As evidenced by the number of devices announced that connect directly with it at the Consumer Electronics Show, Netflix streaming is pretty much the hottest thing going in the still nascent world of Internet movie watching. Not only can you get the movies on your PC, natch, but you can stream Netflix through a number of devices that connect to your TV, like the Roku box and Xbox 360. And later this year we'll be seeing televisions that connect directly to Netflix — no annoying and expensive box needed.
Although the Internet is in many ways troublesome for the Hollywood studios, this is one development they have to like. After all, if I'm paying Netflix the same amount of money but start watching some of my movies via my Xbox 360 (as I am indeed starting to do), those are fewer DVDs the studios need to manufacture and ship. They just deliver a digital copy to Netflix and, boom, the margins get fatter.
Which is why it will be very interesting to see how Netflix's intention to start offering streaming-only plans to consumers impact the economics of Hollywood. Speaking at the Jefferies Internet and Media conference, CFO Barry McCarthy said, "We're likely to do that in the foreseeable future" when asked if customers will be able to sign up to stream only and not get any DVDs.
So the question is… how much less will it cost? To make such a plan appealing, Netflix would likely have to charge less for the same number of movies per month. And/or emhasize that consumers can get more movies faster with no need to wait for the USPS. That could mean studios will have to accept a little bit less per movie, even if the margins stay somewhat bigger. Unless Netflix plans to eat the entire difference in cost, thinking it can make up for with the money it saves paying for bandwidth instead of postage.
If anything is going to make online movie streaming really take off in the near term, it's a plan like this from Netflix. And as that happens, Hollywood is likely going have to accept that the economics won't be as simple as just pretending digital is the same as DVDs.