Netflix lifts limits on seeing online movies

Netflix, seeking not to be bypassed in the transition to digital distribution of movies, removed limits on how many films and TV shows subscribers can watch over the Internet. The move comes as Apple Inc. is set to unveil plans for users to rent major Hollywood movies online through its iTunes Store.

Netflix, which pioneered the online movie rental business in 1997, had capped the number of hours available to its 7 million subscribers based on the price of their monthly plan. The Los Gatos, Calif.-based company faces stiff competition from Apple, Amazon.com Inc. and others working on digital distribution of movies in the hope that video-on-demand can eventually supplant DVDs.

Now, Netflix customers on subscription plans costing $9 and up can spend unlimited hours streaming movies and TV shows at no extra cost instead of waiting for them to be shipped in the mail. Those on the cheapest plan -- costing $5 -- will get up to two hours of free monthly streaming.

Most movies just released on DVD and current TV shows are unavailable in the company’s “watch instantly” service, however. Netflix, the largest mail-order movie company, offers a library of more than 90,000 DVD titles via postal delivery, but it has only 6,000 movies and TV shows for instant viewing.

Though that may sound like a huge choice, many of the available titles are movies that would be relegated to the marked-down bin at the video store.

For the most part, the studios are reluctant to make the newest DVD releases available for streaming and downloading because of fear that it would hamper disc sales.

“There is a lot of stuff like ‘Revenge of the Nerds 4’ -- the kind of movies you can already see on TBS,” said Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles. Even so, he said, the expanded service could help Netflix build loyalty in video-on-demand.

“They aren’t doing this to make money today, but to have the technology in place to be able to participate when the Hollywood studios go to a downloading model,” noted Pachter, who rates the stock a “buy.”

The six most-viewed offerings as of Monday afternoon on Netflix’s service were episodes of “Heroes,” “The Office” and “30 Rock.” No. 7 was the movie “Secret Things,” an “erotic French thriller” about a stripper and a bartender who decide to “use their sexual powers to invade the corporate world,” and No. 8 was “Breasts: A Documentary.”

Since the streaming feature was introduced a year ago, Netflix said, its most popular movie titles have included such mainstream fare as “The Sum of All Fears,” “The Italian Job” and “Letters from Iwo Jima.”

A company spokesman declined to say how many subscribers used the service. Pachter estimated that only about 10% of Netflix customers downloaded movies -- many of them rarely.

Most consumers are reluctant to watch movies on their computers when they can view high-definition DVDs and other programming on their large-screen TVs.

Netflix spent $40 million to develop its streaming service, including technology and content. Analysts say the cost of adding unlimited streaming would be negligible.

In Monday’s trading after the announcement, Netflix stock fell 64 cents to $22.77.

As early as today, Apple is expected to unveil a movie rental service through its iTunes marketplace.

Major studios including Walt Disney, 20th Century Fox, Paramount Pictures and Warner Bros. have reportedly signed up for the digital video-on-demand service, which could offer 30-day rentals at prices from as low as $3 for older films to $5 for high-definition movies.

Viewers would have 24 hours to watch a film after it began playing.

Apple hopes the move will boost sales of the Apple TV set-top box, one of several technologies designed to serve as a bridge between the PC -- where movies, photos and television shows are stored -- and the living room TV.

An Apple spokeswoman declined to comment.

Netflix already competes with downloading services Blockbuster Inc.’s Movielink and Amazon’s Unbox. And cable and satellite TV providers such as Comcast Corp. offer movies and special events via on-demand services of their own.

Netflix is developing a set-top box with LG Electronics that will allow movies to be viewed on a TV screen. That device is likely to hit the market later this year.

“We’re in the early part of a hybrid phase in which consumers can choose to receive DVDs by mail or watch movies instantly,” Netflix spokesman Steve Swasey said.

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josh.friedman@latimes.com