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Netflix/Roku Internet to the TV Box: Another Piece of the Ecosystem Print E-mail

SCOTTSDALE, Ariz., May 21, 2008- Netflix today announced the Netflix Player by Roku, a device that enables Netflix subscribers to stream Netflix growing library of movies and TV episodes directly to the TV. The Netflix box is a significant new entrant in the race to enable the Internet to reach the TV.

The drive to get the IP connection into the living room is progressing on multiple fronts. The goal is to establish viable digital media distribution business models. The challenge is that a complete ecosystem of devices, content, business models, and consumer usage models has not come together yet. Netflix participation in this market brings several new pieces of the ecosystem together, taking us one step closer to building a vibrant market. Among the key factors:

* The new Roku box hits the magic consumer price point of $99.99.

* Netflix’s existing subscriber base of 8.2 Million subscribers and recurring revenue business model gives them a decided advantage compared to new entrants.

* The Netflix product model extends their existing business model without adding additional consumer cost for the streaming service. This makes for an easy consumer transition from physical DVD revenue to digital DVD revenue. The usage model is physical/digital neutral, empowering the consumer to decide how quickly and under what circumstances to favor digital over legacy media.

* Netflix’s digital library is growing, and already tested through their initial internet streaming service to computers. A substantial portion of Netflix customers rent long-tail content, which is generally more readily available for digital licensing/distribution than new titles.

* The box supports Ethernet and Wi-Fi connections, and promises easy set-up. Living up to this promise will be vital. While this is an important step in the growing market for IP-connected TVs and entertainment systems, the digital ecosystem is still not complete. MultiMedia Intelligence believes the following elements are critical to truly enabling this transformative market:

* Content libraries need to continue to broaden, most importantly to include access to new release films in the same release windows as on DVD. Recent licensing deals between major studios and Apple, as well as between Time Warner and Time Warner Cable point to this barrier falling quickly. * The content libraries and timing needs to include high definition (HD) content as well. The online experience must match existing TV which is rapidly going HD. In addition, early adopter consumers already have their HDTVs.

* IP-Enabled consumer electronics platforms need to be service provider and content neutral. In other words, the box should not have to be Netflix-specific, or Apple-specific, or…. We do not believe consumers will tolerate vertically aligned boxes/services for long. * Content must be portable among devices, including among multiple TVs/rooms and mobile devices.

* Early release HD content may require digital watermarking support as well. Digital watermarking compliments Digital Rights Management (DRM) and Conditional Access technologies to convince studios to release HD video assets via video-on-demand and Electronic-Sell-Through (EST) co-incident with Blu-Ray DVD titles.

Content owners like Fox have already communicated that they will mandate watermarking for early-release HD content. The race to enable the connected living room is accelerating. IP-enabled devices range from digital media adapters (like Netflix player) to video game consoles, TVs, DVD equipment, as well as Cable, telco, and satellite set top boxes. Total annual shipments of IP-Enabled Consumer Electronics devices reached 64 Million units in 2007, of which IP-enabled video game consoles made up the largest category.

This intelligence brief is based on MMI’s report, "Internet Protocol (IP)-Enabled Consumer Electronics: Internet Video & Digital Media to the TV".

Rick Sizemore


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