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Wed, Dec 03, 2008 - 04:10 PM EST  —  AAPL: 95.19 (+2.72, +2.94%)  |  NASDAQ: 1490.53 (+40.73, +2.81%)

Netflix CEO scoffs: We won’t lose any sleep if Apple debuts iTunes movie rentals
Wednesday, January 02, 2008 - 11:55 PM EST

"DVD-by-mail service Netflix Inc. will begin delivering movies and other programming directly to televisions later this year through a set-top box that will pipe entertainment over a high-speed Internet connection," May Wong reports for The Associated Press.

"The set-top box, to be made by LG Electronics Inc. as part of a partnership announced late Wednesday, is designed to broaden the appeal of a year-old streaming service that Netflix provides to its 7 million subscribers at no additional charge," Wong reports. "LG Electronics didn't reveal how much the set-top box will cost when it hits the market in the summer or early autumn. Similar devices made by Apple Inc. and Vudu Inc. cost $299 to $399."

MacDailyNews Take: Lucky Goldstar? Sorry, LG? Sounds a bit cheesy. Summer or early autumn? Sounds a bit late, too. In other words, this is a classic attempt at freezing the market with vaporware. Netflix wants to hold onto their customers, who might be movin' on up to a deluxe apartment in the sky beginning on January 15th, if rumors about Apple debuting iTunes rentals that work with iPod, iPhone, Macs, PCs, and Apple TV bear, er... fruit. And, who's doing the software and user interface? Netflix? LG? Or some other outfit that doesn't know what the hell it's doing?

Wong continues, "The set-top box is supposed to serve as a bridge that will enable just about anyone with a high-speed Internet connection to plug in a few wires so they will be able to access Netflix's Watch Instantly feature on their TVs.

"Subscribers will still need to use a computer to pick out which programs they're interested in streaming. The selections, culled from more than 6,000 titles available in streaming library, will then show up on the TV screen," Wong reports. "'It's going to be very slick and easy,' said Reed Hastings, Netflix's chief executive officer."

MacDailyNews Take: Again, classic defense is being played here by a very nervous outfit. Promise the world, "very slick and easy," but wait until "summer or early autumn," and, for God's sake, don't try Apple's solution! It's also meant to reassure Netflix shareholders who, if they aren't already, might be thinking of bolting come January 15th. This is what companies do when they have nothing and they believe the rumors floating around. What this tells us, besides the fact that Netflix is very nervous, is that the rumors of iTunes rentals are quite likely to become reality soon. If Apple TV gains the ability to access iTunes content directly without the need for a computer, Netflix will be toast that much faster. If Apple TV gets it, you can assume that iPhone, iPod touch, and whatever new device(s) Jobs has up his sleeve will get it, too. If you're thinking that things don't look so great for Netfix, you'd be right.

Wong continues, "The LG Electronics alliance is just the first of several partnerships Netflix hopes to strike this year to extend its delivery options beyond the mail. Although he wouldn't provide specifics, Hastings listed video game consoles and high-definition DVD players as other potential channels for Netflix. 'We want to see 100 Netflix-capable devices on the market,' Hastings said."

MacDailyNews Take: Wanting and getting are two completely different things, Mr. Hastings. Does Netflix really think that they're going to freeze a market that's chock full of Macs, PCs, iPods, the burgeoning iPhone and soon-to-be-burgeoning Apple TVs that's just waiting for compatible, portable rental content done right? Probably not, but, as we already know, Netflix has nothing until they roll out some likely half-baked thing come "summer or early autumn." They have to do something, anything, however weak it may be.

Wong continues, "Netflix has spent about $40 million on the development of its streaming service during the past year. The financial commitment hasn't been enough to convince many investors that Netflix will be able to survive a widely anticipated shift that that will turn DVDs into an afterthought as digital downloading proliferates. The persisting worries are one of the biggest reasons that Netflix's stock price remains roughly 30 percent below its highs of nearly four years ago."

MacDailyNews Take: Standing like a deer in the headlights of Apple's rumored oncoming steamroller spouting vaporous promises is hardly likely to inspire investor confidence, Mr. Hastings.

Wong continues, "One of Netflix's most formidable threats yet may be looming just around the corner, with Apple reportedly preparing to launch an online movie rental service that is supposed to include titles from News Corp.'s Twentieth Century Fox and Walt Disney Co."

MacDailyNews Take: Wong finally gets around to mentioning the impetus of Netflix's need to spew vapor.

Wong continues, "An online movie rental service could give more people a reason to buy Apple's device for delivering programming to TVs. The gadget, called Apple TV, so far hasn't taken off like the company's wildly popular iPod and iPhone. Piper Jaffray analyst Gene Munster estimates about 1.8 million Apple TV devices had been sold through 2007, but he expects another 2.9 million units to ship this year. 'If (Apple) does what has been reported, they will reach a very big market,' Hastings said. "But the addition of Apple to the rental market isn't causing us to lose any sleep.'"

Full article here.

MacDailyNews Take: That last statement has a high probability of coming back to haunt you, Mr. Hastings. We iCal'ed it so fast, it'd make your head spin. Quick, somebody ask Mikey Dell what he'd do if he was running Netflix! He'd likely be right this time. Bottom line: in our experience, executives who make these type of statements are almost certainly very tired. From losing sleep.

MacDailyNews Note: That figure of "1.8 million Apple TV devices sold through 2007" attributed to Munster by Wong, may be a mistake or misprint. We're fairly sure that Munster's number is 800,000 Apple TVs in 2007. We do believe, however, that the article correctly reports Munster's 2008 Apple TV sales prediction at 2.9 million units.

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Jan 03, 08 - 12:00 am Comment from: G Spank

Netflix was cool while it lasted.

Jan 03, 08 - 12:03 am Comment from: Too Hot!

Why partner with LG when there are other devices out there to do the same thing? (e.g. D-Link MediaLounge DSM-520, and NETGEAR Digital Entertainer HD EVA8000)

Apple TV is already doing better than these anyway.

Jan 03, 08 - 12:15 am Comment from: Judge Bork

This is what MDN is really great at doing: taking a mainstream media article, dissecting it concisely, and reporting what is really going on.

Before the Internet and blogs like this, all we would've had to go by would have been stuff like this AP article and others just like it.

Excellent job, MDN!

Jan 03, 08 - 12:19 am Comment from: DogGone

Many of these set top boxes don't work because they do not have a compelling companion service.

Netflix could definitely offer that. However I doubt that many punters will pony up a couple hundred of dollars to purchase such a unit. Alternatively, if Netflix offered the unit as rental it could work well. I would consider paying an additional $5 for such a download service. Another alternative is offering the PC service with a Mac-friendly program.

Jan 03, 08 - 12:23 am Comment from: Rip Ragged

"NetFlix was cool while it lasted."

Hahahahaha. Yeah. Steam trains, surreys with fringe on top, and brownie cameras were pretty cool once upon a time too.

Technology marches on. You keep up or you get your old signs displayed in antique shops.

Jan 03, 08 - 12:27 am Comment from: g5man

They are not losing sleep but their stock is tanking along with Blockbuster.

That tells the real story

Jan 03, 08 - 12:30 am Comment from: ChrissyTwo

Surely the vapourware is Apples, they havent even anouned a rental service!

Jan 03, 08 - 12:32 am Comment from: switcher

Someone should start a collection of 'Famous Last Words' from executives such as these.

Jan 03, 08 - 12:32 am Comment from: qka

MDN,

The proper pronunciation is "Rucky Goldsta".

Ask anyone who has ever been to Korea.

Jan 03, 08 - 12:32 am Comment from: me

The AppleTV isn’t exactly a steam roller, it’s only sold around 400k units and doesn’t seem to be very popular.

If Sony or even Microsoft who have a combined install base of almost 30 million PS3s and Xbox360s offered video rental now that would be a bit more threatening.

Jan 03, 08 - 12:35 am Comment from: ken1w

Sounds like what Balmer (and the Verizon execs) said before iPhone's debut.

Jan 03, 08 - 12:37 am Comment from: Netflix User

I like the idea of renting movies from iTunes, but if I have to buy an Apple TV to do it, forget it. I'm not about to spend $299 just to *rent* movies.

Never had a reason to own an Apple TV and unless they can make it more compelling or make it a lot cheaper, forget it....I'll pass.

Jan 03, 08 - 12:39 am Comment from: Girly Pants

"Netflix CEO scoffs: We won’t lose any sleep if Apple debuts iTunes movie rentals"

... Add the above quote to the pile containing Ballmer's prediction of the unimportance of the iPhone, Palm CEO Ed Colligan, saying, "We've learned and struggled for a few years here figuring out how to make a decent phone. PC (Apple) guys are not going to just figure this out. They're not going to just walk in." - commenting on then-rumored Apple iPhone, Michael Dell saying he'd sell Apple and give the money back to the shareholders, and of course, Laura Goldman issuing a "sell" advisory when AAPL was at $111.98.

Beautiful.

Jan 03, 08 - 12:41 am Comment from: FactChecker

Netflix User,

Read the related articles. iTunes rentals will likely be portable and accessible directly from PCs, Macs, iPod touch, iPhone, and Apple TV (and whatever else Jobs and Co. come up with).

After Jan. 15th, just watch what happens to Apple TV sales.

MDN MW: Netflix is in "trouble"

Jan 03, 08 - 12:44 am Comment from: nekogami13

Netflix won't be in trouble.
The majority of their users will not care about Apple or Netflix boxes.
Netflix already has online rentals.

Jan 03, 08 - 12:45 am Comment from: Russell

Why does MDN have to take on everybody else in any industry Apple is vaguely in as an "enemy"? Apple hasn't even announced movie rentals yet and already Netflix is a company with "no product" and "vaporware" and all of its investors will be "bolting."

Netflix redefined the movie rental industry. They've been driving Blockbuster practically out of business. The Netflix business plan is pure genius. Why can't MDN respect that?

Currently the "link your PC to your TV" industry has not taken off. The hardware is not widely available. Apple TV is not selling like crazy (I have my theories, but no need to get into them here). Meaning that Netflix is going to be around for awhile.

Chances are that the LG thing won't sell any more than the Apple TV does. But stop making Netflix the enemy. Geesh.

Jan 03, 08 - 12:48 am Comment from: Fred Mertz

nekogami13,

The majority of Netflix users also own iPods and PCs and/or Macs. They will want to be able to take the content on their computers and iPods and watch it on their TVs.

Apple will give real portability to them on devices they already own. Netflix simply will not be able to match it.

Jan 03, 08 - 12:51 am Comment from: @FactChecker

So we can all huddle around our iMacs and watch movies??? Are you joking? Or maybe if we huddle really tight we can watch them on an iPod, now that would be cool.

Jan 03, 08 - 12:55 am Comment from: Steve

Russell,

MDN is explaining their opinions. And doing it very well, too.

Netflix and Blockbuster investors are already getting out. Because their markets are due to be replaced by Apple.

The future is delivery over the Net. Not via snail mail days later.

Do not underestimate the power of all of those millions of video-capable iPods out there and well over 100 million iTunes installs.

Netflix (and Blockbuster) are not equipped to compete with a company of Apple's stature. Apple will do it better and they will make it sexier.

Apple has all of the pieces in place. They just need to launch the content at the right price with the right terms. If they do that (or come close enough), MDN is right, Netflix is toast.

Let's revisit this in a year's time to see how silly your post sounds, okay?

Jan 03, 08 - 12:58 am Comment from: Richard W

I don't think that this is vaporware. I think that it has the potential to do well if Netflix doesn't price the gadget out of the market.

Apple's compelling draw is the fact that iTunes is so simple to use and the backbone for the system is already in place. Additionally there is a terrific trust factor that Apple possesses that the object will either just work right out of the box or it will be updated within days.

Netflix is a worthy competitor since it already has name recognition in this space. If they do this correctly and not make the task onerous, it will catch on. Apple needs to ensure that the movies can be rented without using a computer if using AppleTV. If it's download to computer then upload to AppleTV for 24 hours, it will not work.

Richard

Jan 03, 08 - 01:00 am Comment from: FactChecker

So we can all huddle around our iMacs and watch movies??? Are you joking? Or maybe if we huddle really tight we can watch them on an iPod, now that would be cool.

Either you're not getting it or you don't want to get it.

When you rent a movie from iTunes (still with me?), you can watch it on your Mac or PC or Apple TV or iPod touch /iPhone (on its screen in a plane, camping, etc. or hooked up to a TV at a friends house, for example).

Get it, yet?

MDN nailed this one perfectly.

Jan 03, 08 - 01:04 am Comment from: Journo

Excellent dissection, as usual, MDN.

One more point:

Netflix (NFLX) market cap = $1.73 billion.

Jobs could buy Netflix with petty cash. Perhaps that's really what Mr. Hastings wants.

Jan 03, 08 - 01:07 am Comment from: Don

I'm already a NetFlix member but their " download a movie to your computer" service doesn't work with Mac. You need to have a Windows PC to use that service.

The movie rental business is VERY competitive and will continue to be so as long as technology continues to advance. Apple has a HUGE advantage in this area especially due to their ease-of-use operating system.

Jan 03, 08 - 01:07 am Comment from: @ FactChecker

Or I can rent a DVD and save myself $3,000 in white plastic gadgets.

Don't you get it? The reason people aren't buying AppleTVs is that it doesn't offer value for money. Only Apple fanboys spend $3,000 on every possible iDevice just so they can watch a movie.

Jan 03, 08 - 01:08 am Comment from: Jubei

Get me minimum DPL II or better yet DD 5.1 and at least 720p and I'll dump NetFlix.

Jan 03, 08 - 01:15 am Comment from: SleeplessMacFan

When Steve Jobs called the Apple TV a "hobby", I started to think about why he would say something like that. Knowing what we do about Jobs style, that probably meant that nothing big would be announced for a little while about Apple TV, but something REALLY big would be in the works. Calling it a hobby would also give his clueless competitors further encouragement to continue resting on their bums while Apple prepares to unleash another giant-killer. Can't wait!

Jan 03, 08 - 01:20 am Comment from: smegdude

As an apple tv owner and netflix subscriber I'd say that i'm going to win either way. But seriously, if i swap to windows in bootcamp i can stream tons of movies from netflix right now. Way more than i can get off the itunes movie store. The reason netflix downloads aren't available on apple computers is that apple won't license fairplay drm to them, and the only alternative is M$ hunk of junk. There is also a huge installed base of netflix subscribers who can already stream the movies for free... Thats a pretty strong price point to be starting from. Apple is coming from behind in this market, and i expect them to do well, but writing off netflix at this early stage is like saying in 2001 nobody will buy the ipod...

Jan 03, 08 - 01:32 am Comment from: I'm with Fred

Apple buy Netflix?? Why!??

Netflix is an excellent deal, my in-laws love the fun of getting movies in the mail. But if you think "er, we're in the 21st century" you'd be silly to hang on to that as your business model.

A bigger deal is the HD/BluRay mess. What better way to blatt past that one than with iTunes.

Jan 03, 08 - 01:33 am Comment from: crabs

so just a little addition. Netflix's 6000 movies you can dl to your computer pretty much all suck. Like hard core. Now if you're into bad horror movies from the 60's, netflix is where you wanna go. My assumption is that apple will have good movies, what with deals with 20th and disney.

Jan 03, 08 - 01:37 am Comment from: neomonkey

Don has spotted the problem:

I'm already a NetFlix member but their " download a movie to your computer" service doesn't work with Mac. You need to have a Windows PC to use that service.

Anything concerning music or TV/movies offered for Windows only will fail.

Jan 03, 08 - 01:43 am Comment from: Ferf Muckmeyer

First off, Netflix will survive for awhile with their DVD-through-snail-mail model. That will not go away for a bit. I find their service terrible, and living in a major urban area I would expect faster turnaround time. But they do have a following.

But let's address the matter at hand. No one, no company, no enterprise has been able to shit on Apple's juggernaut. That said, there is no doubt that internet delivery of movie rentals are the wave of the future, and Netflix will be boned up the wazoo by Apple when it all hits. LG? Yeah they make decent TVs and appliances but they will not have a chance in this market.

Netflix - be afraid, be very afraid.

Jan 03, 08 - 01:57 am Comment from: TowerTone

but will their player look as fantastic as this?

http://ces.cnet.com/8301-13855_1-9839207-67.html

Jan 03, 08 - 02:17 am Comment from: Guessing

I'm surprised no one has mentioned the fact that Reed Hastings sits on the Microsoft board. Stuff like that just doesn't happen by accident.

Jan 03, 08 - 02:22 am Comment from: Marian

iTunes rental wouldn't really compete with Netflix.
Netflix has:
- very large movie collection. Jobs has to struggle a lot to get access to all those movies in digital format.
- dirt cheap prices. It's very easy to rent under $1.5/DVD
- very good bandwidth (it uses USPS instead of telecoms)

Netflix's market is mainly cinephiles and casual viewers. Indeed, it doesn't cover very well the impulse buyers (BlockBuster's and iTunes' market), although they are trying to cover that segment too, by the free "Watch Now" service. And even if you don't get any DVD by e-mail and you use only "Watch Now" (limited collection, I agree), you get dirt cheap rental prices - about $2/movie on average.

So, I personally wouldn't be worried for NFLX. I am using it and I have absolutly no intention to switch to the more expensive, limited selection, internet bandwitch throttlling iTunes rentals. 17 buck a month (+ tax) gives me more than all I can eat.

Jan 03, 08 - 02:58 am Comment from: MacVenom

@Chrissytwo

I don't think you understand what vaporware is. Vaporware is promising a product that isn't here yet. Apple hasn't promised any sort of service or anything like that. Rather, rumor sites are posting this type of things.

It seems apple is the only one who knows what under 'promise, over deliver' means. Go Apple!

Jan 03, 08 - 03:02 am Comment from: ericdano

Gosh, it sounds like last year with Palm saying the same thing.

Netflix is good, for real DVDs. But lately, DVDs from them have been scratched, or damaged in transit. Plus, you have to wait for them. If the iTunes rentals were unlimited, 3 at a time, they could KILL netflix easily.

Jan 03, 08 - 03:31 am Comment from: Hmmmm...

@Those complaining about the price of an AppleTV or huddling around the laptop/iPod.

AV cables straight out of any video capable iPod will work just fine. They're not too expensive. That means millions of potential customers are but a cable away from iTunes rentals on the TV.

Jan 03, 08 - 03:50 am Comment from: Morpheus

Fool or liar.

Jan 03, 08 - 04:46 am Comment from: gzero

Steve Jobs is one of the best corporate chess players in recent memory. I love the way he's setting up the board with Apple TV, just as he did with the iPhone and video-capable iPods. If iTS movie rentals does indeed happen, the possibilities are pretty mind numbing - for the competition.

Think about it: it won't be long before we see video rentals in the iTunes WiFi Music Store. Granted, such a move wouldn't be all that practical right now given current broadband limitations, but high quality video rentals accessible via your iPhone or iPT would be a killer app that no other competitor could CREDIBLY match.

Jan 03, 08 - 05:06 am Comment from: cubist

My Apple TV is definitely snappier since Netflix started sweating. BTW, we don't have Netflix in Oz - but I'm sure if we did, you could smell the sweat through a wildfire.

Jan 03, 08 - 05:46 am Comment from: LorD1776

"But the addition of Apple to the rental market isn't causing us to lose any sleep."

It's those type of idiotic comments that get MDN going. They are either lies or the sign of incompetence and delusion. A wise businessman should never under-estimate a competitor.

Jan 03, 08 - 06:52 am Comment from: Shogun

SOMEONE PREDICT THE FUTURE

Let's say that by June, 2008 we've got iTunes movie rentals going strong, a slightly updated TV, 3G iPhone, thinner, lighter 'books and maybe an updated Mac Pro...

What's next for Apple? Where are they headed? It feels like this will be a consummation year, but I'm wondering what they're working on for 2009, 2010.

Anyone have any ideas or guesses? Come to think of it, I haven't even heard rumors. If the above all come true, what more are people hoping for?

Jan 03, 08 - 07:06 am Comment from: macbones

well,
If Apple is able to provide a reasonable number of titles, Netflix is in trouble. If Apple does rentals like it did TV show downloads, it's not going to be pretty.

Jan 03, 08 - 08:21 am Comment from: effwerd

This is good. Good for Netflix and good for Apple. Netflix will introduce more of the market to video on demand set top boxes while also positioning themselves for what seems an inevitable transition away from discs. Meanwhile, if Apple can start their rental service soon, they will already be in position. It's good that the competition from Apple has pushed Netflix to modify their services to keep pace, and hopefully, Netflix will exert the same kind of pressure on Apple to keep them on their toes.

Now if there were any movies worth watching, I might be excited, too.

Jan 03, 08 - 08:38 am Comment from: Demon

NetFlix Rentals are streaming (Windows Media Player, Microsoft DRM'd, Windows Only). Streaming Video sucks and streaming video to a set-top box to watch on your TV will suck even more. When you stream video the quality of the content suffers because you have to highly compress the video and reduce the video quality to such an extent that it would not be an enjoyable experience. A Youtube quality video that you're paying for. Does NetFlix even have a clue?

Directly from the NetFlix Site:

"What are the system requirements to watch movies instantly on my PC?
You must have a computer running Windows XP with Service Pack 2 or higher, or Windows Vista; Internet Explorer version 6 or higher; Windows Media Player version 11 or higher; an active broadband connection to the Internet; 1.0 GHz processor; 512 MB RAM; 3 GB free hard disk drive space."

Jan 03, 08 - 08:47 am Comment from: Karrde97

I like Netflix. I've been a subscriber for years. The 'Watch Now' feature is not FREE! You're allowed to watch (1) hour for every (1) dollar of your monthly subscription fee. I pay $16.99 a month so I can only watch 17 hours in a month. Again, this isn't free. It's part of your subscription. Since it doesn't work Mac, I don't use it.

That being said, I still think digital is the future and Apple will find a way to make it work. I will have NO flexibility with Netflix/LG's set top box. They may have limited content now, but it sounds like major studios will be on board Jan 15.

Netflix will not go anywhere for awhile. BluRay & HD-DVD are the ones to be worried. While they're fighting it out.

BAM!

AppleTV!!!!!

Jan 03, 08 - 08:52 am Comment from: HMCIV

Netflix's business model has worked well so far and displace a *lot* of video rental stores that deserved the boot. If their device plays DVDs and can download movie rentals, they may have a hit.

Will they displace Apple TV or ruin Steve's party? Unlikely. I believe Apple & Netflix can share the rental market competitively. Will they do horrible things to Blockbuster that only grown-up language can describe. wink Oh I hope so!!!

Jan 03, 08 - 09:02 am Comment from: w8 n c

Perhaps just perhaps,

Netfilx has partnered with Apple and LG,
that is if MacroSloth has not yet done the deed...

Imagine for one second... that if AppleTV has some hidden
features not yet mentioned... lets say that little USB connector in the back linking the LG device or firmware update that installs new functionality to AppTv.

There could be a huge wave of content...
AND hence the reason why, "Netflix CEO scoffs: We won’t lose any sleep if Apple debuts iTunes movie rentals"

cos we have partnered or Apple owns Netflix now.

w8nc

Jan 03, 08 - 09:08 am Comment from: mark

MDN is correct in that this Netflix announcement was spurred by the rumors of Apple's rental service. There is definitely concern.

Of course, a lot still depends on exactly what Apple debuts. Is it 720p HD for home viewing? If 720p, does the price include a version for iPod/iPhone? Is it 24-hr or limited-number-on-checkout-per-subscription? How quick is it to download to a device (including a version via wifi to iPod Touch, iPhone)? Is there a Are there airport kiosks/stores or Starbucks for downloading?

Whatever Apple decides to offer, there is sure to be griping. But hopefully, Apple will have chosen to sell what is most important to most consumers.

Jan 03, 08 - 09:37 am Comment from: ron

@qka. The proper pronunciation is "Rucky Goldsta".

Ask anyone who has ever been to Korea.

SB - Rucky Gowdsta. L's are the probrem!

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