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Netflix CFO Hints at Higher HD Rental Prices

6 Feb, 2008 By: Erik Gruenwedel

Netflix Inc. CFO Barry McCarthy said the online rental pioneer would consider raising the price for high-def DVD rentals if a clear winner emerged in the format war between HD DVD and Blu-ray Disc.

Speaking Feb. 6 at an investor conference in San Francisco, McCarthy said cable channels charge premiums for HD content, a strategy Netflix could emulate once a high-def packaged-media winner was established in the market.

'If a winner emerges in that format war and a large percentage of the subscriber base rents HD DVD or Blu-ray … then we will weigh options for increasing the price,' he said. 'First someone needs to emerge as the winner.'

McCarthy said the online DVD rental business has continued to grow despite reports of the decline of packaged media.

He said with 100 million DVD players in U.S. households, consumption of disc entertainment was not going away.

'If you think they are going to stop renting DVDs tomorrow, you really need to lie down until that thought passes and you wake back up,' McCarthy said.

He said online streaming of movie rentals remains largely an incremental business, which he said played into Netflix's business model aimed at offering both electronic and physical product.

The CFO said for electronic rentals to erode DVD rentals consumers must be able to access content directly to the TV, not the PC, and there must be widespread access to studio content.

McCarthy said implementation of such services require an open operating system and inexpensive hardware, both of which he said do not exist.

He cited Apple TV and Amazon's Unbox, in addition to a pending Netflix-enabled set-top box from LG Electronics, all of which he said would not achieve consumer adoption as quickly (five years) as DVD players did.

'It is a long time coming before we have critical mass and DVD titles available for online distribution,' he said.

He said the jury was out regarding how big the online DVD rental market can be. The CFO said Netflix would top 8 million subscribers this year and expectations are from 12 million to 20 million subs by 2012.

He said streaming of rental movies, including the company's Watch Now service, remained an experiment.

'The business definitely is in transition,' McCarthy said. 'The important question is: Can we make money at it?'

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