Netflix, Apple and movie distribution over the Internet

Couple of announcements on movie distribution made the headlines recently:

  • At CES 2008 in Vegas, Netflix announced a partnership with LG to build a set-top box for streaming movies to consumers over the Internet. Movies will be free to existing Netflix subscribers, the only additional cost being the hardware.
  • Not to be outdone, Apple took the opportunity and preaching-to-the-choir environment of MacWorld to make a splash with its own take-two attempt at movie distribution, iTunes Movie Rentals.
  • Not to be outdone Netflix announced it was removing existing limits on streaming for subscribers– Netflix already had boasted a “watch now” feature where subscribers

What to make of these developments?

For Netflix users, it’s business as usual. This blogger’s account had its streaming limits lifted before the announcement, at least if the Netflix web page was correct about describing the program. Streaming works fine on a decent broadband connection already,  although the image quality is sub-par when projected on a TV and the software requires a Windows operating system because of its dependence on the DRM platform. (Also worked fine under Parallels on this bloggers’s Macbook Pro with Tiger.) Long-term trends in increasing bandwidth as well as availability of new options such fiber-to-the home means that the quality may improve to the point of being competitive with existing high-definition content options. Given that an average PC or laptop can easily feed a high-quality digital via DVI interface today (and some even boast HDMI output) the set-top has questionable value. At best it may be an all-in-one solution for consumers who are not tech-savvy but it’s hard to argue that learning how to connect a DVI cable to the TV is not worth the $$$ for the device. In all likelihood the hardware will be subsidized by Netflix and given away for free in exchange for binding contracts on an extended Netflix subscription– similar to the cell-phone/wireless plan model.

The main challenge for Netflix is the limited selection. While the main catalog for physical DVD distribution boasts tens of thousands of titles and current new releases, the “Watch Now” option limits viewers to 6000 titles, most of them ancient. It’s as if a record label decided to experiment with DRM-free downloads and started with the Perry Komo collection.

As for Apple, this is the second foray into movie downloads. Jobs admitted that the first time around was not very successful:

“We learned what people wanted was movies, movies, movies. […] We weren’t delivering that, so we’re back with Apple TV, take two.”

iTunes will charge $4 for new releases and $3 for the euphemistically named “library titles”(translation: dated junk featuring washed out movie stars from the 1980s) As with Netflix everything comes with the inane DRM baggage. Apple gives viewers 24 hours to finish the movie once downloaded, terms comparable to XBox Live movie downloads. At 640×480 image quality is hardly stellar but again there is room for improvement with an eye toward HD-quality in the future. Another significant disadvantage: iTunes requires download of the entire movie before it can be played. Netflix solution allows for streaming with intelligent buffering.

Ultimately the choice comes down to pricing models: Netflix is flat fee for all-you-can-download over a limited catalog that is likely to work better for independent film, documentaries and rehashed TV-series, as well as shoring up gaps in movie background– in case there is a friend who has not yet seen “The Clockwork Orange.” As back-up there is always the DVD arriving in the mail. iTunes is optimized for instant gratification over a more updated selection and a correspondingly higher price tag.


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