Will Netflix Get Blindsided?

I can't be the only one feeling a bit cynical over the press release that Netflix (Nasdaq: NFLX  ) issued yesterday morning. 

The DVD-rental giant announced that it has teamed up with several small studios to add roughly 300 indie and foreign films to its online streaming catalog between now and early next year.

With the Sundance festival wrapping up in Park City, Utah, this is the right time to show a little art-house loving. However, Netflix isn't usually the type to issue a press release when it adds a handful of obscure titles to its digital library. In fact, you have to go all the way back to this past summer to find a media missive pertaining to permanent digital additions. Neflix had hooked up with Disney (NYSE: DIS  ) to offer ABC primetime hits including Lost and Grey's Anatomy through its streaming service. Netflix was already stocked with more than 12,000 digital titles at the time, so it's not as if every new set of additions merits heralding.

However, I'm guessing that we're going to be seeing a lot more of these press releases in the future. Now that Netflix has agreed to hold back Time Warner's (NYSE: TWX  ) new releases from its subscribers for 28 days, it's going to begin to toot its own horn whenever it has a chance to differentiate its service.

It may as well get moving on that front, before Blockbuster (NYSE: BBI  ) , Redbox parent Coinstar (Nasdaq: CSTR  ) , and cable giants with healthy video-on-demand platforms begin differentiating their own content relative to Netflix.

Time isn't on its side
Caving in to the Time Warner window may not seem like a bad move at the moment. Netflix will get cheaper Time Warner DVDs, and more of them, a month after most retailers, rental chains, and pay-per-view serve them up. Time Warner will also license more of its older titles through Netflix's streaming platform -- so crack those knuckles and get ready to crank out even more press releases.

Most Netflix subscribers haven't really noticed the second-class-citizenry delegation at the hands of a major studio because the only title that has bumped against the 28-day freeze so far is the box-office disappointment The Invention of Lying. It's going to be quite different later this year when The Blind Side, which was nominated for an Academy Award this morning, along with a nod for its star Sandra Bullock, hits the DVD market.

Time Warner is likely to market the release aggressively. Sales of the feel-good flick will be the primary objective, but the studio will also be willing to settle for high-margin rentals through video-on-demand formats as well as local Blockbuster and Movie Gallery stores.

This will be the a-ha moment for many Netflix subscribers, when they realize that they have become the paperback to Blockbuster's hardcover. Will they accept it or tell Netflix to take a long walk down a short tier?

This doesn't have to end badly. Loyalty has been improving at Netflix, with churn shrinking in its latest quarter. Netflix also insists that new releases aren't really a driver at the service, since they account for just a third of its shipments.

I guess we'll all find out together whether that's true.

This is going to be the moment that Netflix either jumps the shark or validates its model as more than just a slave to fresh flicks.

Streaming to the rescue
Netflix has never been shy about issuing releases when its digital streaming, available to all subscribers with unlimited-DVD plans at no additional cost, is made available on a new home-theater device. From TiVo (Nasdaq: TIVO  ) recorders to Microsoft (Nasdaq: MSFT  ) Xbox 360 consoles, the dot-com darling is encouraging its members to use its Web-enabled offering.  

And the plan is working. Roughly 6 million of its subscribers streamed at least 15 minutes of Netflix-served video this past quarter. Since there really isn't another digital celluloid company putting out a similar product, Netflix's moat grows with every member who warms up to the free streams.

In a few years, if not sooner, that will become the defining trait of a Netflix subscription. With tens of thousands of titles available instantly, it will be a tough service to give up, even for those feeling cheated by the later release windows.

Let's hope Netflix knows what it's doing, because no one wants to take a blindside hit from someone as big as Michael Oher.

What did you think about yesterday's press release? Share your thoughts in the comments box below.