Netflix-LG Movie Deal: Picking Winners And Losers

Netflix and LG will team up to make set-top boxes that stream NFLX online movies to your hi-def TV. The boxes won't go on sale for months, so it's far too early to call the partnership a success. But if the gadgets take off, here's an idea of who scores and who gets stepped on.

Winners:

Netflix (NFLX): Finally, a smart answer to Apple, Amazon, Blockbuster, and everyone else! Netflix starts out with a big advantage: 7 million paying customers who already have access to their streaming video library. Now all they need to do is convince them to buy a set-top box to enjoy those movies on the couch instead of the office chair.

LG/other set-top vendors: Does anyone even pay attention to which brand DVD player they're buying anymore? The Journal suggests this device could also include an HD-DVD and Blu-Ray player. Most people haven't upgraded yet, so if this three-in-one device is priced right, LG could piggyback on Netflix' brand to sell a bunch of these.

Microsoft (MSFT): Will they be the videogame console partner Netflix CEO Reed Hastings says is in the works? Either way, their DRM is part of Netflix's product -- so that's some leverage against Apple's rival format.

Netflix's content delivery network (CDN): Whoever handles Netflix's bandwidth is also in for a treat. Streaming movies isn't free, and if a lot of people buy these devices, that's a lot more movie files to push around the world. A year-old report says Netflix uses Limelight Networks (LLNW) as its CDN, but we don't know for sure, so don't quote us.

Losers:

Apple (AAPL): Netflix goes head-to-head with the Apple TV, which has only received a lukewarm response from Apple fanatics. Why pay to rent (or buy) movies from Apple when they're included in the Netflix DVDs-by-mail subscription you're already paying for?

Cable companies, telcos, and anyone else selling video-on-demand: Why spend $4 for a movie rental if it's free from Netflix? As your ISP, these companies have the added insult-to-injury of providing the bandwidth that Netflix's service rides on. Two counterarguments: If Netflix's service takes off, people might upgrade their 'net connection to a faster speed to handle more video streams. And cable companies already have the advantage of serving HD movies on demand.

Amazon (AMZN): "Unbox" looks less sexy by the day, even with the TiVo deal. Only upside could be the retail sales of these LG devices (which could be a better margin than it makes on its movie rentals).

Blockbuster (BBI): Surrendered and ugly.

Wal-Mart (WMT): Another online video failure. Will we ever need to buy a movie on disc again?

VUDU: A hot Valley start-up that sells peer-to-peer set-top boxes through which you can buy thousands of movies on demand. The VUDU box and concept are cool (Netflix will probably consider a similar P2P solution in which the boxes share info, thus saving on content-delivery costs), but it will be easier for Netflix to sell boxes to existing customers than for VUDU, which has to sell consumers on both the box and the service.

Follow-up: Five Questions About LG's Netflix Movie Devices
Earlier: Netflix, LG Link Up For Set-Top Box, Apple TV Toast?
See Also: iTunes Movie Rentals: Winners And Losers
Six Questions About Apple's iTunes Movie Rentals
How Steve Jobs Can Fix Apple TV