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Netflix to Stream Movies on the PS3

Streaming movies are coming to the PlayStation 3.

Source: Netflix

Netflix and Sony on Monday announced a partnership that will let owners of the gaming system instantly watch roughly 17,000 movies and TV shows.

The deal marks the second console gaming system Netflix has partnered with. Last November, the company began offering its streaming service to the Xbox 360.

The Sony partnership is something of a blow to Microsoft, which broadly touts the relationship as it champions the Xbox 360 as more than just a game machine. The ability to stream films is part of the company’s strategy to lure non-gamers who may be thinking about buying a Nintendo Wii.

Streaming via the PS3 will begin next month and will be available free to all Netflix customers who own the system. Microsoft only offers streaming to subscribers of its Xbox Live Gold program, which carries a $50 annual charge.

The Xbox 360 has outsold the PS3 in the U.S. so far this generation. (There are currently 9 million PS3s in U.S. homes.) That advantage is muted somewhat, though, when the number of Xbox Live Gold subscribers is taken into account.

Developing relationships with console makers has been a significant business driver for Netflix. Wedbush Securities estimates the agreement with Microsoft has driven an estimated 600,000 to 800,000 new customers to Netflix over the past year. It expects the Sony arrangement will have a similar effect – adding 200,000 or more new customers before the end of the year.

The streaming service tends to result in less customer churn than Netflix’s disc-by-mail model, even though it mainly delivers older catalog movies. It’s currently an added incentive for disc-by-mail customers, but the company is testing a streaming-only service internationally and is expected to bring that to the U.S. within the next year.

It’s also cheaper for Netflix, as streaming carries no postal expenses and lower customer acquisition costs.

Netflix had forecast the news in its earnings call last week, saying it was about to announce a deal on a device that had a "material installed base." Investors and analysts instantly began pointing to the PS3 or Wii and, as a result, the company’s stock hit a new high Friday.

The Wii would have been a larger installed base for the company, but now that Netflix and Microsoft no longer have an exclusive relationship, analysts say it’s just a matter of time before Nintendo’s console offers the service as well.

“We anticipate that a similar arrangement will be announced for the Wii in the next 12 months,” says Wedbush analyst Michael Pachter.

There are subtle differences in the ways Xbox 360 and PS3 customers will stream Netflix movies. The service is currently implemented into the framework of Microsoft’s service, meaning customers are able to stream films from the ‘dashboard’ of their console simply by pressing a button.

Sony customers will need to request a Blu-ray disc containing a Netflix access program to stream films – and will need to insert that disc every time they want to access the service. It’s a small intermediate step, but one that does make the service a bit less impulse-driven.

Pachter believes the disc-based streaming method was how Sony was able to work around Microsoft’s exclusive relationship with Netflix. (Terms of the deal between those two companies were never announced – so it’s also possible any period of exclusivity might have expired.)

Netflix stock has been climbing steadily since it began expanding its streaming service, with share prices more than doubling over the past year. In addition to gaming consoles, the company offers the ability to instantly watch movies via personal computers, select Blu-ray players and the Roku set-top box.

While renting DVDs through the mail is still more popular with its customers, since it includes recent releases, the streaming service is gaining traction. About 42 percent of Netflix's customers streamed at least 15 minutes of video in the third quarter, up from 22 percent at the same time last year.

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