Netflix working on Internet to TV 'solution'

McCarthy suggests set-top box will be used to stream company's Watch Now movies

By Jennifer Netherby -- Video Business, 5/23/2007

MAY 23 | Without giving many new details, Netflix chief financial officer Barry McCarthy seemed to all but confirm that the online retailer plans to use some type of set-top box to stream movies from its Watch Now Internet movie service to the TV.

Speaking at the Goldman Sachs Eighth Annual Internet Conference in Las Vegas Wednesday morning, McCarthy said Netflix has been working on a “solution” to deliver Internet movies to the TV for two years.

Asked for specifics, he said “we won’t discuss our box strategy until later this year or early next year.”

McCarthy said some type of device is needed to deliver movies to the TV and said he didn’t think a PC would be the hardware consumers choose. McCarthy said that because Netflix streams its movies, it can use a cheaper type of box that requires only a wi-fi chip, rather than a more expensive box that has a hard drive for storing movies.

During its earnings call in April, CEO Reed Hastings said the company was working on a number of partnerships to deliver Internet movies to the TV.

McCarthy predicted that Internet movie services would continue to create proprietary set-top boxes, such as Apple TV, which delivers movies and other content only from Apple’s iTunes.

McCarthy said a universal box that would allow consumers to choose which Internet service to download movies from would be “nirvana,” but he added, “I just don’t see it unfolding that way.”

Because of that, he said, adoption of Internet set-top boxes would be much slower than the adoption of DVD.

Netflix will spend $40 million on its digital business this year and likely even more next year, he said.

Asked about the threat that video-on-demand would pose if studios begin releasing movies the same day on VOD as they are released on DVD, McCarthy said it would likely be little threat to Netflix. Most, 70%, of movies Netflix rents are catalog titles, not new releases, he said.

Also, he said VOD is still small and hasn’t caught on with consumers. He blamed that partly on the lack of content available on VOD. But he said that once thousands of movies are available on VOD, the cable industry is likely to have problems allowing users to easily navigate through those choices to find what they’re looking for.