Netflix unveils Web-to-TV device

NEW YORK Tue May 20, 2008 10:10pm BST

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NEW YORK (Reuters) - Netflix, the DVD-by-mail rental service, on Tuesday took another step toward delivering films straight from the Web to TV sets through a new device, boosting its stock as much as 10.9 percent.

The $99.99 (50 pound) device lets Netflix subscribers "stream" movies and television episodes to their TVs with no extra charges or viewing restrictions, the company and its partner, Roku, said in a statement.

Forrester analyst James McQuivey called the move a salvo in the "coming war over the territory known as the consumer living room."

"While it's too early to call winners and losers -- this battle should rage through all of 2009 and into 2010 -- it's clear that training millions of consumers to prefer you sooner rather than later is the best strategy," he said.

Lehman Brothers analyst Douglas Anmuth upgraded Netflix's stock, which rose as high as $34.35, to "overweight" from "equal weight," noting that the company was benefiting from strong subscriber trends.

Anmuth boosted his 2008 profit-per-share forecast for Netflix to $1.26 from $1.24, and raised his price target for the stock to $37 from $31 -- 19 percent above the $30.98 closing price on Monday.

The paperback-sized Roku player requires an Internet connection, and also works with wireless connection systems through Wi-Fi technology. Users can fast-forward and rewind the video streams with a remote control, Netflix said.

More than 10,000 movies and television episodes are available through the player, just one-tenth of the more than 100,000 titles in the traditional Netflix service in which movies are ordered online and shipped by mail.

Netflix said in January it also was developing a set-top box with LG Electronics Inc to let subscribers watch movies streamed from the Web to their TVs.

Netflix's chief rival, Blockbuster, is also expected to provide a similar service, analysts said.

Several other companies are exploring streaming Web video, including Vudu, Apple, Microsoft through its Xbox game console, and TiVo, all with varying amounts of material available.

But analysts cautioned that the market was still in its infancy.

"The problem is that with a box like this, history suggests that very few people are going to use it and buy it," JPMorgan analyst Barton Crockett said. "Similar boxes from companies like Apple have gotten limited traction despite good reviews."

"It sounds like a nifty device for leading-edge kinds of early adopters," he said. "I think for mainstream consumers, most people really don't want another box in (their) living room."

Last month, some Wall Street analysts who follow Netflix's financial performance said the company needed to start charging customers for its free online streaming service.

Netflix's stock fell more than 20 percent one day in April after it warned that gross margins would remain flat for the next two quarters as it continues to spend more for online content for its Watch Instantly streaming service, which it offers free to subscribers.

Anmuth said he expects Netflix to enjoy strong second-quarter subscriber growth, and for subscriber acquisition costs and churn "to trend lower as Netflix benefits from the more favourable competitive landscape along with increased word-of-mouth and more attractive marketing opportunities."

Netflix shares rose $1.02, or 3.29 percent, to $32.00 on Nasdaq late Monday afternoon.

(Additional reporting by Jonathan Stempel in Bangalore and Sue Zeidler in Los Angeles)

Reuters/Nielsen

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