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Obviously trying to deflate a possible Apple announcement about movie rentals, Netflix has announced a service for unlimited movie downloads that lets its customers stream as many shows as they can watch to their PCs. Netflix has been testing this ‘unlimited’ offering for a few months with its new subscribers — and it’s not exactly surprising that Netflix would have to offer an all-you-can-eat plan at some point, given its existing DVD-based service plans. But Netflix is still playing with the term ‘unlimited’ in that the downloaded movies are streaming, so presumably, unlimited actually means something more like “up to 744 hours of video” in a month with 31 days (if you don’t stop to sleep or eat).

More interestingly, though, is that this announcement places Netflix firmly in the movie downloads business. Mailing DVDs will clearly remain part of Netflix for quite some time due to the lack of broadband penetration for many US customers, but the increasing costs of shipping physical media will likely doom that business. So now the questions of how to handle the distribution of digital data will really become a mainstream issue — and a serious business test for Netflix. Will the delivery of streaming movies be hampered by the likes of Comcast and ISPs who compete with their own movie downloading services? Does the iTunes pay-per-title model make more sense than a subscription plan? Netflix faces a number of large competitors, as well as pirating consumers. On the upside, however, there is also potential to expand internationally if Netflix doesn’t rely on the USPS.

Netflix is trying a few different tactics to support downloading, but its real threats may be the copyright holders who could giveth and taketh away the shows and movies. With around 6,000 titles available for streaming from Netflix, that’s only around a year of straight watching if you actually wanted to watch everything — and didn’t need to sleep.

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