Netflix adds online video to DVD mail mix: Internet Retailer keynote

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SAN JOSE, CA - Rome's stone walls weren't built in a day and neither was Netflix's alternative movie renting business model.

During his keynote speech at the Internet Retailer Conference and Exhibition, Netflix CEO Reed Hastings compared his company's DVD-by-mail program to the development of limestone mortar and its change in the building of the Roman Empire. The media company is set to capitalize on online video growth in its latest service launch.

"Limestone mortar was a new technology developed in the Roman Empire and lasted for thousands of years," Mr. Hastings said. "I hope the stuff we're building can have this kind of lasting power. Unfortunately technology is fast, so we have to innovate."

Netflix ships 1.6 million DVDs a day to its 6.8 million members. To compete with the rise in the Internet as a delivery Netflix has identified the marketplace into three different segments.

The first is the ad-supported model, which he said is Google, YouTube, Yahoo and other video sites that compete with television in an ad supported model. Then there is the digital purchase model like Apple's iTunes and Amazon.com that specialize in movie sales. Finally, there is the digital rental marketplace where NetFlix fits in. Despite the fact that Netflix seems to have cornered this market, Mr. Hastings said that he is still striving to compete in the online viewing space.

NetFlix is aiming to compete in this new space by offering its traditional DVD-by-mail offering and including a download feature within one package - the cheapest starts for $4.99 a month, which gets you 2 DVDs and 6 hours of online video viewing time, about three movies. It's essentially five movies for $5.

"It gives us an advantage over the online rental stand alone and DVD rental alone," Mr. Hastings said.

The new service lets users watch movies that are streamed over the Internet, with a time limit option. Users can watch a film for 15 minutes, and decide whether or not to watch the whole thing, only spending 15 minutes of monthly time. This addresses the shifting consumption patterns that online video has seen the rise of in trends like video snacking.

"It emerges as a browse culture," Mr. Hastings said. "The new challenges that we face are how do we invent this new world. We started off with changing DVD rentals, but unlike limestone mortar, the technology is changing fast."

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