Netflix (NASDAQ:NFLX) made an important announcement at the Consumer Electronics Show this week, but it has nothing to do with its entertainment catalog.
The streaming king has introduced a "Recommended TV Program," which uses a logo to "help consumers identify Smart TVs that offer better performance, easier menu navigation and new features that improve the experience for Internet TV services," according to the company's press release. Initially, the program will only be offered in the U.S.
Netflix listed TVs by Sony, LG, Sharp, VIZIO, and ROKU as among the first to receive the streamer's stamp of approval this spring, though noticeably absent from that list was Samsung, the world's biggest TV manufacturer.
The move is the latest evidence of Netflix's shifting identity. During its short history, the company has gone from a DVD mailer, to a video streamer, to a producer of original content. Though Netflix is widely thought of as a "streaming service," the company refers to itself as the "world's leading Internet TV network" in its own description, notably avoiding the word "streaming." For years now, the company has self-identified as a TV network, calling HBO its biggest rival, aspiring to be included in cable set-top boxes, and creating its own programming to help differentiate itself. The Recommended TV program is a natural step in this direction, and a smart one as it not only bends the product toward Netflix's specifications, but is also a clever way to promote the brand. The program essentially gives the company free advertising as shoppers will see rows of TVs in stores carrying "Netflix Recommended" labels, and establishes it as an authority in the TV market.
Will the manufacturers bite?
With 36 million subscribers nationwide and another 17 million internationally, Netflix is big enough to throw its weight around. Consumers are demanding Internet-enabled TVs, and the manufacturers know this is where the market is going. Sony executive Masashi Imamura said the "Netflix Recommended TV program will point them (Sony customers) to some of the innovative features we're introducing to make Internet TV just as easy and intuitive as linear TV." The CEO of LG Electronics, William Cho, said his company was "thrilled to be part of this program."
This isn't the first time Netflix has used its consumer clout to gain leverage with suppliers. About two years ago, the company rolled out a rating system for Internet Service Providers. The benefits of the program for Netflix aren't totally clear, though it may have provided the streamer with leverage in negotiations and also gives ISPs an incentive to improve their speed.
Consumers, however, don't have the same freedom of choice with ISPs that they do with TVs, so the TV program is much more likely to have an impact on consumer behavior than the ISP rating program. Netflix also doesn't depend on the TV-makers the way it does with ISPs, and those manufacturers know that they're in competition with smaller screens for Netflix viewers. The best viewing experience should be on their TV, and Netflix is showing them how to do it.
Netflix wins again
The TV recommendation program is just the latest example of the streaming company asserting its market power in the entertainment industry. Its profits are minimal, but it has a huge and quickly growing subscriber base that is cheering it on as it fights the cable companies and tries to bring TVs into the Internet age. The TV program itself may not make a major difference to Netflix's bottom line, but it's a symbol of how the company and consumers are often fighting the same battle, and that's a formula that's bound to deliver substantial profits down the road.
Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.