Netflix Moves Up in Class

Besner reportedly said that the service would keep the front-end interface, where movies automatically download according to what's in a customer's queue, and that subscription fees would not be comparable to DVD rentals.

It took only a few hours for Netflix to clumsily backpedal. The blog Hacking Netflix quoted a Netflix spokesperson who said Besner's comments were taken out of context. And Netflix issued an SEC filing offering some new context regarding set-top boxes: The company "is evaluating a broad range of options," -- of which the set-top box is just one -- "and no decisions have been made regarding specific delivery options or timing."

That filing may have been an attempt to obscure Netflix's true plans. But, reading between the lines, it's actually revealing of what is really going on. The movie studios know that downloading movies is as inevitable as downloading music. But apparently there's no consensus on how to profit from it.

Most likely, the studios want to make it as expensive as the market will bear, whereas providers like Apple and Netflix are trying to keep the costs low to win customers over quickly. And most likely, Netflix wants to introduce its set-top boxes in time to beat out Apple, but doesn't want to slow things down by angering the studios unnecessarily.

So, as Apple and Netflix race to become the leading provider of downloaded movies, the first round will go to the company that does the best job of winning over the studios. Clearly, Apple is taking a more aggressive approach, and Netflix is struggling to be as diplomatic as possible.

Who will win this round? I'd put my money on Apple, for now. Studios aren't likely to budge unless they're pushed. Apple's near-term future rests on a strong holiday season. And if a holiday sales means selling movies through iTunes, count on Jobs to stop at nothing to make it happen.