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Analysts Ho-Hum Netflix Streams

17 Jan, 2007 By: Erik Gruenwedel

Online movie rental pioneer Netflix's much-anticipated trial launch Tuesday of a streaming service elicited largely resounding indifference on Wall Street.

A day after the announcement, the Los Gatos, Calif.-based service's stock had risen about 0.6% or 17 cents in mid-day trading.

Comparatively, rival Blockbuster Inc.'s financial halo from the November launch of its Total Access online rental, in-store return program continued to push its stock upward to 52-week highs.

Netflix announced it would phase in the digital service — featuring 1,000 movies and TV programs — at no additional cost to subscribers over the next six months to “ensure … a great initial experience.”

Thus far, that experience would appear to be transparent to analysts who said the fact subscribers could only rent (stream) and not own (burn) content undermined its long-term potential in a market that is increasingly moving toward electronic sellthrough of content from the Internet to the TV.

“People just didn't think it was that compelling,” said Edward Woo, CFA with Wedbush Morgan Securities in Los Angeles.

Marla Backer, media analyst with Research Assoc. – Soleil Securities in New York, said only being able to watch movies on a PC, not the TV, undermined the service. “I don't think anybody really expects it is going to have any mass appeal,” said Backer. “I don't think there is much deployment opportunity for the service.”

Blockbuster spokesperson Randy Hargrove reiterated previous comments by CEO John Antioco that the Dallas-based company plans to offer a movie downloading service perhaps as early as this year.

“While we don't see digital downloading becoming a huge business in the next year or two, the company's view is that we need to be in the business,” said Hargrove.

Independent media analyst Dennis McAlpine, who doesn't think the consumer is interested in streaming, said the recent Comcast deal with studios to release major titles on video-on-demand the same day as the DVD had more significance.

"The big problem that everyone has had up until now [with digital delivery] is the availability of films from the studios,” said McAlpine. That's why the Comcast deal is so important.”

Analysts tempered Blockbuster's stock resurgence as rebounding from a smaller base (compared to Netflix) but lauded Big Blue's ongoing win in the PR battle.

“Blockbuster's stock has been depressed for a long time and the company finally has a good story,” said Backer. “All of the cost cutting they have done is finally showing up in their results.”

Jessica Wolf contributed to this report.

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