The beauty of Netflix (Nasdaq: NFLX) moving into digital delivery -- the way it has since the launch of last year's Watch Instantly option -- is that inventory is never a problem.
There is no running of the bulls for new releases on Tuesdays, freeing subscribers from bumping up against "Long Wait" and "Very Long Wait" outages when too many members are chasing too few DVDs.
However, Netflix has still managed to run into an inventory problem in its quest to simplify the migration of its Watch Instantly option from the PC to the home theater. Three weeks after the company teamed up with Web radio appliance specialist Roku to introduce The Netflix Player by Roku -- a $99.99 box that allows Wi-Fi homes to stream films through their television sets -- the system is out of stock.
The laws of supply and the man
The Silicon Valley/San Jose Business Journal reports that Roku is working with its Asian suppliers to get more units shipped over. Netflix CEO Reed Hastings won't reveal how many boxes have actually sold, making it easier to assume that the problem is on the supply end rather than a growing mob of early adopters.
"Due to high demand, orders placed today are expected to ship in approximately two weeks," reads the Roku checkout screen.
High demand? Low supply? What's the difference?
This feels awfully similar to when Amazon.com (Nasdaq: AMZN) ran out of its initial stock of Kindle electronic book readers back in November. Amazon was quick to brag about how the readers sold out in just a few hours, but Amazon's Jeff Bezos has yet to update investors as to how many Kindles have been sold.
You can't blame Netflix for dragging its feet here. The company offers roughly 10% of its more than 100,000 titles through Watch Instantly, and it does so at no additional charge. Studio royalties and bandwidth costs aren't free, so Netflix is using this as an incentive to keep its 8.2 million subscribers happy.
Netflix also may not want to upset owners of existing boxes that will be capable of streaming Watch Instantly flicks later this year.
Old boxes, new opportunities
"We have LG plus three additional partners actively working on integrating our technology into their products," Hastings said during April's quarterly conference call.
Roku turned out to be one of them, but the other two "sell millions of devices per year and will enable the Netflix functionality in some of those devices likely in the fourth quarter of this year."
This makes TiVo (Nasdaq: TIVO) and Microsoft's (Nasdaq: MSFT) Xbox 360 logical partners. They each sell "millions" of devices tethered to home theater setups. TiVo has had a chummy history with Netflix, and Hastings sits on Microsoft's board of directors. Since Apple (Nasdaq: AAPL) owners have been stiffed during the first incarnation of Watch Instantly, which won't play through Macs, maybe Apple is one of the two unidentified partners. How cool would it be to stream free movies through your iPhone or perhaps just the Apple TV? Surely it wouldn't cost Hastings his seat on Microsoft's board for playing nice with Steve Jobs.
Ultimately, the speculation is fun, but the silence is bothersome.
Does an Xbox 360 owner really want to shell out $100 for the Roku player when his existing video game console will do the same thing in a few months? I believe that Netflix needs to step up and make its partners public, before burning those subscribers who end up ordering a redundant box.
It has the perfect opportunity now, with the Roku player order backlog in place, to lay it all out.
Do the right thing, Netflix.
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