- The Washington Times - Monday, January 15, 2007

LOS GATOS, Calif. (AP) — Netflix Inc. will start showing movies and TV episodes over the Internet this week, providing its subscribers with more instant gratification as the DVD-by-mail service prepares for a looming technology shift threatening its survival.

The Los Gatos company plans to introduce the “Watch Now” feature today, but only a few of its more than 6 million subscribers will get immediate access to the service, which is being offered at no additional charge.

Netflix expects to introduce the instant viewing system to about 250,000 more subscribers each week through June to ensure its computers can cope with the increased demand.

After accepting a computer applet that takes less than a minute to install, subscribers will be able to watch from six hours to 48 hours of material per month on an Internet streaming service that is supposed to prevent piracy.

The allotted viewing time will be tied to how much customers already pay for their DVD rentals. Under Netflix’s most popular $17.99 monthly package, subscribers will receive 18 hours of Internet viewing time.

The company has budgeted about $40 million this year to expand its data centers and cover the licensing fees for the roughly 1,000 movies and TV shows that will be initially available for online delivery.

Netflix’s DVD library, by comparison, spans more than 70,000 titles, one of the main reasons the mail is expected to remain the preferred delivery option for most subscribers.

Another major drawback: The instant viewing system works only on personal computers and laptops equipped with a high-speed Internet connection and Microsoft Corp.’s Windows operating system. That means the movies can’t be watched on cell phones, TVs or video IPods, let alone computers that run on Apple Inc.’s operating system.

Despite its limitations, the online delivery system represents a significant step for Netflix as it tries to avoid obsolescence after the Internet becomes the preferred method for piping movies into homes.

“This is a big moment for us,” said Netflix Chief Executive Officer Reed Hastings as he clicked a computer mouse to quickly call up “The World’s Fastest Indian” on the instant viewing service. “I have always envisioned us heading in this direction. In fact, I imagined we already would be there by now.”

Besides preparing Netflix for the future, the instant viewing system gives the company a potential weapon in its battle with Blockbuster Inc. As part of an aggressive marketing campaign, Blockbuster has been giving its online subscribers the option of bypassing the mail and returning DVDs to a store so they can obtain another movie more quickly.

Since its 1999 debut, Netflix has revolutionized movie-watching habits by melding the convenience of the Web and mail delivery with a flat-fee system that appealed to consumers weary of paying the penalties imposed by Blockbuster for late returns to its stores.

In the past three years, Netflix has signed up nearly 5 million subscribers. Although Netflix won’t report its 2006 earnings until later this month, analysts estimate that the company made $44 million last year, compared with $6.5 million in 2003.

Despite the company’s growth, shares have dropped by more than 40 percent in the past three years, shriveling to $22.71 at the end of last week.

The erosion largely reflects investor misgivings about Netflix’s long-term prospects.

Once it becomes practical to buy and rent movies on high-speed Internet connections, few consumers presumably will want to wait a day or two to receive a DVD in the mail.

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