Netflix has inked an agreement with Starz Entertainment under which Netflix subscribers will gain unlimited access to 2,500 additional movies and other choices from the Starz Play broadband subscription-movie service.

This latest deal follows on the heels of two recent Netflix agreements with the CBS Television Network and Disney-ABC Television Group, which add current-season episodes of popular CBS and ABC TV shows to the company's growing portfolio of online video content.

Distribution agreements like the Starz deal reflect "the creative ways we are working with content partners to expand the profile and the number of choices our subscribers can watch instantly over the Internet, in addition to the 100,000 titles we offer on DVD through the mail," according to Ted Sarandos, chief content officer at Netflix.

Still in Its Infancy

Gartner projects that worldwide subscriptions to the Internet Protocol television (IPTV) services offered by Netflix and its many competitors will rise by 64.1 percent year-over-year to reach 19.6 million customers in 2008. On the downside, however, Netflix and its rivals will face an increasingly competitive video-streaming landscape going forward.

"The biggest change since 2007 is the rapid advent of new entrants making inroads in consumer video consumption and placing greater demands on IPTV operators to innovate," said Elroy Jopling, Gartner research director. "The video consumption field will become increasingly crowded."

Moreover, despite all the hoopla, the market is still in its infancy. According to Gartner, only 1.1 percent of households worldwide will be IPTV subscribers by the end of this year, and worldwide household penetration is expected to grow to only 2.8 percent by the end of 2012.

Yankee Group analyst Josh Martin agrees that the online video market is still taking shape. "But Netflix has a lot at stake because it already has millions of subscribers renting DVDs through the mail," he explained. "By going online, they can save money on shipping and offset the advantages of competitors."

Netflix is well positioned to compete because the company's business is centered on movies, Martin added. "Amazon has done some interesting things," he said, "but no one else can rival" Netflix's unlimited streaming plans, which begin at $16.99 per month. "If anyone can make this work, it is Netflix."

Long-Term Strategy

Netflix has already made several hardware moves this year that neatly position the company to compete with rivals such as Apple and Amazon's new video-on-demand service. For example, Netflix launched a $99 set-top box by Roku last May that connects the company's online service to regular TV sets.

Netflix subscribers who also have an Xbox Live membership will be able to download and view movies over Microsoft's Xbox Live service within the next two weeks, said Steve Swasey, a Netflix vice president. Even better, the company recently teamed up with LG Electronics to make streaming movies available through LG's next-generation Blu-ray disc player.

Right now, it still takes a combination of things to gain access to movies over the Web, given that the subscriber must have a broadband connection and a set-top box, TiVo, or Xbox, Martin noted. But the company's long-term strategy is to be on any device that gets the Internet to the TV -- including the TV itself.

"We want to be on the chips that are built into the TVs that access the Internet directly," Swasey explained.