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From Netflix to TV

CEO Reed Hastings displays a new box that can deliver streamed video directly to a television set at Netflix headquarters in Los Gatos, Calif., last week. Associated Press (Associated Press / The Spokesman-Review)
Michael Liedtke Associated Press
CEO Reed Hastings displays a new box that can deliver streamed video directly to a television set at Netflix headquarters in Los Gatos, Calif., last week. Associated Press (Associated Press / The Spokesman-Review)

SAN FRANCISCO – Preparing for the eventual extinction of its DVD-by-mail rental service, Netflix Inc. on Tuesday introduced its first solution for subscribers who want entertainment delivered directly to their television sets with just a few clicks on a remote control.

The breakthrough comes in the form of 5-inch-by-5-inch device tailored for a year-old service that uses high-speed Internet connections to stream more than 10,000 movies and TV shows from Netflix’s library.

Although it’s provided at no additional cost to most of Netflix’s 8.2 million subscribers, the streaming service has had limited appeal so far because it doesn’t include the latest movies and couldn’t easily be watched on anything but a personal computer.

At $99.99, the Netflix set-top box is priced like a DVD player and just as simple to hook up to a television. A high-speed Internet connection can either be plugged into the box or the device can pick up a wireless signal.

Similar Internet-to-TV devices made by Apple Inc. and Vudu Inc. cost $229 to $295.

“We think this is something that offers a big value at a low cost,” said Reed Hastings, Netflix’s chief executive officer.

The Netflix box, made by Silicon Valley startup Roku Inc., is the first of several devices that will pipe Netflix’s streaming service to TV sets.

LG Electronics is expected to include the streaming capability in a Blu-ray DVD player that it plans to debut this year.

Without providing further details, Netflix has said two other major consumer electronics companies are working on set-top boxes for its streaming service.

Hastings believes the demand for DVD rentals will remain strong for several years, partly because movie studios aren’t ready to embrace digital distribution.

But as technology makes it easier to rent and buy movies within a few minutes, Hastings realizes his Los Gatos-based company won’t survive unless it evolves.

That’s why Netflix has poured more than $40 million into its streaming service, called “Watch Instantly,” and is trying to encourage its subscribers to use it more frequently even though it doesn’t generate more revenue.

If anything, the streaming service is eroding Netflix’s profits because the company’s licensing fees are based on how frequently subscribers use it.Cowen and Co. analyst James Friedland believes the number of Netflix subscribers interested in purchasing the new set-top box will be relatively small.

Few recent movies are available on Netflix’s streaming service, and nearly one-third of the rental requests on Netflix’s DVD service are for new releases, Friedland said.

Netflix offers more than 100,000 movies and TV shows on DVD, about 10 times the streaming service’s selection.