3 Reasons Netflix Is Coming to Apple's iPhone

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Why shouldn't we believe Netflix (Nasdaq: NFLX  ) CEO Reed Hastings? "We will get to mobile eventually, including the iPhone," Hastings told Reuters in a recent interview.

My friend Rick Munarriz says Hastings would be crazy to commit to the iPhone right now. I say he'd be crazy not to.

Sure, there are bigger priorities, including game consoles, TV, and Blu-ray. But there are also several good reasons why a partnership with Apple (Nasdaq: AAPL  ) makes sense. Here are three.

1. You can't count on YouTube
There's no turning back for Steve Jobs. He'll never again be as close to Google's (Nasdaq: GOOG  ) Eric Schmidt as he was when Schmidt was a member of Apple's board. Sure, the occasional pancake breakfast at Stacks in Menlo Park is still fine, but when you compete in smartphones, browsers, operating systems, and even movie rentals, the strategy discussions don't go far, if they happen at all.

YouTube is the problem for Apple here. The video-sharing service is already a featured iPhone application; what happens when movie renters begin using it?

Think about how often you use iTunes to play a video on your iPhone. If you're like me -- and I'll bet you are -- you're using YouTube for video and the iTunes App Store to deliver new software and software updates.

This model can't last if YouTube becomes a rental hub, and that creates an opportunity for Netflix. A simple app could connect Apple's trailers site with your Netflix account to instantly add your favorite previewed flicks to your queue. And that's just the beginning.

2. Carriers need a bigger load
From time to time, we all complain about the service that our mobile carriers provide. AT&T (NYSE: T  ) has often been subpar in serving me as an iPhone owner. Others, too.

This is at least partly due to the volume of data pumped through Ma Bell's wireless pipes. There's too much of it now, and the load is growing daily. AT&T is spending billions to meet the demands on its infrastructure, causing some to question whether the iPhone is even worth the hassle.

Here's the problem: Nokia's (NYSE: NOK  ) handsets and Research In Motion's (Nasdaq: RIMM  ) not-quite-as-onerous BlackBerry don't consume as much high-value traffic as the iPhone does, which chews application data like a cow chews prairie grass.

That's important if you think of traffic as freight. United Parcel Service makes its biggest dollars from odd-sized, gotta-have-it-tomorrow deliveries. In a similar way, AT&T, Verizon (NYSE: VZ  ) , and Sprint Nextel should be able to value-price traffic that crosses their networks -- the data freight, you might call it. Movies are data freight that carriers want to deliver.

3. Hollywood needs Netflix
Movies make headlines at the box office, and profits from DVD sales. Or at least that's how it has been. Ask Marvel Entertainment. The Incredible Hulk was no box-office smash, but it still earned profits for the studio thanks to DVD sales.

Annually, DVD rentals are a better-than-$20 billion business. Netflix is the DVD rental market leader, and Hollywood studios want to see it renting discs for years to come. They'd likely support any technology that makes getting a disc to your door simpler and faster. (See point 1.)

Streaming isn't the only option when it comes to Netflix and the iPhone, but it is a very good option. Possibly as a replacement for YouTube. Or perhaps as a screening mechanism for iTunes previews. Either way, Netflix has a high-quality video player that's suitable for any Wi-Fi connected device.

Especially the iPhone.

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Apple, Marvel, and Netflix are Stock Advisor selections. Nokia and Sprint Nextel are Inside Value picks. Google is a Rule Breakers recommendation. United Parcel Service is an Income Investor pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple, Google, and Marvel and a stock position in Nokia at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is waiting for its star on Wall Street's Walk of Fame.

Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2009, at 9:41 AM, buckawho wrote:

    The Flixster app already allows you to view trailers and add to your netflix queue. Netflix just needs to go ahead and create an app that will allow one to view movies. They would have to break-down the movies in 5 minute clips to allow for 3g viewing for on-demand movies, but it would work perfectly for lunch breaks, waiting rooms, etc.

  • Report this Comment On September 28, 2009, at 10:45 AM, eric0871 wrote:

    I read a week ago an article saying 3 reason why Netflix won't be coming to the iPhone.

    Why wouldn't Blockbuster be a better fit for the iPhone than Netflix? Netflix can't get rights for any Sony owned movies because of their partnership with Microsoft. Blockbuster already has a mobile app that will be seen on Motorola phones. I think they would be a much better bet.

    Another problem with Netflix is that it angered many movie studios by getting rights for movies not through the studios themselves, but through a deal with Starz. Now they are streaming movies over the internet without permission from the studios. Do your own research and read a article in this months Wired magazine about Netflix.

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