Netflix (NASDAQ: NFLX ) will begin streaming episodes of the critically acclaimed Breaking Bad in 4K resolution next month, the second series after its own House of Cards to receive such treatment. Compared to 1080p HD, 4K resolution offers four times as many pixels, resulting in a much sharper picture.
While Netflix could benefit from this new initiative, Best Buy (NYSE: BBY ) is perhaps the single company best positioned to capitalize on the 4K trend.
The chicken and the egg
As with prior TV revolutions, the move from standard HD to 4K faces a classic problem. For consumers, there isn't much incentive to run out and purchase a new 4K set, as there isn't much 4K content currently available. Content companies, in turn, don't feel pressured to offer their content in 4K, as so few consumers have 4K TVs sitting in their living rooms.
But Netflix's new initiative should help. Breaking Bad and House of Cards are just two shows, but both have been well received, and Netflix appears committed to offering more of its catalog in the 4K resolution going forward.
In Netflix's long-term view, a document laying out its strategic vision, the company argues that it has an advantage when it comes to 4K: Netflix, as an Internet-based content provider, is uniquely positioned to capitalize on the 4K trend. Linear networks, in order to offer 4K content, must upgrade entire markets on a channel-by-channel basis. This is why, despite the widespread proliferation of 1080p TVs, broadcast HD channels are offered in the lesser 720p or 1080i.
But Netflix can distribute 4K content on a selective basis, sending it only to its subscribers that have 4K sets. Those who do also need a better Internet connection, but assuming they have one, Netflix can supply the content.
Until 4K TVs begin to sell in large numbers (only 3.1 million were sold last year) this won't be much of an advantage. But when 4K TV sales begin to really ramp up, assuming it continues to add 4K content, Netflix will have a major new selling point. Consumers who own a 4K TV and want to take advantage of those extra pixels will be more likely to sign up for Netflix, as their standard cable provider (probably) won't be able to offer them the equivalent level of service.
Best Buy is positioning itself as the ultimate 4K TV store
Of course, with Netflix at some 35 million U.S. subscribers, most early adopters purchasing 4K sets probably already have a Netflix subscription. Adding 4K content could reduce churn, keeping existing subscribers loyal, but it may take years for 4K TV adoption to drive meaningful Netflix subscriber growth.
In the more immediate term, retailer Best Buy could be better positioned to capitalize on the trend. Not only does Best Buy sell 4K TVs, but it has begun to work with the biggest manufacturers, setting up dedicated shop-within-a-shop concepts.
Head into your local Best Buy, and there's a chance you'll see a Sony or Samsung-branded mini shop (or both) advertising the new flat-panels. Given that these televisions are expensive, starting at about $2,000, and a somewhat new form of technology, that sort of focused experience could give Best Buy an advantage over other, more specialty retailers.
Moreover, TVs are one consumer electronic that has resisted the broader online trend. In a survey conducted back in 2011, research firm NPD found that fewer than 1 in 5 consumers were likely to purchase a TV online. Of all the different types of electronics NPD surveyed about, including smartphones, tablets, e-readers and computers, TVs were the single item most likely to be purchased in store. Consumers may have warmed up to online purchases in the last two years, but given TVs' relatively large size and high sticker price, consumers may continue to purchase them from brick-and-mortar stores for some time.
Netflix's new initiative could result in more sales for Best Buy
In 2013, Best Buy's comparable-store sales declined. The retailer blamed the disappointing numbers on, among other things, the declining price of the TVs it was selling. This mirrored the broader market -- with many households already owning an HD TV, research firm IHS reported that U.S. television sales declined almost 10% last year.
But fueled by Netflix's pioneering efforts to bring 4K content to its millions of U.S. subscribers, Best Buy could soon see its TV sales turn around.
4K could force another living room revolution
Netflix's efforts to beat the cable providers to 4K could lead to an greater number of cord cutters. You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.