Movie wars: Internet, cable fight for viewers' eyeballs

Star Tribune (Minneapolis) (MCT) - Laura French of Roseville, Minn., claims that she's "terrified of technology." But she enjoys watching TV and movies on her laptop computer so much that she dropped her premium satellite TV channels.

Grant Edwards of Minneapolis says he's watching broadcast TV a little less now that he can watch online video on his living room TV by using a $99 set-top box.

Jeff Anderson of Apple Valley, Minn., a satellite TV subscriber who says he's "tired of buying packages of channels I don't want," now spends part of his time watching Internet video on his living room television _ also by using a set-top box.

All three subscribe to Netflix, the firm best known for shipping DVDs through the mail _ and the latest company to bring online TV and movies to your living-room TV, a development that experts say will push online TV and movies into the mainstream.

"Over time ... video over the Internet will ultimately be the way we access the majority of our content," said Michael Olson, an analyst at Piper Jaffray in Minneapolis. "Netflix is at the forefront of being able to move Internet content from the PC to the TV, which up to now has been the limiting factor. Very few of us want to watch TV on a PC monitor."

A Forrester Research study this year showed that two-thirds of U.S. online users watched video every month, and that half of them watched feature-length shows. However, even the online video watchers still viewed the vast majority of their monthly video on television.

Netflix's move means more competition for television providers such as DirecTV and cable company Comcast, which offers an increasing number of movies and TV shows on its digital on-demand service.

Here's how the Netflix service works: Mail subscribers who pay at least $9 a month also get access to movies and TV shows through the Netflix Web site in the form of streaming video (a high-speed Internet connection with at least a 1.5 million bits per second download speed is recommended).

But the fledgling "Watch Instantly" service isn't without its drawbacks:

_ Only about 12,000 movies and TV shows are available, compared with 100,000 through the mail. Netflix says it can't provide them all online because of entertainment industry legal restrictions and licensing costs. Only 300 titles are available in high-definition.

_ The movies aren't new releases, and the TV shows are typically more than a year out of date. There are no live events such as football games.

_ The video can't be saved onto a computer or a digital video recorder.

_ The shows can be viewed on a PC, but a set-top box is required to watch them on a TV.

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There's no shortage of TV programming online _ including Hulu.com, iTunes and the Web sites of the TV networks _ but Netflix has been the most successful at bridging the gap between the PC and the TV, analysts say.

To do that, the company has agreements with several producers of TV set-top boxes that can receive Netflix online video via a consumer's Internet connection. The boxes include the $99 Netflix Player from Roku, Blu-ray high-definition DVD players from LG ($349) and Samsung ($399), the $199 Xbox 360 video game console from Microsoft and a soon-to-be-introduced TiVo digital video recorder.

Competing with Netflix and its set-top box suppliers are other companies interested in Internet-to-TV service, such as Apple Inc. and Blockbuster Inc.

Netflix, which has 8.7 million subscribers for its DVDs-through-the-mail business, won't disclose how many people use its online video streaming service. The company also declined to predict how big a part of its business streaming video will become. But some analysts say Netflix is well positioned to ride the online video trend.

"Netflix wants to have a hybrid DVD and online strategy that helps you bridge the gap between physical and digital distribution" over the next decade, Piper Jaffray's Olson said.

But while the emphasis is on transferring online content to the TV, not everyone minds watching shows on a PC. French says she has a 19-inch computer monitor that's as easy to watch as her 19-inch bedroom TV set.

"If I'm doing it, anybody can do it," said the technologically averse French, who now regrets buying an HDTV set. "Using Netflix, I've gotten to watch all of (Showtime series) 'Weeds' at my convenience, for free, without having to upgrade my basic satellite TV package. If I ran a cable or satellite TV service, I'd be very afraid."

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Comcast doesn't dispute the Internet video trend, but says it will evolve in whatever direction customers want to go. It currently offers the general public a free service called Fancast, which provides recent TV episodes and old movies _ but only on a PC screen. Comcast also offers its digital cable TV subscribers a largely free video-on-demand service that allows them to watch TV episodes or movies when they want (including some premium channel content).

"We want to be the provider of choice in the digital age," said David Diers, Comcast's vice president of advanced services in St. Paul, Minn. "We do not see ourselves losing customers to Netflix."

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If there is a common complaint among Netflix online users, it's that the service needs more titles to choose from.

"If you like indie and foreign films, there's plenty to choose from," Edwards said. "But, if you want to watch mainstream blockbusters, the choices are pretty limited."

Added Anderson, "There are enough shows to make it worthwhile, but not a lot of good shows. The selection is not very good for families with 2-year-olds."

Despite the limited number of video selections, French says a major appeal of the Netflix service is that it allows spur-of-the-moment choices.

"If the Netflix DVD I have isn't the thing I'm in the mood for at the minute," she said, "I can find a chick flick online that I can watch instantly."

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© 2008, Star Tribune (Minneapolis)