Image: Netflix service
Paul Sakuma  /  AP
Mei Michelson prepares to watch a movie from Netflix at her home in Palo Alto, Calif. Netflix says its DVD-by-mail service will still represent the bulk of its business, but the company is also going to an unlimited streaming plan for videos that can be watched on a computer.
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updated 1/13/2008 3:23:41 PM ET 2008-01-13T20:23:41

Girding for a potential threat from Apple, online DVD rental service Netflix is lifting its limits on how long most subscribers can watch movies and television shows over high-speed Internet connections.

The Associated Press has learned the change will become effective Monday, on the eve of Apple's widely anticipated move into the movie rental industry. Although Apple hasn't confirmed anything yet, Chief Executive Steve Jobs is expected to make it official during a presentation Tuesday in San Francisco.

Netflix is gearing up for the increased competition by expanding a year-old feature that streams movies over the Internet instead of making customers wait for their online rental requests to be delivered through the mail.

Until now, Netflix restricted how long its more than 7 million subscribers could use the streaming service each month, based on how much they pay to rent DVDs.

For instance, under a popular plan that charges $16.99 per month to rent up to three DVDs at a time, Netflix customers could watch as many as 17 hours of entertainment each month on the streaming service, dubbed "Watch Instantly."

With Monday's change, virtually all Netflix subscribers will be able to stream as many movies and TV shows as they want from a library containing more than 6,000 titles. There will be no additional charge for the unlimited access.

Only the small portion of Netflix customers who pay $4.99 to rent up to two DVDs per month won't be provided unlimited access to the streaming service.

The unlimited streaming option figures to become more enticing later this year when LG Electronics Inc. will begin selling a set-top box that will deliver the content to TVs.

One-upping Apple ... at a cost
Removing the time constraints on its streamed entertainment could give Netflix an advantage over Apple's movie rental service. Apple will charge $3.99 for movies that can be downloaded and played for up to 24 hours, according to media reports citing people familiar with the company's rental plans.

Letting subscribers stream as much as they want could erode Netflix's profits because the Los Gatos-based company isn't raising its monthly rates even though its expenses may rise if increased usage drives up the licensing fees owed to studios.

Providing unlimited streaming access "fits within the parameters of our overall financial goals," Netflix spokesman Steve Swasey said. The impact of the change will likely be addressed when Netflix discusses its fourth-quarter earnings in a call scheduled for Jan. 23. The company had earned $51 million on revenue of $903 million through the first nine months of 2007.

DVD-by-mail still dominates
With more than 90,000 titles available in its DVD library, delivering movies through the mail is expected to remain Netflix's primary moneymaker for years to come.

Nevertheless, Netflix has spent about $40 million on the development of its streaming service during the past year.

The service still doesn't appeal to many Netflix subscribers because it requires watching the entertainment on a personal computer with a high-speed Internet connection.

Netflix hasn't specified how much content has been streamed since last summer, when management disclosed that more than 10 million movies and TV episodes had been watched through the service. The company says its streaming service has gained the most traction among younger subscribers more accustomed to watching movies on laptops.

Apple's rental service is expected to offer its customers more flexibility, allowing movies to be viewed on the Cupertino-based company's ubiquitous iPod and iPhone, as well as on computers.

Still, most people seem to prefer watching movies on their big-screen TVs — an issue both Apple and Netflix are trying to address.

Apple last year began selling a $299 device designed to transport video from computers to TVs. LG Electronics hasn't disclosed the price of its Netflix box, which is expected to debut in late summer or early fall.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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