Google TV to Launch without Network Content

LA Times

Google's TV service, which will roll out this month on devices made by Sony and Logitech, will include content from Amazon, Netflix and Twitter as the Internet search giant attempts to merge Internet content with television programming.

"One of our goals with Google TV is to finally open up the living room and enable new innovation from content creators, programmers, developers and advertisers," Ambarish Kenghe, developer product manager for Google TV, said in a blog post.

The partnerships are the result of talks with the major TV networks and cable and satellite distributors. Noticeably absent from the Google announcement are the major networks ABC, CBS, NBC and Fox.
However, Google and Hulu confirmed they are in talks to bring Hulu Plus to the platform. The $9.99 monthly subscription service would include current shows from ABC, NBC and Fox, whose parent companies all share a stake in Hulu. Hulu Plus also offers an extensive library of content that includes all past seasons of such popular shows as "The X-Files" and "Arrested Development."

Among the partnerships: NBC Universal has teamed up with Google TV to create CNBC Real-Time, an application with which viewers can track their favorite stocks and access news feeds on the TV screen; HBO will have programming for subscribers on an enhanced website; and the NBA has built NBA Game Time, an application for viewers to follow game scores in real time and catch up on the latest highlights in high definition.

Google's television software, which it first announced in May, is being built into new Sony high-definition televisions and Blu-ray players and into Logitech set-top boxes that can be used with television sets. Google has pledged to make the software available to other manufacturers.

Google is banking that television will be a new venue for it to sell advertising. But to bring together television and the Internet in a meaningful way, Google must get the cooperation of media companies. And it must compete with Apple, TiVo, Boxee, Roku and other companies vying for a share of the five hours a day the average American spends watching TV.

A New Digital Battlefield

The Wall Street Journal

Amazon, Apple Rivalry Moves Beyond Music and E-Books Into TV Shows

 

TV shows are emerging as a new front in the war over digital media between Amazon.com Inc. and Apple Inc., amid their ongoing battles over electronic books and online music.

Hours after Apple said Wednesday that it would begin renting some shows for 99 cents per episode, Amazon cut its price on a similar set of shows to 99 cents from $2.99. And unlike Apple, which rents the videos, Amazon lets its customers buy the shows.

"When we see a competitive product available elsewhere, we make sure to match or beat that price," said Bill Carr, Amazon's vice president of music and video, in a Thursday interview. "Things are evolving rapidly."

Apple declined to comment on Amazon's pricing.

A price battle between the tech titans could help drive consumer interest in the nascent market for paid on-demand video over the Internet. But it could also drive away the media giants that Apple and Amazon are counting on to feed them with TV content. Some media executives worry low prices could eventually undermine the existing TV business.


For the past several years, Amazon and Apple have both offered services that let consumers buy or rent films over the Internet on a one-by-one basis and watch them on TVs, game consoles or portable devices. It's part of a wider race among cable-TV and satellite-TV providers and tech companies, including Netflix Inc. and Google Inc., to dominate the digital delivery of TV and movies.

That race heated up on Wednesday when Apple introduced an updated Apple TV set-top box for $99 and said it reached deals to offer rentals for a selection of TV shows from News Corp.'s Fox and Walt Disney Co.'s ABC, ABC Family and Disney Channel, as well as BBC America.

TV networks haven't presented a united front when faced with Apple, Amazon and other tech companies that want to license their content. Already, some, such as Time Warner Inc., are aligning with cable and satellite TV operators to offer some shows on the Web only for their paying subscribers, while others such as General Electric Co.'s NBC Universal put episodes from a large number of their shows online for free viewing with ads. But even those positions are changing, with some media companies pulling back how much they offer free or working on paid subscription offerings of their own.

Apple has already discovered those divisions: While both News Corp. and Disney signed on to test its 99-cent TV-show rentals, other major media companies rejected the plan. Several executives said those rentals could be a step toward a world where people see less advertising or stop paying for cable subscriptions—two principal sources of revenue. (News Corp. owns The Wall Street Journal.)

The price war could lead at least some media companies to pull existing episodes sold at $1.99 from Apple, one media executive said.

"We're happy to sit back and see how it goes," said another media executive, who also suggested that competition between the two tech giants could be a boon. That executive said a major danger media companies face is allowing one player—like Apple—to gain too much power over the distribution of content, as it did with music. Amazon could provide a welcome challenge, the executive added.

Securing affordable video content is crucial in Apple's strategy to tout the iPad, iPhone and iPod Touch as go-to multimedia devices.

The existing price of content—which can cost $2.99 apiece for a high definition TV show or $4.99 for a movie—is still a high barrier of entry when consumers can access many of the same shows free on websites such as Hulu, or as part of their Netflix subscription.

Amazon, the Web's largest retailer, has used aggressive price cuts on a variety of products to draw attention to its offerings and maintain its position as a low-price leader. The company today offers 75,000 movies and TV shows, which customers can watch on a variety of systems, from computers to TVs.

Mr. Carr declined to say what impact a price cut might have on adoption of digital video, and said it "remains to be seen" what an ideal price might be for video.

"The lower that they bring the cost, the more they will expand adoption," said David Krall, the chief operating officer of Roku Inc., a company that makes set-top boxes that play Amazon and other online content on TVs. "People compare the price to going to the DVD store to rent, and convenience of having to get in the car."

It remains to be seen whether the pricing rivalry will hurt Apple's dominate position in the space. According to Screen Digest, Apple accounts for 57% of transactions in Internet video-on-demand movies, on a number-of-sales basis, and 53% of the TV shows market, excluding sports. In contrast, Amazon is only 5% and 6% respectively.

Both Microsoft Corp. and Sony Corp., through their videogame consoles, sell more online video than Amazon, according to Screen Digest. (The estimates exclude Netflix because it doesn't offer a-la-carte sales and rentals of movies and TV shows over the Internet.)

One advantage that Apple has in these early days is that it has many products through which consumers can view the content. By contrast, on the digital book front, the competition between Apple and the online retailer is more intense in part because Amazon had Kindle, an e-book reader that it had been selling long before the iPad. Mr. Carr declined to comment on whether Amazon was interested in making its own devices for watching digital video.

"We don't believe Amazon's price cutting on TV shows will materially affect Apple's overall market share," said Arash Amel, Screen Digest's digital media research director. "ITunes rarely gets sucked into a price-war, given their position as the market-leader."

Amazon has had mixed success with its past digital media efforts. Its digital music business, in which it also uses aggressive pricing, has what analysts estimate is about 12% of the digital music market.

Moreover, the TV discounting costs Amazon because the company will continue to pay the companies the same wholesale price per episode that it paid before the retail-price cut, said media executives.

In the short run, a price cut could help Disney and News Corp., if Amazon sells more episodes while paying them each the same wholesale price. But some media executives and analysts believe the proliferation of lower prices could start to devalue electronic TV shows more broadly.

"It further ingrains in the consumers' mind the idea that a TV show is only worth 99 cents," said Evercore media and entertainment analyst Alan Gould.

Amazon is also interested in challenging players such as Netflix with a subscription service that would deliver TV shows and movies over the Internet. In recent weeks, Amazon has pitched a Web-based subscription service to several major media companies.

Mr. Carr declined to comment on the idea of a subscription service.

The entire business of selling episodes of TV shows through services like Apple's and Amazon's is expected to generate only $407 million in 2010, according to Screen Digest. Meanwhile, U.S. consumers and advertisers will spend about $143 billion on traditional TV advertising and subscriptions in 2010, according to PricewaterhouseCoopers.

Netflix Adds to Online Movies with Relativity Deal

Associated Press

 

Netflix Inc. is snatching away several movies a year that would have gone to pay TV outlets such as HBO or Showtime, under a deal with film financier Relativity Media LLC announced Tuesday.

The deal, worth more than $100 million per year, highlights Netflix' strategy to migrate customers from ordering DVDs by mail to accessing them online over personal computers, game consoles, Blu-ray players, mobile devices and TVs.

Relativity plans to supply 12 to 15 films per year starting in early 2011, although the deal accommodates up to 30, with Netflix paying per movie. The initial movies include "The Fighter," starring Christian Bale, Mark Wahlberg and Amy Adams, and "Season of the Witch," starring Nicolas Cage. Both movies are set to hit theaters later this year.

Netflix's online streaming service already offers newer movies from The Walt Disney Co. and Sony Corp. through a 2-year-old deal with Starz Entertainment LLC, a cable channel that has sublicensed some of its movie rights to Netflix.

Netflix's popularity has grown while DVD sales have fallen, so it has had to adjust its relations with Hollywood studios. It recently agreed to delay renting movies from 20th Century Fox, Warner Bros. and Universal Pictures until 28 days after their release on DVD to help the studios protect those DVD sales.

While Relativity's movies do not include major studio blockbusters, streaming newer movies during periods usually reserved for pay TV could put new pressure on premium cable channels such as HBO, whose parent, Time Warner Inc., also owns movie studio Warner Bros.

However, the premium channels have shifted some of their focus away from movies and to original content such as HBO's "True Blood" or Showtime's "Dexter."

HBO, Epix and Starz also have online streaming versions of their product, which they offer to subscribers for free.

In HBO's case, losing one or two Relativity-produced movies a year will put only a small dent in its business, as HBO receives about half of Hollywood's output every year.

Although DVDs by mail remain the largest part of Netflix's business, the company aims to expand its online service to save on postage costs and gain new customers.

The company has 13 million members paying at least $8.99 a month to get DVDs by mail and unlimited access to the streaming catalog. It aims to have 15 million subscribers by the end of the year. Netflix says that 60 million U.S. homes have Netflix-ready devices and a broadband Internet connection needed to stream video to TVs.

"Now we've just got to give them a reason to connect all the wires," said Ted Sarandos, Netflix' chief content officer.

Although Relativity co-finances a wide range of pictures from Universal Pictures and Sony Pictures, only movies that it has financed fully on its own or made through its subsidiary Rogue Pictures are included in the deal.

That would include the romantic drama "Dear John," but exclude some studio-backed films such as "Robin Hood" and "Get Him to the Greek."

Relativity's movies will be made available for streaming on Netflix during the traditional "pay TV" window - starting about a year after a title opens in theaters. That's a few months later than the movies' availability on DVDs and in rental outlets.

Netflix is paying more than pay TV outlets generally do for movies, according to a person familiar with the deal, who was not authorized to speak publicly and did so on condition of anonymity. The person said Relativity also is allowed to sell digital copies of movies through outlets such as Apple Inc.'s iTunes store and Amazon.com Inc. while they are being streamed, activity that is normally prohibited in pay TV deals.

About one-fifth of Netflix's 100,000 movie and TV show titles can now be streamed online.

Supported devices include Microsoft Corp.'s Xbox 360, Sony's PlayStation 3, Nintendo Co.'s Wii, Roku Inc.'s digital player, Apple's iPad, and a range of Blu-ray players and TVs.

Shares of Netflix, based in Los Gatos, rose 19 cents to close Tuesday at $107.27.

Netflix Spinoff Roku Seeks Cash for 100-Channel Set-Top Service

Bloomberg

Roku Inc., the television set-top box maker spun off by Netflix Inc., is planning to raise $30 million in private funding this quarter and may sell shares to the public next year, Chief Executive Officer Anthony Wood said.

The company, which lets customers stream movies from Netflix and Amazon.com Inc. on their TVs, along with music from Pandora Media Inc., has sold more than 500,000 of its devices, Wood said yesterday in an interview in San Francisco. Revenue may almost double to about $75 million this year, he said.

The funds would help Roku expand its engineering and marketing as competition mounts. Sony Corp., Nintendo Co. and Microsoft Corp. stream Netflix and other services on game consoles, and Samsung Electronics Co. does so through Blu-ray DVD players. To win customers, Wood plans to continue cutting the price of his devices, which sold for $115 in May 2008 and now go for as little as $80.

“It gets cheaper and cheaper, and the box will be free at some point in the not-too-distant future,” said Wood, 44, whose ReplayTV was an early seller of digital-video recorders. “We see hardware margins becoming less important over time and subscription content becoming more important.”

Roku’s fund-raising this quarter will include investments from Menlo Ventures and others, Wood said. He declined to provide the company’s market value. Saratoga, California-based Roku isn’t working with an investment bank and doesn’t have a specific IPO date, he said.

“Obviously our goal is to go public,” Wood said. “If things continue on this trajectory, I think it would be viable to go public next year.”

Netflix Sells Stake

Netflix hired Wood in 2007 to help the movie-rental company move from a mail-order to online service. Netflix planned to release its own box until Chief Executive Officer Reed Hastings decided to stay out of the hardware business. Wood created a separate company, and Netflix backed it with $6 million.

Netflix recently sold its stake to Menlo Ventures, Wood said. Steve Swasey, a spokesman for Los Gatos, California-based Netflix, confirmed the sale and said the company may discuss it with fourth-quarter results today. Roku has raised $24 million from Wood, Netflix and Menlo.

Wood is focused on signing partners to offer viewers more choices and expects to reach 1 million boxes sold this year. In November, the company introduced the Roku Channel Store, which includes the Pandora music service and photos from Facebook Inc. Roku also offers Revision3 and Blip.tv, which stream original shows on the Internet.

Roku is recruiting third parties to create channels and offer products including games and submit them for inclusion on the service. The company is devising revenue-sharing agreements for developers who can sell subscriptions on the service or charge per product like Amazon.com.

Revenue Sharing

The terms will be comparable to other media products, Wood said. Developers for Apple Inc.’s iPhone get 70 percent of sales, with the rest going to Apple.

The plan is to have 100 channels this year, Wood said. That will let Roku generate sales from subscriptions and advertisements, much like cable TV channels.

“We’re not far away from the time when you’ll be able to get the same kinds of channels that any cable operator can offer,” he said.

Netflix Adds 1.1 Million Customers

USA Today

Netflix's fourth-quarter performance sparkled as its DVD-by-mail service surpassed 12 million subscribers, and management promised an even shinier sequel to kick off this year. Investors applauded, lifting the company's shares by more than 14% in after-hours trading Wednesday.

The results reflect the growing popularity of Netflix plans that bundle DVD rentals with unlimited video streaming over the Internet for as little as $9 per month.

Netflix (NFLX) added more than 1.1 million customers during the quarter — the most in any three-month period in its history. It took Netflix four years to attract its first 1 million subscribers after launching its rental service in 1999.

Management is expecting an even bigger first quarter. The company projects an additional 1.2 million to 1.5 million customers by the end of March. What's more, Netflix forecast financial results for the first quarter and the full year that exceeded analysts' current estimates.

Netflix shares soared $7.33 in extended trading after finishing Wednesday's regular session at $50.07, up $1.02.

The company earned $30.9 million, or 56 cents per share, in its latest quarter, a 36% increase from $22.7 million, or 38 cents per share, a year earlier. The performance topped the average estimate of 45 cents per share among analysts surveyed by Thomson Reuters.

Fourth-quarter revenue climbed 24% to $444.5 million, falling about $1 million below analyst forecasts.

That minor shortfall in revenue was overshadowed by Netflix's pledge to boost its profit margins to 11% from management's previous target of 10%. The adjustment will translate into additional earnings of 22 cents a share this year, estimated Wedbush Morgan Securities analyst Michael Pachter.

Netflix made the change because it feels more confident after its subscriber count rose 31%, or nearly 3 million customers, in 2009, said Barry McCarthy, the company's chief financial officer. Management expects to add another 3.2 million to 4 million subscribers this year.

The company, based in Los Gatos, Calif., got a big boost in the fourth quarter from Sony's PlayStation 3 video game console, which became an outlet for showing the company's roughly 17,000 streaming titles. The company already had a similar deal with Microsoft's Xbox 360 and in the spring will begin to link up with Nintendo's Wii console.

The streaming technology is being embraced by more Netflix subscribers as they wait for their DVDs to be delivered through the mail. About 48% of the customers streamed at least 15 minutes of Internet video in the fourth quarter, up from 28% in the prior year.

The widening appeal of Netflix's streaming option appears to be causing more people to sign up for rental plans that dole out one or two DVDs at a time. Those packages cost less than those that allow subscribers to rent three or more DVDs at a time.

The trend has lowered Netflix's average revenue per user to $13.04 in the fourth quarter, down 4% from an average of $13.58 per user in the same 2008 period.

Netflix nevertheless wants video streaming to become more prevalent because the company's postal expenses will fall as it mails out fewer DVDs to subscribers. Netflix estimates it will spend about $600 million on postage this year, with the annual cost rising to $800 million within the next few years.

By holding down its mailing expenses, Netflix hopes to be able to spend more money expanding its streaming library.

Netflix Envoy Pitches Online Films to Wary Studios

Bloomberg

Netflix Inc. Chief Content Officer Ted Sarandos bypassed Hollywood to jump-start the company’s online film-rental business last year. Now he has to convince the studios the company is a friend and not a foe.

Chief Executive Officer Reed Hastings is counting on Sarandos to cut deals with studios giving Netflix rights to show more films over the Web. Sarandos, 45, says he is willing to write big checks after Netflix went around Walt Disney Co. and Sony Corp. to gain access to movies from the Starz network.

“We have to fight against their fear that we’ll destroy the ecosystem,” Sarandos, a former video-store clerk, said at a Dec. 16 panel discussion. “We’re not destroying anything. We’re creating a new opportunity.”

Sarandos’s success is critical to Netflix as viewers move to the Web, endangering the mail-order DVD rental business that helped the company upend brick-and-mortar stores such as Blockbuster Inc. His challenge is to persuade studios to provide content as they explore their own digital options, including offering movies online themselves.

“The challenge for Netflix is what to do when the world migrates to digital distribution and whether it can obtain product from all the studios as that’s happening,” said Warren Lieberfarb, the former head of Warner Bros. DVD operations.

Netflix, the largest mail-order film-rental service, offers Web-based movie-viewing that’s used by 42 percent of its 11.1 million subscribers, according to the company. It has an online library of 17,000 films and TV shows.

DVDs Yes, Streaming No?

The studios, coping with a decline in DVD sales, are trying to avoid the fate of newspapers and music labels, which lost sales when their content went online. Hollywood executives view the Internet-based distribution as a threat to the traditional way money is made from movies.

“Everybody views it as a terminal career decision if you get it wrong,” said Frank Biondi, who has led Universal Studios, Time Warner Inc.’s HBO cable network and Viacom Inc., owner of Paramount Pictures.

Acquiring DVDs has rarely been a problem for Netflix, which charges $8.99 a month and up for its mail-order service. The company needs additional rights from the studios to stream films to PCs, game consoles and Web-linked TVs.

Netflix gained streaming rights to Disney and Sony movies including “Ratatouille” and “Spider-Man 3” last year by allying with Starz, the pay-TV network controlled by John Malone’s Liberty Media Corp., based in Englewood, Colorado. In the future, permission will have to come from the studios, Netflix said in its annual report.

Hollywood Breadbasket

The Starz partnership created animosity in Hollywood, according to Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia, who recommends selling Netflix shares. The retailer will probably need to pay studios more or risk losing content, he said.

Paramount, based in Los Angeles, supplies older titles to Netflix for streaming, Thomas Lesinski, head of home entertainment, said in an e-mail. “But not new releases.”

Home entertainment executives at the other major studios declined to be interviewed.

DVDs rank as the most profitable part of Hollywood’s film business, with studios keeping about 80 percent of each purchase, according to Tom Adams, president of Monterey, California-based Adams Media Research. Sales will fall about 10 percent to $13 billion this year, according to Adams, who tracks the market. Rentals will total $8 billion, unchanged from 2008. Studios also will get about $2 billion from premium cable in the U.S. and $1 billion from basic cable and broadcast TV.

Market Share

Sarandos, based in Beverly Hills, California, and Hastings, 49, pledge to pay studios more as online viewing replaces the mail-order business. The company estimates it will spend $600 million next year shipping DVDs.

“We’ll become one of the networks’ and studios’ largest revenue generators,” Hastings said. He expects to be mailing DVDs until 2030.

Netflix’s DVD subscription service is projected by analysts to drive profit of $110.8 million this year on sales of $1.67 billion, a 22 percent gain from 2008. The shares, which have almost doubled this year, fell 36 cents to $56.98 at 4 p.m. New York time in Nasdaq Stock Market trading.

Through the first half of 2009, Netflix accounted for $803 million of the $4.14 billion U.S. rental market, trailing Blockbuster Inc.’s $986 million, according to Janney Montgomery, which cited Adams Media data.

The big studios -- Warner Bros., Disney, News Corp.’s Fox, Paramount, Sony and General Electric Co.’s Universal -- sell films in separate windows and times. Movies go from theaters to stores, for purchase or rental, to cable and satellite pay-per- view, to premium channels like HBO, then basic cable and broadcast, with studios collecting money at every step.

Existing Contracts

Hastings’s aim is to find a niche for streaming.

Netflix’s goal of streaming films to rental customers when DVDs arrive in stores or air on pay TV would violate studio agreements with cable networks, said Biondi who’s now senior managing director of WaterView Advisors LLC, a New York-based private-equity firm.

“Not that those can’t be reset,” Biondi said in an interview. “But you’re going to have big customer sets that are going to be very unhappy.”

Sarandos says Netflix is creating a business that didn’t exist before, partnering with Tokyo-based Sony, Microsoft Corp. and TiVo Inc. to stream films to game consoles and set-top boxes. It is also vying with cable operators such as Comcast Corp., which is introducing an online service, studios including New York-based Time Warner and Burbank, California-based Disney, as well as Apple Inc. and retailer Best Buy Co.

Sale-Only Window

Researcher iSuppli Corp. in El Segundo, California, estimates consumers worldwide will have 376.5 million devices that can receive Web video content by 2013, up from 94.8 million now. Netflix plans to expand internationally with a streaming- only service next year, Hastings said in October.

The studios have seen rental chains buckle under competition from Netflix and Bellevue, Washington-based Coinstar Inc., operator of Redbox kiosks that rent movies for $1 a day. Time Warner is seeking more money from Netflix, whose Web site no longer features the studio’s DVDs -- a possible “sign of strain,” Janney’s Wible said in a Dec. 17 research note.

To alleviate fears that its online service won’t cannibalize existing revenue, Netflix has suggested it may agree to a new sales-only window in which movies can’t be rented.

Sarandos often meets with Hollywood brass over breakfast at the Four Seasons Hotel in Beverly Hills.

‘Trust and Relationships’

“Doing business in Hollywood is very much built on trust and relationships,” Sarandos said in an interview.

In May, Jeffrey Katzenberg, CEO of DreamWorks Animation SKG Inc., hosted Netflix executives for a demonstration of 3-D home movies. At the Video Hall of Fame dinner this month, Sarandos mingled with executives like Lions Gate Entertainment Corp. President Steve Beeks.

“If you could assume anybody’s position in the game right now you’d probably prefer Netflix’s,” said Kevin Landis, the founder of SiVest Group Inc., in Santa Clara, California, which owns 227,000 Netflix shares.