as Microsoft's Xbox 360 video-game console.

Netflix has about 7 million subscribers.

A New Audience

The streaming deals provide CBS and Disney an early entrance into the crowded but still nascent market for paid streamed video content.

"They're getting expanded distribution," Andy Hargreaves, an equity analyst with Pacific Crest Securities, told the E-Commerce Times. "They get the device relationships that Netflix already has with Xbox 360, the Blu-ray disc player that's coming out pretty darn soon, and whatever else [Netflix] is working on in terms of device relationships."

The deals with Netflix give CBS and Disney the chance to gauge consumer behavior with respect to streamed video content.

"I think if you're a content owner right now, there are still a lot of question marks concerning where the market will go and what distribution points will be most valuable," Hargreaves said. "At the least, [CBS and Disney] get to test what Netflix' offerings will do for them. They probably don't know what they're going to get out of it."

Avoiding Past Mistakes

When downloadable music became available years ago, the major record labels were unprepared for the shift from compact discs to digital music files. Since then, the recording industry has struggled to connect with users who obtain the vast majority of their music over the Internet.

The movie studios no doubt want to avoid that mistake.

"Consumers want the ability to take movies they've purchased and put them on their own media devices," Daniel Ernst, an equity analyst with Soleil Securities, told the E-Commerce Times. "If the movie studios don't get into this themselves soon, then they will be in the same position that the music companies are in now -- fighting off users who will download movies illegally."

However, streaming movie and television show content over the Internet is just part of the equation.

"Most won't use Netflix' online streaming service as their sole source of video," Ernst said. "As a complement to Netflix's DVD collection, it's interesting -- but you can't download it and take it with you on an airplane."

Apple's popular music download store, iTunes, allows users to download and carry video content on their own digital media devices. However, the selection of movies on iTunes is small, Ernst said.

It's possible that Netflix could launch a similar service, but content owners might be reluctant to work with a company like Netflix, Ernst said, because it lacks the tight integration of software and hardware that has propelled Apple into a leadership position in the digital media market.

Still Beating Blockbuster, Hollywood Video

Netflix is the dominant player in the online movie rental market, noted Pacific Crest Securities' Hargreaves, and that market position has allowed it to displace traditional video store companies such as Blockbuster and the struggling Hollywood Video chain.

"Netflix is continuing to take share of DVD movie rentals as a whole," Hargreaves said.


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