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No easy fix seen for Netflix's gap in online offerings

Netflix official Neil Hunt points out popular shows on Netflix at a theater inside company headquarters last month in Los Gatos, Calif. The company’s weakness is the gap between DVD and online video offerings.

Associated Press

Netflix official Neil Hunt points out popular shows on Netflix at a theater inside company headquarters last month in Los Gatos, Calif. The company’s weakness is the gap between DVD and online video offerings.

LOS GATOS, Calif. — Peruse Netflix's catalog of DVDs, and you'll find just about any movie or TV series you want. Look for many of the same titles in Net­flix's Internet video library, and prepare to be exasperated.

It's a problem that Netflix is unlikely to solve any time soon. Despite an expensive expansion, Netflix's online video selection remains inferior. Netflix offers more than 60,000 titles that can be viewed on Internet-connected devices, while its DVD-by-mail service has more than twice that — about 140,000.

Competitive tensions and Netflix's own financial limitations account for the huge disparity.

No matter how much Netflix is willing to pay for the rights, some online video remains off-limits.

Major movie studios are refusing to license the rights to most of their latest movies at the same time they're released on DVD. Premium cable channels such as HBO and Showtime also are withholding their most popular series, including Game of Thrones and Dexter, because they are worried about losing subscribers if the content is available on Netflix's less expensive Internet service.

The mere $8 per month that Netflix charges for unlimited online viewing is one of the main reasons the service has attracted more than 23 million streaming subscribers, out of a total of 26 million. The expanding audience, in turn, is causing studios to demand higher fees for video that they are willing to license to the company.

Studios know Netflix is getting a bargain, says Wedbush Securities analyst Michael Pachter. Net­flix's streaming subscribers watch an average of 30 hours of Internet video each month.

The Internet video library already is far more appealing than it was five years ago, and now features recent seasons of many acclaimed TV shows, including Mad Men and The Office. Coming attractions include The Artist, winner of this year's Oscar for best picture, and another original series called House of Cards starring Academy Award-winning actor Kevin Spacey.

As it is, Netflix has already agreed to pay about $4 billion in licensing fees during the next few years. CEO Reed Hastings foresees spending billions more.

Netflix might be able to afford to buy even more online video if it raises its prices, but that's a strategy the company says it won't pursue after a customer backlash over last summer's rate increase of as much as 60 percent in the U.S. For now, Netflix is trying to showcase the material already available in its online library by fine-tuning its recommendation system.

Pachter believes there is only so much that Netflix will be able to do to conceal the weaknesses in its Internet library.

In particular, he believes the recent loss of the streaming rights to movies and TV shows from Starz Entertainment will cost Netflix some subscribers. The Starz contract expired Feb. 29, depriving Netflix's streaming library of popular fare that included recent movies from Walt Disney Co. Netflix had been paying an estimated $30 million annually; Starz is believed to have demanded as much as $300 million a year to renew.

No easy fix seen for Netflix's gap in online offerings 04/09/12 [Last modified: Monday, April 9, 2012 9:14pm]
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