Netflix sees struggle for movie download model

By Gina Keating and Michele Gershberg

NEW YORK (Reuters) - A nascent market for allowing people to download and rent movies is "wide open" for competition, a top executive at online movie rental company Netflix Inc. (NFLX.O: Quote, Profile, Research, Stock Buzz) said on Thursday.

Movie download rentals provide a faster way to access films than selecting them at a store or ordering from an online catalog that sends DVDs via regular mail. It is considered to be a key new growth area for rental chains as more people access entertainment over high-speed Internet connections.

"There is competition out there but it hasn't proven to be very successful. It hasn't hit the model yet that consumers respond to," Netflix Chief Product Officer Neil Hunt told the Reuters Media Summit in New York. "The game is wide open for somebody to come in and make a play there."

Hunt said widespread adoption of online downloads hinges on consumer acceptance of download technology and on the wide availability of titles, neither of which has been met by existing services.

Using current technology available to many U.S. consumers to access the Internet, it could take hours to download a movie.

Netflix, the largest online DVD rental service with 5.7 million subscribers, has pledged to unveil its plans for online downloading of movies in late January.

Blockbuster Inc. (BBI.N: Quote, Profile, Research, Stock Buzz) Chief Executive John Antioco told the Reuters Media Summit on Tuesday that the movie rental chain could offer a download service in 2007.

Hunt noted that Movielink and CinemaNow, both partly owned by movie studios, have offered what amounts to a movie download service for several years without achieving widespread adoption.

Netflix views the movie download space as having three segments: download-to-own, rental and ad-supported content, such as the prime time TV shows offered on abc.com, Hunt said.

"You're going to see some strong competition lining up in the sell-through market; that surely looks like where Apple (AAPL.O: Quote, Profile, Research, Stock Buzz) is well positioned to play," he said.

"Ad-supported (content) looks like Yahoo (YHOO.O: Quote, Profile, Research, Stock Buzz), YouTube could be a very powerful force in that space, but it's the rental market where Netflix intends to focus," he added.

Apple Computer Inc. sells movies for download through its iTunes service. Google (GOOG.O: Quote, Profile, Research, Stock Buzz) and its recently acquired YouTube unit offer an advertising-supported model that allows viewers to watch video for free.

Netflix aims to capture a leading position in the download rental market with the technology it has already built up to gauge customer interests and recommend new movies they may not have been aware of, Hunt said.

"We've spent our whole existence figuring out consumer taste so that we're able to take some obscure title that would never command a DVD sales spot on a Wal-Mart (WMT.N: Quote, Profile, Research, Stock Buzz) floor ... and find the consumer who is likely to be interested in that movie," Hunt said.

At the same time, Netflix expects physical DVD rentals to remain a strong business for anywhere from 10 to 25 years before enough movie downloads become available and consumers adopt a download model on a wide scale.  Continued...