Based on comments at a Wednesday Netflix analyst event suggesting the online video rental service’s focus on “internet-enabled video game consoles,” analyst firm Wedbush Morgan’s Michael Pachter predicts that company has either already partnered or will partner with Microsoft to expand its online streaming capabilities.
The event follows a report in March in which a Netflix spokesman admitted that the company has recently polled its users on their potential interest in receiving streaming movie content via the Xbox 360.
Also, in its Q3 2007 call to analysts in October, Netflix said that it would consider delivering movies to its subscribers via internet-connected HD-DVD and Blu-ray devices, which include the Xbox 360 and PlayStation 3. Pachter notes, “While there are three such consoles, only one (Microsoft's Xbox 360) has a sufficiently large installed base to make sense from a streaming partnership with Netflix.”
At the San Francisco event, which the company used to outline its revenue and subscriber growth strategy in the face of declining DVD demand, Netflix emphasized the importance of “Watch Instantly,” its free streaming service to be offered with its overall service package for DVD-by-mail subscribers.
Despite initial predictions that Netflix would hit a ceiling in subscriber growth at the 4-5 million level, Wedbush now believes can compete for a much larger customer base, especially if it offers products and services that differentiates itself from competitors. Said Pachter, “In our view, free streaming video is such a differentiated service, and Netflix can gain a competitive advantage by building an integrated product offering.”
Wedbush also believes that the company is investing heavily in building its online streaming capabilities to the point where it is both a market leader and a desirable partner for consumer electronics companies hoping to participate in “digital media convergence.”
Pachter concluded, “The competitive advantage of such an alliance is clear: Netflix customers who are Xbox Live members will have the ability to stream online content through their Xbox 360s directly to their televisions. The ability to do so is available without the Xbox 360, but requires a measure of technological sophistication and a high tolerance for failure.”