As Hannah Montana would sing, it's the best of both worlds.
Disney (NYSE: DIS) and CBS (NYSE: CBS) are teaming up with Netflix (Nasdaq: NFLX) to offer several of their shows, including Hannah Montana and CSI, as digital streams to Netflix subscribers. Episodes will be available the day after they air.
By itself, it doesn't seem like all that big a deal. Disney and CBS already offer free streaming of their shows through their own sites. But while the networks offer their programming as ad-supported streams, Netflix will present the shows free of commercials.
Perhaps more importantly, Netflix has gone beyond the laptop or PC. The company's streaming service -- available for roughly 12% of its available titles -- can be played on television sets equipped with the $99 Roku Wi-Fi box. Later this year, Microsoft (Nasdaq: MSFT) will join the fun, allowing Xbox 360 owners to stream Netflix selections through the Xbox Live Marketplace.
This isn't a moneymaker for Netflix. It's actually a loss leader, with the company offering its streaming video service at no additional charge to most of its existing subscribers. Why would Netflix pay the content creators, and foot the chunky bandwidth tab, for a service that results in no incremental revenue? Well, it's a pretty good customer-retention tool, don't you think? Rival sites may want to sell you streams and downloads, but Netflix just wants to be your one-stop source for video consumption.
The aggressive push for digital distribution is just one of the reasons why Netflix continues to grow -- now at 8.4 million and growing, a 25% advance over the past year -- while other DVD rental services like Blockbuster's (NYSE: BBI) Total Access have stagnated.
Companies like Netflix and Apple (Nasdaq: AAPL) that have been cashing in on digital video need to be careful, though. They are educating a market and populating it with home-theater-convergence gadgetry. That's great, in theory, but what happens in a couple of years if the studios and networks decide to cut out the middlemen?
We'll cross that network bridge when we get there, of course. For now, it's a sweet deal for Netflix, adding more value to its already popular subscription service. Disney and CBS may further agitate their cable providers and local affiliates, but that's been in the works for some time.
Yes, Hannah, it is indeed the best of both worlds -- for now.
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