October Surprise: TiVo to Stream Netflix

27 Comments

In the beginning, there was Netflix streaming movies and TV content to the PC, and it was “meh.” Then there was the Roku Netflix player and it was actually pretty good. And lo, then there was Netflix streaming to the Xbox, and the LG and Samsung Blu-Ray DVD players — and things got interesting. Today, Netflix announced that it has added TiVo to its list of streaming partners… and we were surprised.

This one came out of left field. Netflix had earlier said that it had four set-top box partners and with the announcement of Samsung last week we thought that was it. But, BAM! Here it comes with another brand-name partner.

Perhaps TiVo needs Netflix more than the other way around. TiVo has been hemorrhaging subscribers over the past year and a half. According to TVbytheNumbers.com, the DVR maker had 3.6 million subscribers in July 2008, the same level it had in July 2005.

Netflix on TiVo will be available to TiVo Series3, TiVo HD, and TiVo HD XL owners. The two companies will start testing the new service today in “several thousand” U.S. households, and they anticipate it will be widely available in early December (read: “Hey! Please ignore your cable DVR and buy a TiVo this holiday.”).

Our question: Given the TiVo models the service will be on, will they get HD streaming like Xbox is getting?

27 Comments

Lars

As more people start geting electronic delivery of movies, Netflix will be able to save on postage, packagting, warehouse space, handling costs etc that they currently are paying to maintain and distribute DVD’s. This seems like a big money saver to me. I imagine in a few years, no one will actually buy a DVD or Blu-Ray any longer and most everything will be electronically distributed. The value I see of Netflix teaming with Tivo is that if users are allowed to download movies to the Tivo, then it reduces the internet speed requirerments (In my area, fiber optic isn’t available yet, and video quality streamed on my 1.5MBPS DSL line isn’t that great.) allowing a greater number of people to watch HD movies. As it is now, and for the next few years, I don’t thing the majority of people will have fast enough internet connections to stream HD content.

timekeeper

Chris, Put the screws to him at Newteevee live!

Dave, Great find! I still wonder how they are going to generate a profit stream with no more incremental revenue? At least with their DVD rental service they had revenue coming in. It was just a matter of time before the economies of scale and efficiencies kicked in.

Maybe they can eliminate their back catalog of DVDs and just have them available for streaming freeing up resources (labor and cash) for the new releases on DVD and BlueRay. Interesting that they charge extra for BD but not streaming.

I’m still having a hard time getting my head around all this new economy stuff where people are trying to make money by giving things away.

TK

Dave Zatz

TK, Netflix has clearly stated they’re pumping tons of money into this venture, losing money in fact, to build it out. Can’t remember which quarterly call/report it was that was most clear to me. Several months ago, perhaps preceding the Roku box.

By the same token, I believe they they’re also conserving costs by not taking on a lot of the new release mainstream content which they’d have to license individual and at higher rates (my understanding, could be wrong). Though the STARZ relationship has brought some newer content.

The Seeking Alpha earnings call transcripts have lots of interesting info…

“On the content side, we are working steadily year after year to increase the amount of movies and TV shows we have available online. It took 10 years to get most content available on DVD and it may take that long again to get most content online. We are pleased with our progress to date and are licensing more content every quarter.

Our ambition has always been to emerge as one of the world’s leading Internet movie firms, with a profit stream that will significantly exceed that of our initial DVD business.

It took several years for us to turn our DVD rental business profitable and our online video expansion may take just as long.

Since the opportunity for online video, however, will emerge slowly rather than suddenly, we believe we can generate increasing profits for the business as a whole while we expand into online video.”

timekeeper

Dave, Thanks for the response.

“It’s free for you and I, it’s not free for Netflix.”

Do you know this to be fact? Their SEC filings are very general and do not directly address this issue.

This is why I’m putting out a call to NewTeeVee to dig a bit and try and give us some insight into their business model. Regurgitating and commenting on press releases doesn’t get to the heart of the matter.

It will be one who has the most successful business model that will win this battle and not the one who has the sexiest set top box.

TK

geraldz

You don’t need a box to get Netflix on your HDTV. Just a $25 cable. Better yet, why get stuck with one content provider?

PCTVCables . com

Dave Zatz

“I have this sneaking suspicion that NetFlix is using a loophole in their distribution contract to provide streaming for free.”

Give me a break. It’s free for you and I, it’s not free for Netflix. And both they and their content partners know exactly where this content is headed, as Netflix begins their digital metamorphosis.

timekeeper

Dan, thanks for the insight but its that “let’s see what happens” attitude gets companies in trouble – especially in a recession. Without a clear IPTV strategy that shows profitability, they run the risk of digging a very deep hole. They can’t keep throwing money at a concept with negative margins and hope to make it up in volume.

I’m not sure streaming costs will come down dramatically any time soon. On the consumer side, ISPs, who are also the Cable companies, go figure, are starting to choke bandwidth and upsell you on higher speed internet in order to grab a bit of the streaming revenue stream as well.

It’s interesting that they partnered with TiVo as most of the flix on the NetFlix streaming service can be seen by people with a decent Cable/Sat package and a TiVo already.

I have this sneaking suspicion that NetFlix is using a loophole in their distribution contract to provide streaming for free. Eventually content rights holders wise up, plug that hole and start demanding a much larger piece of the pie. This may be why we’re not seeing any quality content on the streaming service yet. The rights holders may want too much money.

TK

Dave Zatz

Dan, do you have confirmation on TiVo HD streaming? I wasn’t able to get it yesterday from TiVo and my MRV HD streaming on TiVo has always been less than real time… Though VC-1 content should theoretically be smaller than TiVo’s own MPEG-2.

Dan Frommer

Chris, yep, the HD streams will work with HD compatible TiVos. Not crystal clear when — Xbox will get it first — but could be same time as Xbox, or a little later.

Timekeeper, It’s all experimentation now. Besides the cable industry, no one knows how to do digital content delivery well for movies. iTunes/Apple TV hasn’t blown anyone away. But Netflix, TiVo, and all of their partners need to figure something out for the post-DVD era. The library will get bigger, streaming costs will come down, and eventually, they might offset DVD costs. Or maybe Netflix will charge more for streaming the way they’re now charging more for Blu-ray. But they can’t afford NOT to experiment right now. And it’s not hurting their business much more than anything else right now.

Timekeeper

I’m trying to figure out what the business case for Netflix is on this:

Allow more of your existing customers to watch Streaming Netflix at no additional charge. It adds costs (bandwidth charges) but no additional revenue other than potential licensing from the hardware “partners”.

I cannot see the point of this.

I also don’t believe that Netflix will be picking up any significant volume of subscribers based on these partnerships either due to the fact that the depth of the streaming library is pretty thin.

Can someone at NewTeeVee postulate on what the business model is here?

TK

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