Xbox 360 + Netflix: Another Nail in the Blockbuster Coffin

At the E3 convention in Los Angeles today, Microsoft announced that this fall 10,000 Netflix movie and television titles will be available to stream via the Xbox 360. The movies will be available to anyone who is both an Xbox LIVE Gold member and a Netflix member at no additional cost.

While Blockbuster is busy messing around with illogical ideas like in-store kiosks, its chief competitor made a killer move today. For Netflix this exposes their catalog of streaming movies and TV shows to 12 million potential customers, while Microsoft gets a significant value-add that may help it fend off the PS3 sales surge and make up for their lack of a built-in Blu-ray player.

Netflix CEO Reed Hastings said in May that he expects the DVD business to peak in 5 years. If that’s the case, and movie watching is indeed moving completely online (Americans watched 12 billion videos online in May), then Blockbuster better get moving on their own set top box, and stop screwing around with bad ideas like acquiring Circuit City. Perhaps Carl Icahn should spend less time on Yahoo!/Microsoft and more time on Blockbuster.

Beyond the implications for Blockbuster and other brick and mortar DVD rental stores, this is also a shot across Apple’s bow from Microsoft. Apple, of course, introduced movie rentals to iTunes at Macworld this past January.

This may also spell doom for the recently released Roku Netflix player. Sure it’s $200 cheaper than an Xbox 360, but it also doesn’t play games.