Netflix spelled out a long-signaled move into online video, saying it will spend $40 million on technology and content acquisition this year to deliver movies and TV shows on-demand to all of its 6 million subscribers by June.
The Netflix “Watch Now” feature initially will provide access to 1,000 titles streamed over the Internet to customers' computers. The company, whose DVD-by-mail service now comprises some 70,000 titles, said the service will be introduced to about 250,000 subscribers each week through June to ensure it can handle demand.
Netflix CEO Reed Hastings said that “mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles.” He added that the company will expand its library of on-demand titles and eventually provide video to mobile phones and TV sets.
Wall Street doubted the service would pay off — at least not immediately. Wedbush Morgan Securities analyst Michael Pachter labeled the move as positive in that it delivers on Netflix's Internet-distribution promise, but noted there was “nothing particularly exciting” about it.
“We all thought they were coming up with some amazing download technology, but what Netflix seems to be spending their money on is on content,” he said. “They over-promised they would have an Internet play, and they came up with a solution that's costly and doesn't actually solve anyone's problems.”
Pachter has a sell rating on the company's stock, which hovered near a three-month low last week following the announcement.
Netflix enters an already-crowded market for online movies and TV shows, with services available from Apple's iTunes, Starz Entertainment's Vongo, Amazon.com, CinemaNow and Movielink. Comcast is also in the ring with Fearnet.com, a horror-flick destination that provides streaming movies.
Netflix's me-too offering won't stand out, Pachter said. “The best they can hope for is to get in the same position as the cable operators — so you tell me, if you have VOD on your television or VOD or on your PC, which are you going to choose?”
Titles offered by Netflix will be provided by movie studios including NBC Universal, Sony Pictures, Metro-Goldwyn-Mayer, 20th Century Fox, Paramount Pictures, Warner Bros., New Line Cinema and Lionsgate, plus such TV networks as A&E Television Networks, Anime Network, BBC Worldwide and The Independent Film Channel.
The company will offer Watch Now at no additional cost to its customers. The number of hours available for “instant watching” depends on monthly plans. For example, subscribers to Netflix's $17.99 package of unlimited rentals and three DVDs out at a time can watch 18 hours of online movies per month.