January 13, 2010
Nintendo Wii to Add Netflix Service for Streaming Video
By BRAD STONE

SAN FRANCISCO — Owners of the Nintendo Wii can finally stop waving their video game controllers in the air and sink back onto the couch.

Nintendo is bringing Netflix’s online streaming video service to its Wii gaming console, the most popular in the industry, the companies plan to announce Wednesday. The service lets subscribers choose from a catalog of generally older movies and television shows and watch them instantly.

The deal is further evidence of a movement by makers of game consoles to broaden their appeal by positioning them as a bridge between the living room television and a wider world of online multimedia.

So far those efforts have not been enough to calm anxieties about the overall direction of the $16.8 billion video game business. The industry is threatened by a dearth of popular new franchises, which tend to attract gamers to an endless number of sequels, as well as the sudden rise of cheap games for smartphones and free casual games on social networks.

“You just have to wonder if people are going to buy prepackaged $60 video games in the future,” said Mark Mahaney, managing director for Internet research at Citigroup. “If you are a console maker, you better quickly hurry to add more functionality and features to your console.”

Nintendo’s rivals are generally further along in that effort. The Sony PlayStation 3 has a Blu-ray disc player and can use Sony’s own online movie store. Microsoft has outfitted the Xbox 360 with its Zune high-definition movie store and allows users to chat online while they watch films together. Both of those consoles already offer the Netflix service.

The Wii has had only minimal video material, but it will take a big step forward in this regard with Netflix, when the Wii adds the service this spring. Wii owners with a broadband Internet connection who have at least a $9-a-month subscription to Netflix’s DVD-by-mail service will be able to use the online service at no additional cost.

But Wii owners will need to receive a free software disc in the mail from Netflix and put it into their console when they want to watch a movie, as on the PS3.

The Wii, unlike the PS3 and Xbox, is not powerful enough to display high-definition streaming video. Some analysts and industry observers expect Nintendo to announce a new Wii HD version of its console next year.

Though it is now more than three years old, the original Wii continues to charm casual gamers with its unique style of game play, which involves physical gestures. Nintendo said it sold three million units in the United States alone over the holidays, outselling both of its rivals, and has sold a total of 26 million in this country.

However, both Sony and Microsoft are expected to add gesture-style game play to their devices over the next year. And the PS3, at least, appears to be slowly gaining ground on the Wii. Sony introduced a slimmed-down version of the PS3 last year and said it sold 3.8 million units worldwide in December, a 76 percent increase over the year before.

By adding Netflix to its service, Nintendo may be making a bid for customers who are considering switching. “Nintendo is saying, look, we are doing all the same stuff. You want to remain connected to us,” said Pelham Smithers, an independent video game analyst.

Reggie Fils-Aime, president of Nintendo of America, said the Wii had always been primarily about bringing video games to the mass market, including people who normally would not play a violent shoot-’em-up or pick up a traditional video game controller.

But, Mr. Fils-Aime said, “from Day 1, we always had other capabilities within the console.” The deal with Netflix, he said, “is a continuation of an effort to bring more and more entertainment to consumers who interact with the Wii.”

The deal gives Netflix a prominent hat trick in the video game console market and underscores its recent emphasis on its digital streaming business. The company, based in Los Gatos, Calif., now has more than 11 million subscribers to its traditional DVD-by-mail business. But more of those people are also watching movies and shows online: more than 50 percent, up from 20 percent a year and a half ago when Netflix first started adding its streaming service to devices like the Xbox.

“Our growth in the last two years has been propelled in large part by our investments in streaming content and in the streaming platform,” said Reed Hastings, Netflix’s chief executive. “When the Wii application ships, it’s going to really open up a large additional opportunity.”

One part of that opportunity is to expand the somewhat dusty catalog of films available online. Hollywood studios make mostly older movies available for streaming on Netflix: the 1976 version of “Carrie,” for instance, but not the 2002 remake.

Mr. Hastings says the size of the streaming catalog correlates to the size of the checks it can write to Hollywood studios. So as Netflix adds customers — and cuts costs — it can gradually expand the catalog. Analysts say they believe it costs Netflix about 5 cents to stream a movie online, versus 60 cents to mail a disc to and from a customer.

Netflix also hopes that the accessibility of its online service on devices like the Wii will encourage subscribers to stick around, helping it cut down on marketing expenses. Terms of the Nintendo deal were not disclosed.

As its digital service expands, Netflix subscribers who want to ditch, say, an expensive $25-a-month plan, which allows them to keep four DVDs at a time, may be more easily persuaded to cut back to a cheaper plan instead of canceling outright.

“Netflix is hoping more people will sample the streaming service and like it, and that it will ultimately limit churn,” said John Blackledge, a senior analyst at Credit Suisse.

Analysts have been expecting a deal between Netflix and Nintendo for some time. Mr. Hastings said the Wii’s unusual interface, as well as the specifications of its hardware, created technical challenges to getting the service to work properly.

“The other platforms have a pretty consistent and well-known paradigm, but the Wii is unique,” he said. “All of those things have taken a long time of experimentation and refinement.”

I'll let you know... we just got a Wii for Xmus and it's been fun so far... (it's a family thing...)