Hollywood's Latest Hot Couple: TiVo and Netflix

Ross and Rachel. Sam and Diane. TiVo (Nasdaq: TIVO  ) and Netflix (Nasdaq: NFLX  ) .

Couch potatoes put up with years of sexual tension between these TV couples until they finally conceded that they were made for one another, but wasn't it worth it in the end?

Yes, TiVo and Netflix finally announced the inevitable last week. Netflix subscribers will be able to stream many of the flicks on their rental queues through TiVo boxes. The service is currently being tested and should be available to all subscribers over the next few weeks.

It's not perfect.

  • Just 12,000 of the more than 100,000 available titles from Netflix -- or less than an eighth of the library -- can be streamed digitally.
  • The selection is typically older catalog titles or indie releases, since studios with hot new releases don't want to devalue their product with the Netflix service that is provided at no additional cost to existing subscribers.
  • The TiVo box naturally needs to be tethered to a speedy broadband connection.

However, why complain when the chemistry is perfect? TiVo and Netflix are popular services for boob-tube buffs who enjoy filmed entertainment on their own terms. That's Cupid compatibility, cupcake.

It's about time, too, since this was starting to shape up as another round of heartbreak along the lines of Kevin and Winnie, Dwight and Angela, or Dawson and Joey.

A kiss four years in the making
"Has the moment that TiVo and Netflix investors have been waiting for finally come to pass?" my fellow Fool Alyce Lomax asked 49 months ago.

It's been four years since TiVo and Netflix agreed to explore the digital delivery of celluloid. They were too early. 2004 was a time when movie studios and television producers were leery of online distribution. They had turf to protect. As content creators, why should they settle for third-party distributors when they could deliver directly to the popcorn-bowl-straddling end users?

Apple (Nasdaq: AAPL  ) changed all that. When Apple's iPod revolutionized the way music was consumed -- on its way to becoming the country's leading retailer of pre-recorded music -- filmed entertainment took notice. Video files are substantially chunkier than song files, but speedy connections, the emergence of reliable content-delivery networks like Akamai (Nasdaq: AKAM  ) , and the clip-culture popularity of Google's (Nasdaq: GOOG  ) YouTube made digital video streaming the inevitable resting place for the industry.

Netflix and TiVo didn't hook up as expected, but they agreed to see other people. TiVo struck a defining deal with Amazon.com (Nasdaq: AMZN  ) to play digital video purchases through TiVo DVR boxes. Netflix rolled out a PC-based streaming service last year, before raising the stakes in a series of deals with home theater components like Roku Wi-Fi boxes, Microsoft's (Nasdaq: MSFT  ) Xbox 360, Samsung Blu-ray players, and LG gadgetry to bridge the final mile to the home theater.

Better late than never
Thursday's announcement wasn't entirely a surprise. Dating all the way back to just before May's Roku announcement, Netflix CEO Reed Hastings was promising a pair of deals to deliver its Web-streamed celluloid through a pair of companies that "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."

"Spoiler alert: How can Hastings refer to anything other than TiVo and Microsoft's Xbox 360 as these mystery appliances," I wrote at the time.

It was easy to connect the dots. Between the 2004 unfulfilled promise and Hastings sitting on the Microsoft board of directors, this was the odds-on favorite in this sitcom threesome. Ross, Rachel, and Microsoft as Joey.

Good things come to those who wait
Maybe it's a good thing that they waited. Netflix now has 8.7 million subscribers. TiVo has struggled to grow beyond its 3.6 million user base, but the company is coming off of back-to-back profitable quarters.

It's a large audience. The overlap between both services also represents a marketer's dream of TV watchers with enough disposable income to subscribe to two TV-related services (and no doubt a third, given cable or satellite television access).

Monetizing that audience will be a meatier challenge, beyond keeping churn in check by giving subscribers more of what they want.

Then again, there's time for all of that to be sorted out later. Sam and Diane -- umm, Netflix and TiVo -- are making out in the bar's back room.

Cheers.

More stories to rewind and view again:

Microsoft is a Motley Fool Inside Value selection. Google and Akamai Technologies are Motley Fool Rule Breakers recommendations. Netflix, Amazon.com, and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz does love his TiVo, and he does own shares in TiVo and Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Stock news, financial commentary, and your daily dose of Foolishness: Get plugged in to The Motley Fool on Twitter!


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