Apple TV could help Netflix growth

CIOL Bureau
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LOS ANGELES, USA: Shares in Netflix Inc neared their all-time high on Thursday, after Apple Inc said that the company's streaming video service would be added to a new version of Apple TV.


The tie-in with Apple TV, a smaller, cheaper version of Apple's earlier web-to-TV product, could cement Netflix's dominance in the online movie rental business.

Netflix's 15 million subscribers already stream many movies online over dozens of devices, including Web-connected televisions and Blu-ray players, as well as game consoles.

Piper Jaffray analyst Michael Olson estimates that Apple will sell 1.5 million units of Apple TV in 2011, on top of the 65 million or so Netflix-enabled devices already in consumers' hands.


"By far, they are the leading streaming company so everybody's gunning for them," said Edward Woo, an analyst with Wedbush Securities. "Everyone sees what Netflix has with their subscription model, and it's only a matter of time until everyone starts to copy them."

Netflix shares rose 3 per cent to $137.93 on Nasdaq on Thursday, near its all-time high of $140.90 hit last month.

Amazon challenge

Advertisment Inc also offers streaming of movies and TV shows over a number of devices, but the online retailer has been slow to create its streaming business.

Amazon has 118 million customers that it could use to build its streaming business, Barclays Capital analyst Douglas Anmuth said in a research note, but Netflix has an advantage with its core business of mailing out DVDs.

"We don't believe any competitor at this point would 'go backwards' and build out a DVD-by-mail business, even though it has been a significant factor in subsidizing and enabling Netflix's shift to streaming," Anmuth said.


Netflix subscribers pay a minimum of $8.99 a month, and 61 percent of them are streaming content online, the company said.

"Ultimately (the business) will be only streaming, but that is several years away, and we'll still be delivering DVDs for 15 or 20 more years," Netflix spokesman Steve Swasey said.

Critics once knocked Netflix's streaming service for lacking popular movies, but the company said a deal reached last month with the Epix pay TV channel would bolster its content.


The five-year Epix deal, worth almost $1 billion, makes Netflix the exclusive Web-only distributor of films from Viacom Inc's Paramount Pictures, Metro-Goldwyn-Mayer Studios and Lions Gate Entertainment Corp, including new releases 90 days after their premium pay TV and on-demand debuts.

Analysts say the cost of acquiring content could cut into Netflix's margins and those of other companies that try to expand into streaming. Meanwhile, Netflix will continue to grow, they said.

"Netflix has a very solid early position," said Marianne Wolk, senior analyst with Susquehanna Financial Group. "Their service is compelling. The advantage is that they have an excellent recommendation engine, and it's one of the best user interfaces for finding films that you like."