Netflix to Sell a Device for Instantly Watching Movies on TV Sets

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Netflix, which pioneered the business of offering DVD movie rentals by mail, is now offering its 8.2 million subscribers an option to watch movies easily on their televisions without involving the post office.

Netflix owns a stake in the company Roku, which makes a $99 paperback-size box for viewing films on television.
Working with a small Silicon Valley company, Netflix will begin marketing a $99 device on Tuesday that will allow customers to play thousands of movies and shows on their televisions instantly, for no charge beyond their normal subscription fee.

The size of a paperback book, the set-top box is made by Roku, a Saratoga, Calif., start-up known for its Internet music players. Netflix, based in nearby Los Gatos, owns a small stake in the company.

The device’s $99 price — less than half of the cost of an Apple TV — will most likely jolt the emerging market for equipment that brings Internet video to TVs.

But Roku still faces many of the hurdles that have stunted the appeal of previous boxes, including a limited selection of programming and competition from ever-more-sophisticated offerings from cable and satellite companies. In addition, larger companies, including Hewlett-Packard, are expected to offer their own devices in the near future.

Still, some analysts suggest that Roku has broken new ground in technology and value.

“It is the most impressive product we’ve seen attached to a TV this decade,” said Richard Doherty, the director of the Envisioneering Group, a consumer electronics consulting firm.

He said that the device is easier to use, with better picture and sound, than competing devices. And it costs much less. “There is nothing like this,” he said.

The biggest drawback to the Roku device is the selection available. Right now, Netflix offers instant Internet viewing of 10,000 movies and television episodes, compared with its inventory of 100,000 DVD titles.

Because of the way Hollywood sells rights to its products, most of the Internet titles are more than five years old, although there are some newer independent films and TV shows.

Netflix has allowed its subscribers to watch these films on their computers for about a year by streaming them over an Internet connection. Reed Hastings, the chief executive of Netflix, said that the company’s experience with its existing service gives it confidence that there is a market for a set-top box.

“Subscribers already use Netflix on the PC now, and this gives us a way to get to their television,” he said.

Netflix customers who have plans that cost at least $8.99 a month will have access to an unlimited number of movies over the Internet.

Netflix has agreed to license similar technology to other set-top box makers, including LG Electronics.

The $229 Apple TV, the leading rival for Roku’s box, mainly offers movies and TV shows for purchase or pay-per-view rental, although it also offers free podcasts and YouTube videos. Apple gets access to movies when they are released as DVDs and typically offers movies for purchase at $14.99 and as rentals for $3.99 a day. Apple TV also offers other features that the Roku box does not have, including access to music and photos.

Amazon.com offers similar rental and purchase options service through TiVo video recorders.

Roku’s box is simple to use. The most difficult part of the user experience for a set-top box — sorting through the videos available — is done on the user’s computer, not on the television set.

Unlike the Apple TV or TiVo devices, the Roku box does not have a hard drive. It plays video directly from the Internet by way of an Ethernet cable or home wireless network. That means that the picture could freeze on slow Internet connections. Roku recommends that users have a connection speed of 1.5 megabits a second or faster.

With cable and satellite companies trying to expand the capacity of their video-on-demand services and consumer electronics makers looking to add Internet video capabilities to DVD players, game consoles and televisions, analysts say consumers will get many more viewing choices over the next year.

“A $99 price tag is very attractive,” said Michael McGuire, an analyst with the Gartner Group. But “in the end, it all comes down to content.”