Netflix Kicks App on the iPad

It took awhile, but Netflix (Nasdaq: NFLX  ) is finally available through Apple's (Nasdaq: AAPL  ) App Store.

The official application allows Netflix subscribers on unlimited plans to stream its digitally available movies and television shows at no additional cost. The program only works on the brand-new iPad, but the inevitable iPhone and iPod touch Wi-Fi playback can't be too far away.

This is certainly a refreshing surprise, since Netflix had movie buffs guessing all along. It didn't help that the application was actually released on April Fool's Day, worrying many news and blogging sites that they were being punked in breaking the story.

Netflix CEO Reed Hastings shot down an App Store appearance earlier this year.

"It is not a huge priority for us because we are so focused on the larger screen," Hastings said during his company's quarterly conference call in late January. "Until we get our TV ubiquity and our Blu-ray ubiquity -- and we are getting close on video game ubiquity -- we would next turn to the small screen."

He was referring specifically to the smaller iPod touch, but conceded that if it worked on the iPod it would work on the iPad.

"It is something we will get around to but it is not in the near-term," Hastings said.

Well, it's nice to know that Netflix is such a speedster that less than three months is too long to be considered a "near-term" development.

Apple scoops Microsoft on Netflix for a change
Two weeks earlier, Netflix was showing off a prototype of a streaming program for Microsoft's (Nasdaq: MSFT  ) Windows Phone 7 Series smartphones.

"This really isn't a surprise given the chummy relationship between Microsoft and Netflix," I wrote at the time. "The only real shocker is that Netflix was downplaying the importance of a smartphone application at all just two months ago."

Hastings sits on Microsoft's board and Netflix's online streaming was available on Windows-powered PCs before Macs, and Microsoft's Xbox before PS3 and Wii consoles. It seemed insane to bypass Apple's iPod touch and iPhone empire to give Windows-powered smartphones the first crack on the small screen, but it would have been understandable given the history between the two companies. I guess the iPad changed all that -- even if we still don't know when an official app will come out for iPhone and iPod touch owners.

Demand on demand
Netflix on the iPad has always made sense. Now that it's here, it's incredibly popular. By Saturday night, the second most popular free iPad download belonged to Netflix. It was trumped only by Apple's own iBooks, which will probably be a preloaded program in the future.

The third most popular freebie was Disney's (NYSE: DIS  ) ABC Player, a program that allows on-demand streaming of ABC's primetime shows.

The early iPad pioneers appear to be couch potatoes, which is a surprising contrast from the video games, social-networking apps, and Internet radio offerings that routinely dominate the top freebie list for iPhone and iPod touch.

Newspapers and weather apps round out the list of iPad's most downloaded free offerings, so this device may be the multimedia gadget that Apple has wanted all along.

Next step for Netflix?
If it streams video tethered to an existing broadband connection, Netflix wants to be there. It started slow with computers, before graduating to existing set-top devices including TiVo (Nasdaq: TIVO  ) recorders and Blu-ray players. Video consoles followed, and now the iPad is the perfect stepping-stone to even smaller smartphones.

What's next? Microsoft's Zune? Sony's (NYSE: SNE  ) PSP? Now that Netflix has turned to Akamai (Nasdaq: AKAM  ) as its primary content-delivery network -- reportedly at a huge promotional discount over the next few months -- every incentive imaginable exists for the company to continue to deliver apps that provide instant gratification to celluloid fans.

Between the physical inventory that has to be managed and the roundtrip shipping costs, Netflix's original model can be a costly one if it nabs too many volume users. Digital delivery is considerably cheaper, and the real shocker is that there is nobody else offering this kind of unlimited streaming service at no additional cost to a cheap subscription plan.

Netflix's moat grows with every new subscriber (12.3 million and counting) and every new device (iPad and growing).

Netflix also seems to be pretty universally loved. After all, despite all of the bones that it has thrown Microsoft over the years, the most ardent of Apple fan boys who lined up to nab the first iPad on their block are willing to forgive it and make the Netflix app an overnight juggernaut.

Well-played all around, Netflix.

Is Netflix for the iPad a bigger win for Apple than it is for Netflix? Share your thoughts in the comment box below?

Walt Disney and Microsoft are Motley Fool Inside Value picks. Akamai Technologies is a Motley Fool Rule Breakers recommendation. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor choices. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He also owns shares in Disney. Rick 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.


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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 April 06, 2010, at 10:10 AM, feldmail wrote:

    It is no mistake that NFLX is continuing to reach new all-time highs, yesterday and today. I was very surprised to see that NFLX was the second most popular free app, second only to Apple’s iBook store! Couple that with the fact that ABC was the next most popular free app. More than anything that has occurred over the last 3 years, this is absolute proof that digital streaming is the way that people will mainly view TV shows and movies in the future. The old model is definitely dead and NFLX will begin mailing fewer and fewer physical disks, while replacing this with streaming.

    Based on this, the old model is dead and companies in physical distribution, whether stores or kiosks, will suffer!

  • Report this Comment On April 06, 2010, at 10:10 AM, feldmail wrote:

    It is no mistake that NFLX is continuing to reach new all-time highs, yesterday and today. I was very surprised to see that NFLX was the second most popular free app, second only to Apple’s iBook store! Couple that with the fact that ABC was the next most popular free app. More than anything that has occurred over the last 3 years, this is absolute proof that digital streaming is the way that people will mainly view TV shows and movies in the future. The old model is definitely dead and NFLX will begin mailing fewer and fewer physical disks, while replacing this with streaming.

    Based on this, the old model is dead and companies in physical distribution, whether stores or kiosks, will suffer!

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