Video services

Netflix Reduces VOD Latency

Netflix -- the leader in the high-latency video-on-demand (VOD) service category (that's geek-speak for postal-delivered DVDs) -- is finally ready to embrace the "Net" in its name. The company announced Tuesday that it will start offering streaming video access in its DVD rental plans at no additional charge.

The move marks a new direction for Netflix, which more than two years ago said it planned to move into the Net video space through a partnership with PVR player TiVo Inc. (Nasdaq: TIVO). (See Tivo-Netflix Deal Highlights Potential of PVR-VOD .) That play was nixed in late 2005 when Netflix disclosed that it couldn't gain licensing rights from major studios for Internet movie downloads.

Netflix is skirting that problem by offering only streaming video to the PC, rather than full-length film downloads. The company says it will make the feature available to all of its nearly 6 million subscribers through a phased roll-out over the next six months.

While the Netflix DVD library now counts more than 70,000 titles -- including movies, TV shows, and other videos -- the streaming offering will provide access to only about 1,000 titles. That should be enough to tide DVD junkies over while they wait for their next disc to arrive in the mail.

According to the Netflix news release:

The hours available for instant watching will vary based on subscribers' monthly plans. For example, subscribers on the entry-level $5.99 plan will have six hours of online movie watching per month and subscribers on Netflix's most popular plan, $17.99 for unlimited DVD rental and three discs out at a time, will have 18 hours of online movie watching per month.

That's a nice value-add for Netflix customers. The question is, will Netflix use its infamous "fairness algorithm" for streaming movies? (See Netflix Neutrality.) Probably not, as online substitution is a nice way to appease voracious DVD renters that Netflix "throttles" to ensure equitable product availability.

Forget YouTube Inc. Netflix is a far greater near-term threat to cable's VOD business.

— Michael Harris, Chief Analyst, Cable Digital News

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