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Turns out, the so-called Netflix box could be even cooler than initially thought.

The tiny black device from Roku was introduced to the world in May as the first box that could stream Netflix's "Watch it Now" option directly to a television.

But the company is saying there could be more where that came from.

(Credit: Roku)

Roku's vice president of consumer products, Tim Twerdahl, said Wednesday that, yes, more content partners are coming, but, no, he's not saying who just yet. That makes the $99 price tag look that much more attractive.

So who will it be? YouTube seems obvious, as they've been partnering with a bunch of hardware makers lately: Panasonic, Sony, Apple, Hewlett-Packard.

Or what about Hulu, as my colleague and CNET's resident home theater expert John P. Falcone suggests?:

The Netflix vids use the VC-1 codec, but the box can handle H.264 as well. Of course, because all of these players--Apple, Microsoft, Netflix, and Sony--are already trying to sell you videos, it's unclear why they'd want to provide a free competitor that's just a click away. So even if a Hulu option is technically feasible, business considerations may keep it relegated to the drawing board. But hey, we can dream, can't we?

Either way, Roku will have to differentiate. Rumors are flying fast that at E3 next month, Sony or Microsoft (or maybe both) will announce support for Netflix's "Watch it Now" feature as well, for the PlayStation 3 or Xbox 360, respectively.

And though far more expensive than $99, both game consoles have large install bases, and are also far more functional beyond just streaming video.

As I searched for something to talk about today, I came across this article from Joystiq featuring a discussion by Will Wright about Spore and the gaming industry.

For those of you who don't know Will Wright, he's not only the creator of Spore, but he's also the creator of the Sims franchise, and arguably one of the greatest game developers of all time.

And yet, I'd venture to say that at least some of you reading this have never heard of Will Wright before. I'll bet you've played the Sims and may even know about Spore, but you had no idea who Will Wright is.

If that's true, the blame shouldn't be placed on you and you certainly shouldn't be expected to perform research just to find out who develops a specific game. Instead, the blame should be placed squarely on the video game industry, and more specifically, major companies like Take-Two and Electronic Arts, for creating an environment where anonymity is not only accepted, but expected as well.

And if you ask me, that's just wrong.

Blockbuster announced Tuesday it's teaming up with PayPal to offer users another payment method for purchases off its Web site.

Under the arrangement, consumers can use their PayPal account to pay for their online movie rental subscriptions. And later this summer, Blockbuster expects to launch its downloading service for movie rentals and purchases.

Eventually, Blockbuster expects to make PayPal available for use to purchase other things off the Web site, from gift cards to new and used DVDs.

Blockbuster is offering users a $10 cash back to their PayPal account, if they sign up for a new online Blockbuster rental subscription.

news analysis Netflix, don't take half steps with your digital-delivery service. Give your users what they want, and what they want is the latest hit movies.

CEO Reed Hastings and his management team have hit a home run--or at least a solid run-scoring triple--by partnering with Roku, the company behind the Netflix Player. The $100 device enables customers to stream movies from the Web to their TVs. Most reviewers have applauded the device for its low cost, easy setup, and viewing quality (a good Internet connection means no stalling or long download delays).

But a month after the Netflix Player went on sale, I haven't read a single review that hasn't deducted points for the lack of films available with Netflix's streaming service. It's the biggest complaint from device owners I've spoken with.

The Netflix Player by Roku

(Credit: CNET Networks)

Mr. Hastings, you've done a good job by setting up your "Watch Now" streaming service with 10,000 catalog titles, but you need to go further. Let customers purchase new releases on a per-video basis if they want. Some might resent being asked to pay in addition to their monthly subscriber fees, but if you explain that Hollywood charges more for new releases, your customers will understand. Give us choice.

"Why would anyone feel alienated by this?" said Michael Pachter, a financial analyst with Wedbush Morgan Securities. "You can't get a better deal elsewhere. Netflix would be essentially giving you Apple TV without charging you for the Apple box."

This is an important comparison because Apple has already begun offering new releases for rent via iTunes. Trust me on this Netflix, you don't want to fall behind to Apple. And let me be clear. Hollywood hasn't barred Netflix from obtaining the latest releases. Netflix managers have acknowledged that they could have received the same deal as Apple. They chose not to, and I think that's a mistake.

Pachter disagrees with me. While he said he wouldn't be surprised to see Netflix experiment with streaming new releases, he likes the current hybrid approach: offering catalog titles for Internet streaming and mailing new releases in the form of physical DVDs.

"What Netflix is saying to customers is 'We're going to give you new movies on a disc and we're going to give you as much catalog and streaming as we can possibly deliver to you for (the same monthly subscription),'" Pachtel said. "That's a smart business model."

Netflix executives said during the company's investor day last month that most of the movies it rents are catalog titles.

But by ignoring the digital distribution of new releases, the company is leaving the door open to competitors.

In January, Apple cut a deal with the movie industry that allows iTunes to rent new releases 30 days after the flicks become available for sale on DVD. It would be nice to get them sooner, sure, but Apple is providing an option that Netflix is not.

It's important to note that Netflix's traditional mail-order business isn't affected by the same 30-day restriction. This is one of Netflix's biggest advantages over anyone delivering movies over the Web or on VOD.

Netflix buys physical DVDs as soon as they go on sale and, by law, Hollywood is powerless to dictate what the company does with its property. This means that by the time iTunes or VOD services are allowed to start renting movies, Netflix has been shipping those little red packages for a full month.

But discs are not the future. And I'm not the only one who thinks this way. Hastings predicted last month that DVD rentals will peak within the next 5 to 10 years, yet Netflix is leaving the Internet delivery of new releases to Apple and other competitors.

Here's why they may have gone this way.

Netflix doesn't serve a la carte
Subscription fees have helped make Netflix the No. 1 online video rental service. Founded in 1997, the company started out charging customers on a per-video basis and switched to subscriptions two years later. Not long after that, Netflix began offering unlimited rentals for a flat fee.

Since then, Netflix has steadily grown and snatched market share. In the quarter ended March 31, Netflix saw net profits jump 36 percent to $13.4 million, or 21 cents a share. The number of subscribers grew 21 percent to 8.24 million.

So why go back to charging users for each video they rent? They obviously are attracted to the all-you-can-eat model.

Netflix customers will gradually move to the Web
The Web hasn't taken over yet. There's plenty of time to boost the quality of Netflix's streaming library and consumers may not fully embrace Internet video until it's as good as watching a DVD.

While Roku's Netflix device offers easy access to movies and does away with the long download delays, it still doesn't offer the best-looking picture.

But improvements in download and streaming technology are coming rapidly. The Roku device is perhaps the best example of this. Adoption of Internet movie rentals could occur faster than anyone realizes.

And remember that advantage Netflix enjoys by being able to mail DVDs a month before Internet or VOD distributors? It's possible that might vanish soon.

The studios have a distribution structure whereby they cut deals to provide exclusive access to films for specific periods known as "windows." Theatrical releases typically come first, followed by home-video release, then pay-per-view channels, then regular cable, etc. This is why Apple and VOD services must wait 30 days before distributing rentals.

Take a look at this excellent story from the Los Angeles Times. Executives at some of the major studios, who used to believe that the Web and VOD services could hurt DVD sales, are experimenting with limiting the time an outlet has exclusive access to films. Others studios are testing whether it pays to make Web and VOD rentals available when DVDs go on sale.

Early indications are that Web sales don't eat into DVD sales.

This means Hollywood could conceivably break down the walls and give VOD and Web-movie distributors access to films as soon as Netflix gets them.

And look at the growing competition that's swarming into the sector. Apple, Amazon, Microsoft's Xbox, cable companies, and Hulu are all out to use digital distribution to offer consumers instant gratification.

Reader, I don't know about you but I'll choose instant gratification over waiting for the postman every time. I'm a film buff. Why should I be forced to decide what I want to watch in advance? Let me push a button and choose whatever movie I want.

I'd be willing to pay a premium for that.

So come on, Netflix. Spend big, move fast. Get your customers thinking of you when it comes to instant gratification. Gather expertise on streaming technology and pricing before your competitors.

The Internet and movie rentals are supposed to be your turf.

Disney has begun showing full-length movies online, beginning with Finding Nemo, the studio said Tuesday.

It's the first time Disney has done so, and it's notable as such, but don't confuse the move with a full-on YouTubization of the company. Each movie will only be available for a few days after they air on ABC's Saturday-night TV show Wonderful World of Disney. Finding Nemo, for example, can be watched online through June 13, Disney said.

Disney.com now streams Finding Nemo.

(Credit: Disney.com)

It's free, but don't expect a full-immersion cinema experience.

The movies are available through a "watch now" link on the upper-right side of the Disney.com Web site. I had to sit through an ad for Cocoa Pebbles cereal, then an equally high-fructose introductory Disney promotional video. And the window showing the movie is surrounded by an encrustation of further garish ads.

But ads clearly pay some of the bills here, and streaming video takes a lot of bandwidth and server horsepower, so I can't complain too much. (Especially since my own paycheck comes from ad revenue.)

I didn't see much in the way of Snow White-era classics on the schedule, but presumably this is just for openers:

• Monsters Inc. airs on ABC June 14 and is available online June 16-20.

• Haunted Mansion airs on TV June 28 and online June 30-July 4.

• Confessions of a Teenage Drama Queen is on TV July 5 and online July 7-11.

• Princess Diaries 2 is on TV July 12 and online July 14-18.

• Freaky Friday is on TV July 19 and online July 21-25.

• Peter Pan is on TV August 2 and online August 4-8.

Disney also is showing Camp Rock online on June 23.

There's more proof that the Netflix Player is a hit.

Start-up Roku, the company behind the device that enables Netflix subscribers to watch movies streamed from the Internet to their TVs, has run out of inventory two weeks after launching.

"Due to the tremendous coverage and initial success of this product we're now in a two-week backorder situation," said Tim Twerdahl, Roku's vice president of consumer products. "We have boats coming in weekly from China with additional products, and we're doing everything we can to get them out."

The shortage comes after the device has received favorable reviews from The New York Times, CNET Reviews, Wired.com, and Gizmodo.

Consumer demand for movies distributed via the Web has been lukewarm up to now. Download services have been plagued by expensive set-top boxes, poor quality video or limited movie selection.

The box, which is is sold directly from Roku's site, has received accolades for being inexpensive ($99), easy to install, and for doing away with long download times.

The selection offered is mainly older titles, but it still offers more films than most competitors.

There have been some complaints from consumers of the video stalling. Twerdahl said this is often due to people watching on "marginal Internet connections." He said that Roku's customer service wants to hear about these issues.

Twerdahl would not reveal sales numbers. He said that the company was not overly conservative in its sales projections. On the contrary, he said, "We were very aggressive. Sales have outstripped our expectations."

He cautioned that customers who wait until the next shipment arrives before ordering may miss out. He said the number of orders are already gobbling up those boxes.

An interesting article from Kotaku today, discusses Ubisoft's intention to get into the film business and try to expand its offerings beyond video games.

"Our goal is to create a studio that will be very high quality, our goal is to try to get to the level of quality of Peter Jackson's Weta studio," Ubisoft's CEO Yves Guillemot said in an interview. "We have been working to train people, to recruit highly talented people and we are in test mode at the moment. We are going to make sure that we get to the level of Weta. We have a long way to go but in getting to that level will help us to actually be one of the studios where everybody has to go."

Peter Jackson, best known for The Lord of the Rings trilogy and as director of King Kong, is currently working in collaboration with Bungie to create a new game set in the Halo universe. The game is currently titled Halo: Chronicles, but no release date has been given.

Guillemot sounds ambitious and I applaud him for trying to do more with his business, I can't help but wonder if video game developers have any place in other forms of entertainment. Can they really create a stellar sitcom or a blockbuster hit at the theaters? Are they capable of publishing sci-fi novels?

With the way things are going in all of those industries, I don't think it's too far-fetched at all.

In the opening scene of The Player, Tim Robbins' character is meeting with writers who are pitching movie ideas they hope the Hollywood producer will agree to make. One idea is pitched to him as, "It's Pretty Woman meets Out of Africa, without stars."

(Credit: Blockbuster)

Applying that Hollywood approach, the latest idea from Blockbuster can best be described as "Netflix meets YouTube, without the convenience." That's basically the pitch Blockbuster Chairman and CEO James Keyes made at his first annual shareholders meeting on Wednesday when he unveiled an in-store kiosk he hopes consumers will use to download movies.

The plan, as outlined by The Hollywood Reporter, is for consumers to bring portable devices into Blockbuster stores and download movies, usually in about two minutes. Blockbuster expects to begin testing the kiosks, which were produced by airline-kiosk maker NCR, in about three weeks. Initially, the system will work only with Archos devices, but Blockbuster expects the kiosk to be an "open system" that is compatible with a range of devices. Keyes declined to predict how many titles will be available on the kiosk, noting that Blockbuster was still in negotiations with the major studios for content.

I wasn't at the meeting, but I have to wonder if reporters giggled at this idea:

Keyes acknowledged that the kiosk pilot is likely coming well ahead of broad consumer demand for such services and should therefore only be seen as one additional distribution channel for the company as it tries to offer entertainment content whenever consumers want in whatever form they want.

"Well ahead of broad consumer demand for such services." Huh?

Talk about an innovative idea. Amazon.com, Microsoft's Xbox Live, and Netflix already deliver movies directly to PCs; TiVo, Vudu, and Apple TV, as well as cable and satellite services offer video on demand to TVs; and electronic copies of movies are being sold alongside DVDs. So what makes Keyes think people want to leave their homes to drive to a store with a laptop-size device to download movies from an ATM?

People don't want to make the trip to the video store. Convenience is why Netflix is kicking Blockbuster's butt. Blockbuster seemed to have a road map for getting back on top with its acquisition of movie download service Movielink in 2007, and its idea for a set-top box for streaming video seemed to show promise (Indeed, my colleague Greg Sandoval reports that Netflix sees video streaming eventually overtaking physical DVD rentals). But this is also the company that has been kicking around the idea of buying electronics retailer Circuit City for $1 billion.

I could see these kiosks appealing to airport travelers, but otherwise this strikes me as an expensive remake of a soda machine.

TiVo is gearing up to dish out Disney movie rentals, as the digital video recorder company expands its lineup of movies from major studios.

Under an agreement with Disney-ABC and CinemaNow, TiVo subscribers can download the movies for 24-hour rental. TiVo expects to offer the Disney rentals later this year to its broadband-connected TiVo Series2 and Series3 subscribers. Price for the service was not disclosed.

The Disney movies will add to TiVo's more than 30,000 titles from Amazon Unbox, Music Choice, and other content providers.

TiVo's efforts come as Blockbuster is reportedly looking at set-top boxes for consumers to stream movies directly to their TV. DirecTV is reportedly cooking something up, as well.