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Netflix Expects to Lead with its Online Movie Service

Reuters
Thursday, 27 Mar 2008 | 5:29 AM ET

Netflix expects to lead the market for movies delivered over the Web despite growing competition from Web giants like Apple and Amazon, Chief Financial Officer Barry McCarthy said on Wednesday.

One major reason, he said, is that watching movies over the Internet is not yet easy, so Netflix can keep customers happy with the simple DVDs-by-mail technology while Web delivery improves.

"Download services right now have limited value. As long as it's a marginal product because of limited content or because you're limited to PC to watch it, it's difficult for stand-alone services to compete with Netflix," he said.

In addition to its core mail-order DVD business, Netflix, with 7.5 million subscribers, lets subscribers watch movies via the Web on PCs and also plans to roll out a set-top box with LG Electronics this year to let subscribers watch films streamed from the Web to TVs.

The promise of increased Web video viewing has lured companies like Apple and Amazon.com into the sector, but analysts expect it will be five to 10 years before that market really takes off.

McCarthy said Netflix will announce more alliances like its LG partnership, but declined to provide details.

"We'd like to be on as many platforms as possible. If you buy an electronic platform and you're able to access Netflix content on your TV because it's on that set-top box, that's great," he said.

Netflix has surveyed its subscribers for interest in streaming movies to TVs using Microsoft's Xbox 360, but McCarthy described it as "research" rather than signaling a soon-to-be announced partnership.

The speculation has persisted in part because Netflix CEO Reed Hastings sits on the Microsoft board.

"Reed's going on the Microsoft board did not signal to Netflix, Microsoft or the outside world a strategic relationship between Netflix and Microsoft. It was entirely about Microsoft and their board," he said.

Netflix in February raised its quarterly and full-year forecasts for subscriber growth, reflecting a boost in business due to market share gains from rival Blockbuster .

On Monday, the company had an 11-hour technological outage, which delayed shipments. On Wednesday, it said it was offering 5 percent discounts on current bills to members who were not shipped DVDs on Monday due to the outage.

"Events like this don't reflect well on the brand and our ability to manage the business. We'll do what we need to do to provide the service expected of us," said McCarthy.

Netflix shares have climbed 33 percent in the last month and 77 percent in the last six months, bucking sharp losses in global equity markets and giving it a market value of nearly $2.3 billion.

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