The IPTV/VOD Landscape

Netflix
Bandwidth may be the sine qua non of image and sound quality, but the streaming media mantra, "content is king," still applies. With 100,000 titles available on DVD, Netflix still offers the most comprehensive library of video content. In an effort to maintain its market position in the face of the digital delivery revolution, Netflix introduced its Watch Instantly video-streaming service in 2007. Originally streamed only to PCs, Netflix now offers streaming to the television via a rapidly expanding array of STBs and other devices.

Figure 3. Netflix offers its 8.7 million subscribers more than 12,000 film and TV titles as Watch Instantly streams.

Netflix offers its 8.7 million subscribers more than 12,000 film and TV titles as Watch Instantly streams. The company has licensed content from the major TV networks and movie studios, as well as from Starz Play, the premium TV download service. For $8.95 per month, subscribers get unlimited streaming plus unlimited DVD-by-mail rental (one DVD at a time). Most movies on the Watch Instantly playlist have previously run through other distribution channels. The challenge in updating that playlist is the cost and availability of licensing for fresher content.

Netflix encodes in VC-1 with Windows Media DRM at a bandwidth ceiling of 2.2Mbps. Users with high-speed connections enjoy near-DVD quality, while those in the 1Mbps–1.5Mbps range make do with a VHS-like experience. Starting in 4Q 2008, some Watch Instantly titles became available for streaming in HD. Watch Instantly is currently available through a dedicated STB by Roku, Inc.; two streaming-capable Blu-ray Disc players (LG Electronics’ LG BD300 and Samsung’s BDP 2500); TiVo-only STBs (not those offered by DIRECTV or Comcast); and Microsoft’s Xbox Live service on the Xbox 360 console. "Our aspiration is to be on as many devices as we can get to the TV," says Steve Swasey, Netflix’s VP of corporate communications.

Each Netflix DVD that flows through the mail costs the company 84 cents. As fiber proliferates around the country, the bandwidth required to stream the same movie will cost a fraction of that. Few doubt that the days of waiting for discs to come in the mail are coming to an end—it’s just a question of when. "It will be a DVD world for at least five to ten more years while this nascent technology and consumer adoption ramps up," predicts Swasey. One of the key determinants in the transition to digital delivery is the market penetration of devices capable of downloading or streaming content to the television.

Roku
The Roku STB, introduced in 2008, was the first to offer streaming of Netflix content to the television. At $100, the Wi-Fi-enabled Roku box is a bargain—the first shipment sold out in 3 weeks. Roku keeps the box simple and cheap, using enough buffer to smooth out streaming but no hard drive and, thus, no downloads. "We just buffer in it," notes Tim Twerdahl, Roku’s VP of consumer products. "Typically we only have a couple of minutes of the movie in the box at any given time." Connections include HDMI, component video, composite, S-Video, and optical and stereo (RCA) audio. Users choose movies through the Netflix website, requiring some back and forth between the PC and the Roku box but allowing for easier navigation of 12,000 titles than would be possible on a TV screen. Just as this issue went to press, Roku announced that Amazon Video On Demand titles would be available via the box.

Figure 4. The $100, Wi-Fi-enabled Roku STB, introduced in 2008, was the first to offer streaming of Netflix content to the television.

The Roku box decodes Netflix’s VC-1 content in both SD and HD, and it is equipped to handle H.264. The box is capable of streaming in 1080i, but for now it delivers images in 480i. Although it’s been marketed as The Netflix Player (Netflix owns a minority stake in Roku), the box can stream from other services, including those that adopt an advertising model. "There are a few software updates we’ll have to make," says Twerdahl. "But we definitely plan on adding ad-supporting providers to the current box."

Adding Roku-like capabilities to a TV shouldn’t add more than $50 to its retail price. While Roku is open to licensing its technology, Twerdahl doesn’t see a threat to Roku’s current product. "Not everyone’s flipping their TV right now, so the need for a good value stand-alone box will remain for quite a while."

Xbox Live
Roku may have been the first, but it is no longer the only Netflix-streaming game in town. While Roku found early success doing one thing at a low price, Microsoft’s Xbox 360 does many things, including streaming Netflix Watch Instantly content, at a range of competitive prices. Microsoft launched the Xbox 360 in 2005 as a games-only console. Today, with an installed base of 20 million units and 14 million Xbox Live members, the Xbox 360 generates 30% of its revenue from paid downloads of nongaming entertainment content. Xbox Live offered more than 15,000 movie and TV titles even before its deal with Netflix. "We are today delivering more high-definition, on-demand content than any cable or satellite provider in the U.S.," says group Xbox 360 product manager Aaron Greenberg.

Figure 5. Microsoft’s Xbox 360 streams Netflix Watch Instantly content and offered more than 15,000 movie and TV titles even before its deal with Netflix.

The cost of non-Netflix movie downloads is typically $3 for SD and $4 for HD. Users have access to the content for 14 days and are limited to a 24-hour viewing window once playback has started. Xbox Live offers a purchase option for TV shows in SD or HD, but no purchase option is currently available for movies. As with Roku’s box, Xbox 360 users have unlimited access to the Netflix Watch Instantly playlist. "We’ve built a massive library," says Greenberg. "And we think adding the ‘all you can eat’ Netflix option will be a big win."

Xbox 360 offers three console choices. The Arcade ($200) comes with flash memory instead of a hard drive, and is best suited for streaming experiences such as Netflix. The Pro ($300) comes with a 60GB hard drive and the Elite ($400) comes with a 120GB hard drive. A 60GB hard drive add-on is available for $100. A downloaded HD movie typically uses 4 to 6 gigabytes of storage.