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Netflix, Microsoft: The Deal That Wasn't — Yet

21 Feb, 2008 By: Erik Gruenwedel



Analysts, industry insiders and the tech press could barely contain themselves. All were convinced last week that an imminent announcement in which Netflix would offer movie rental streams via Xbox Live was forthcoming.

The online DVD rental pioneer has made no secret its desire to offer its 7,000 movie streams to 100 set-top boxes, beginning later this year with a proprietary device from LG Electronics.

The concept seems like a win-win for both companies, especially Xbox Live, which has millions of users and limited movies — about 300 at last count.

Then, Los Gatos, Calif.-based Netflix reportedly began asking subscribers if they would be open to watching movie streams on Xbox.

Scuttlebutt said the deal would be unveiled Feb. 20 during John Schappert's keynote address at the Game Developers confab in San Francisco. Who better than Microsoft's VP of Xbox Live, software and services for interactive entertainment business, right?

“It would make sense,” said Edward Woo, a media analyst with Wedbush Morgan Securities.

Woo's boss, Michael Pachter, who was at GDC, told MSNBC.com such a deal would give Microsoft “a partner that already streams movies to more than 7 million subscribers through their PCs.”

Netflix spokesman Steve Swasey said company policy precluded him from commenting on speculation. He then reiterated the “100 set-top boxes” company line.

“Anything else is inappropriate to talk about,” he said.

Rob Enderle, analyst with Enderle Group in San Jose, Calif., believes the two companies are in discussions but that issues over licensing and cost, among others, have curtailed an announcement.

“Microsoft already has a download service, and there are always people inside a company who want to protect [their] turf,” Enderle said. “I do think they will figure out how to get this done, but it isn't a trivial set of problems.”

To the chagrin of many, Schappert at the event merely unveiled software that allows users to create video games, which kind of made sense considering he was at a video game confab addressing game aficionados.

A Microsoft spokesperson was not immediately available for comment.

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