All that poses a potential threat to the traditional way consumers watch movies and TV: cable, phone and satellite systems.
Netflix had 16.9 million subscribers at the end of September, up 52 percent from a year earlier.

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Is this a big deal? Sharon Waxman, who broke the news tonight, thinks so, arguing that it positions Netflix as a bona-fide competitor with the likes of Time Warner’s HBO (TWX) for online movie rights. Waxman’s rival Nikki Finke pooh-poohs the pact.

Feels weird to type this, but I’m with Finke on this one. But not for the reason she states–that Relativity makes lots of stinkers. Unless I’m missing something, the bigger problem is that Relativity doesn’t have the licensing and distribution rights to many of the biggest movies it puts out. Those go to Sony, Warner Bros, Universal, etc.

Still, Waxman is on to something here–Netflix does want to gather streaming rights to as many movies as it can, as it transitions from a DVD rental service to one that rents out bits.

That doesn’t mean it’s likely to challenge HBO et al. for the biggest and most expensive catalogs out there. And Netflix is still going to have make subscriber-unfriendly deals like the one it made with Warner Bros. if it wants access to their stuff. But it will be able to pick up a few titles here and there. And over time, those can add up.

Is this a big deal? Sharon Waxman, who broke the news tonight, thinks so, arguing that it positions Netflix as a bona-fide competitor with the likes of Time Warner’s HBO (TWX) for online movie rights. Waxman’s rival Nikki Finke pooh-poohs the pact.

Feels weird to type this, but I’m with Finke on this one. But not for the reason she states–that Relativity makes lots of stinkers. Unless I’m missing something, the bigger problem is that Relativity doesn’t have the licensing and distribution rights to many of the biggest movies it puts out. Those go to Sony, Warner Bros, Universal, etc.

Still, Waxman is on to something here–Netflix does want to gather streaming rights to as many movies as it can, as it transitions from a DVD rental service to one that rents out bits.

That doesn’t mean it’s likely to challenge HBO et al. for the biggest and most expensive catalogs out there. And Netflix is still going to have make subscriber-unfriendly deals like the one it made with Warner Bros. if it wants access to their stuff. But it will be able to pick up a few titles here and there. And over time, those can add up.

Olson sees several trends working in the company’s favor:

• DVD rental kiosk market is gaining share from traditional retailers like Blockbuster.
• Internet delivery likely still 3-5 years from going mainstream.
• Consumers shifting to DVD rentals from purchases due to low fees from Redbox – $1-a-day.

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Redbox, the Coinstar (CSTR) unit which operates more than 15,000 DVD rental kiosks around the country, today announced that it has filed suit against 20th Century Fox over new proposed distribution terms which would prevent Redbox from renting the studio’s DVDs to consumers until at least 30 days after they are released to the public.

As I noted in my May 18 column in Barron’s, Redbox has a similar suit pending against Universal Studios. The issue: Redbox rents movies for $1 a day. The price is so low that the studios fear that consumer will be incented to stop buying DVDs, thus wrecking a lucrative component of studio revenues.

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This week at CES, Netflix announced Korea’s LG Electronics will let viewers tune into the Netflix service through an upcoming line of HDTVs. A Netflix deal also announced this week with another television maker, Vizio, could be even more interesting because some of those sets will be able to get onto the Internet wirelessly, a technology that will make it much easier to get online than sets with only wired Internet connections.

“I think it will double or triple the percentage of people who have those devices and hook them up to the Internet,” Hastings said, over a cup of gelato at a café in the Venetian hotel.

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Interestingly, the company believes that there’s still quite a bit of life left in its DVD-by-mail model. “We believe that DVD-by-mail will continue to grow for five to ten years, despite overall DVD rental flatness, as e-commerce continues to grow generally and as video store economics force more store closures,” Netflix CEO Reed Hastings said in a conference call. “As we expand more into streaming, we are improving our core consumer proposition of unlimited enjoyment for a low monthly fee by combining unlimited DVDs by mail with unlimited streaming.”

And what of the pay-per-view market? Hastings says the company isn’t focusing on it. “We don’t plan to enter the pay-per-view segment where Apple, Amazon, Sony, and others focus, or the ad-support segment, where Hulu, YouTube, and others compete,” he explained. “Both of those segments will likely be substantial but our subscription segment will also be large and will provide Netflix plenty of room for growth over the coming year.”

Indeed. Certainly, the company’s new Roku box, which lets customers stream any of Netflix’s 10,000+ “Watch Now” movies to their TVs has proven that already. “Our results to date with this approach have been excellent, starting with the launch of the Roku box in May,” Hastings said. “This $99 box allows Netflix subscribers to instantly stream movies and TV episodes to their TV. It’s been a huge hit with strong reviews, strong sales, and great subscriber satisfaction. Roku purchasers are streaming video to their TVs and getting great value for the unlimited streaming portion of their Netflix membership. In the future, Roku boxes will support other Internet video content and migrate from being a Netflix only player to a general Internet video play, which will increase Roku’s sales and therefore the number of TVs we can stream to.”

Interestingly, the company believes that there’s still quite a bit of life left in its DVD-by-mail model. “We believe that DVD-by-mail will continue to grow for five to ten years, despite overall DVD rental flatness, as e-commerce continues to grow generally and as video store economics force more store closures,” Netflix CEO Reed Hastings said in a conference call. “As we expand more into streaming, we are improving our core consumer proposition of unlimited enjoyment for a low monthly fee by combining unlimited DVDs by mail with unlimited streaming.”

And what of the pay-per-view market? Hastings says the company isn’t focusing on it. “We don’t plan to enter the pay-per-view segment where Apple, Amazon, Sony, and others focus, or the ad-support segment, where Hulu, YouTube, and others compete,” he explained. “Both of those segments will likely be substantial but our subscription segment will also be large and will provide Netflix plenty of room for growth over the coming year.”

Indeed. Certainly, the company’s new Roku box, which lets customers stream any of Netflix’s 10,000+ “Watch Now” movies to their TVs has proven that already. “Our results to date with this approach have been excellent, starting with the launch of the Roku box in May,” Hastings said. “This $99 box allows Netflix subscribers to instantly stream movies and TV episodes to their TV. It’s been a huge hit with strong reviews, strong sales, and great subscriber satisfaction. Roku purchasers are streaming video to their TVs and getting great value for the unlimited streaming portion of their Netflix membership. In the future, Roku boxes will support other Internet video content and migrate from being a Netflix only player to a general Internet video play, which will increase Roku’s sales and therefore the number of TVs we can stream to.”