Netflix and Microsoft: A Perfect Marriage ­or Mistake in the Making?

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Will Netflix customers soon be able to download movies via their Xbox?


Mar. 22, 2008 — by .(JavaScript must be enabled to view this email address)

There have been a lot of rumors recently about a possible collaboration between Netflix and Microsoft. Specifically, the rumors hint at the introduction of a service that would allow Netflix customers to download movies to their televisions through their Xbox 360 “Xbox Live” connection. The speculation has largely been fueled by a survey that was supposedly sent out by Netflix to some of its customers asking “If as part of your Netflix membership you could instantly watch movies and TV episodes on your TV with your Xbox 360, how likely would you/anyone in your household be to do that?”

For the record, no official announcement has been made by Microsoft or Netflix as of this writing. Also, though I am a loyal Netflix customer myself, I was never personally contacted by Netflix with this survey question. However, screenshots of the survey abound on the web, so speculation is running wild.  Time will tell how this all plays out, but in the meantime it might be fun to speculate how this type of thinking might affect the average media consumer.  How would this play into Microsoft and Netflix’s overall strategies? Would this be a good thing for the consumer?

Microsoft’s Strategy
Since its inception, Microsoft has been firmly linked with all things PC. Their core business has been centered on PC operating systems, databases, productivity tools, software development tools, etc. But if their product releases over the past few years are any indication, Microsoft isn’t content to remain confined to the PC realm. Recent Microsoft products include the Xbox and Xbox 360 game consoles, the Zune MP3 player, the Sync phone and music system for cars, and the MSN TV home media center. What do these products have in common? None of them are PC-based and all of them focus on multimedia entertainment. Having conquered the home office, Microsoft apparently wants to conquer our living rooms next.

So how does this potential Xbox / Netflix partnership play into Microsoft’s strategy? Actually, it’s a stroke of brilliance. Microsoft has been trying for years to capture our televisions through a series of media center devices that have only met with very lukewarm adoption. The only Microsoft device linked to our televisions that has met with real success has been the Xbox video game consoles. So why should they try to generate demand for a new media center product that people don’t currently want or need when Microsoft can just leverage the existing demand for the Xbox? It would appear that Microsoft has realized that the Xbox can be their “beachhead” and they can use it to finally cement their place in the home media market. So now that they have the distribution mechanism in place, they need content. That’s where Netflix comes in.

Netflix’s Strategy
Netflix redefined the video rental business – and raked in some serious dollars – with its DVD-by-mail service. However, just like Microsoft, Netflix isn’t content to confine itself to its bread-and-butter business model. On a couple occasions, I’ve heard the bigwigs at Netflix explain that it wasn’t an accident that they chose to call the company “Netflix” rather than “DVD-by-mail-flix”. They’ve always envisioned themselves distributing movies digitally and they seem to be looking intently for a way to make that vision a reality.

A couple years ago, Netflix appeared to be forging a deal with Tivo to allow Netflix subscribers to watch downloaded movies on their Tivo DVR’s. Those talks collapsed and Tivo moved on to court Amazon to meet their movie content needs. More recently, Netflix made some of their movies available to subscribers through instant download on the Netflix website. Unfortunately, the instant download content can only be viewed through a web browser, which keeps most users away from their TV’s and chained to their much smaller computer screens. Knowing that this limitation will keep the service from being adopted by its entire customer base, Netflix is trying to find the appropriate delivery mechanism to get these “instant download” movies onto customers’ televisions. Netflix has reportedly partnered with LG to create a proprietary device that will accomplish the feat, but the device may be pricey and demand would take time to build.

But with millions of Xbox 360 consoles already sold in the U.S. and a built-in networking solution with the Xbox Live service, Netflix may have found the answer to its distribution woes. No Netflix-proprietary device would be needed. Microsoft needs content; Netflix needs a delivery mechanism. This could be a match made in heaven.

So if this is the perfect marriage of technology and content, why aren’t I more excited? I have an Xbox. I’ve been a loyal Netflix customer for years. I’d love to be able to skip the whole DVD by mail thing and get my movies instantly. What’s the problem here? For me, the excitement of a potential Xbox / Netflix marriage is seriously diminished by one little problem: content.

A Question of Content
Netflix has an absolutely enormous library of movies and television shows on DVD. If it has ever been released to DVD, chances are that Netflix has it. So does that mean that a Netflix subscriber could watch any of these released movies through instant download? Unfortunately, no.

Apparently, the studios are reluctant to allow Netflix to release all their movies via a download / streaming mechanism. Only a very small subset of the total Netflix library is available for instant download. For example, I have 107 movies and TV shows lined up in my Netflix queue. Of those 107, only 5 are available for instant download: a documentary, two old Hitchcock films, a musical from the 90’s, and a sci-fi movie from the 70’s. Not exactly A-list material available for download. To be fair, there are a few semi-recent blockbuster movies available and several current TV shows available (The Office, Heroes, and Friday Night Lights come to mind), but these are the exception rather than the rule. The vast majority of the content available for instant download is outdated, special interest, or just plain bad.

So I’m not doing back-flips in anticipation of a partnership between Netflix and Microsoft. As cool and convenient as the distribution mechanism would be, I don’t crave instant download access to Boys N the Hood, A Clockwork Orange, or Cher: The Farewell Tour. No thanks. The majority of the Netflix movies that I would actually want to watch just aren’t there right now.

That said, I do think a Microsoft / Netflix partnership has great potential if not immediate appeal. The distribution mechanism could rival anything out there today and would be instantly viable for millions of Netflix / Xbox customers. I’m also hopeful that, in time, Netflix will be able to forge deals to get more relevant titles available on its instant download service. Amazon has already accomplished the feat with its “Unbox” service as a fee-per-download model.  Maybe the Netflix fee-per-month model will someday be palatable to the movie studios as well.

If that day ever comes, I’ll be doing back-flips with the best of them.



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