Netflix, TiVo discuss movie service, report says

No terms are revealed in Newsweek article

September 08, 2004|By BLOOMBERG NEWS

NEW YORK - Netflix Inc., the largest mail-order video-rental service, and TiVo Inc. reportedly are negotiating a deal to start a service that would let customers download movies into TiVo's digital video recorders.

TiVo won't offer a movie-download service for at least a year, spokeswoman Kathryn Kelly said in an interview, commenting on a report in Newsweek magazine. She and Netflix spokeswoman Lynn Brinton said the companies don't have a partnership or a schedule to establish one, but such an agreement might make sense in the future, they said.

A movie-download service could provide both companies with a new source of revenue, replacing sales that might be lost to competitors. That might make Netflix less vulnerable to a mail-order service begun last month by Blockbuster Inc., the largest video-store chain, and could reduce the threat to TiVo from digital recorders offered by cable-television companies.

"Near term, it doesn't have that much impact," said Kenneth Smith, a fund manager with Munder Capital Management in Birmingham, Mich. "Longer term, it's the first step to their download solution. That probably makes it the most technically feasible solution for downloading movies."

Munder held 1.31 million Net- flix shares in June.

Netflix shares rose $1.05, or 7.3 percent, to close at $15.41 yesterday on the Nasdaq stock market, after jumping 20 percent to $17.18 earlier in the day. The stock has fallen 44 percent this year.

TiVo's shares rose 66 cents, or 15 percent, to $5.08, after climbing 18 percent to $5.20. The stock has fallen 31 percent this year.

Netflix, based in Los Gatos, Calif., and TiVo, based in Alviso, Calif., might announce an agreement this month, Newsweek reported, citing a person "close to the negotiations" whom it didn't identify.

Netflix's Brinton and TiVo's Kelly said executives from the two companies frequently "brainstorm" together. TiVo chief executive Michael Ramsay is a member of Netflix's board.

The agreement will become final after approval by TiVo's board this week, Newsweek said. TiVo's board is to meet tomorrow, Kelly said. She declined to discuss topics on the board's agenda.

The companies plan to offer the service to subscribers of both Netflix and TiVo, Newsweek said. Terms weren't disclosed. Customers would be able to download movies over the Internet to their TiVo recorders instead of waiting to receive them on DVD via the mails, the magazine said.

That would give Netflix and TiVo a technological advantage over other download services such as Movielink LLC that can only send movies to customers' computers, Munder's Smith said.

Netflix allows customers to rent DVDs that they order online and receive by mail. Its service had 2.09 million subscribers at the end of June. Netflix said in July that it expects as many as 2.7 million subscribers by year's end.

TiVo's recorders enable customers to pause and replay live TV shows and store as much as 140 hours of programming, using a computer hard drive instead of cassette tapes. TiVo's subscription service, which provides program-scheduling information to help customers find shows to record, had 1.9 million customers at the end of July.

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