January 4, 2008

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Jeremy Toeman and Dave Zatz weighed in yesterday on the Netflix announcement that it will be partnering with LG on what it hopes will be the first of “100 Netflix-capable boxes” (putting its aspirational numbers significantly behind the thousand gPhones that Eric Schmidt is pursuing).

Jeremy notes the challenges of bringing a “fifth box” into the living room. It’s true that the standalone home network/broadband content access device has struggled for a number of reasons that I’ve explored in depth elsewhere. The alternative is easier said than done, though. Jeremy writes:

The “smart” marketing of the (rumored) $799 HD/Blu-Ray player will simply label it as having Netflix “built in” or something like that.

Right idea, wrong Trojan horse. The problem is that no amount of smart marketing will dramatically expand the market for a $799 dual-format high-def disc player, which is being hampered by nearly as many problems as Internet set-top boxes. There are standard-definition DVD players, of course, but that market has been completely commoditized.

Dave asks, “Which companies, other than Apple, wouldn’t want Netflix on their Internet-connected television devices?” How about the game consoles? Think Microsoft or Sony will partner with Netflix so it can compete with their grand visions of downloadable content? And HP has managed to build streaming movies right into the MediaSmart television without partnering with Netflix.

NPD research has demonstrated an opportunity to launch a subscription-based digital distribution service to the television (at least vs. a la carte purchases), but of Jeremy’s “four boxes”, the only one that’s close to the right place in terms of volume, margin, and openness to content partnerships is the television. And as a manufacturer, why would I necessarily want to limit it to consumers who have signed up for a physical media rental service?

By the way, it’s interesting that there have been so few comments on the photo and music icons in this (possibly mocked-up) screen shot of Netflix’ streaming service inside an LG user interface. Does this mean that LG will support digital media adapter capabilities on its hi-definition disc players as well? They’re certainly good candidates for that, and we should find out the answer soon.

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