NFLX – Will Netflix Ultra HD Streaming Jumpstart 4K TV?

4K TV has a content delivery problem, and NFLX aims to fix it

4K TV is the latest carrot dangled in front of consumers to convince them to start spending on television hardware again, and new content offerings from Netflix (NFLX) could be just what 4K TV technology needs to get off the ground.

NFLX 4K TVTV critics often say that we’re in the golden age of television, but don’t say that to TV manufacturers. Sure, audiences are eating up edgy programming on specialty channels like HBO, while the NFLX all-you-can-eat streaming video service delivers movies and programming over the Internet to connected devices on the cheap.

But noticeably left out of this party are TV manufacturers, some of whom have endured years of red ink. And that’s where 4K TV comes in.

Convincing consumers to drop big bucks on a 4K TV is tough, though — especially when getting 4K TV content is currently next to impossible. But with NFLX now testing 4K content streaming, could this be the development needed to jumpstart TV sales for companies like Samsung (SSNLF) and Sony (SNE)?

NFLX Jumps on 4K TV Train

Selling TVs was a great business when the transition from the bulky, low definition CRT to the high-definition flatscreen began. Consumers were upgrading en masse and they paid premium prices to do so. However, even as TV manufacturers invested in factories to produce LCD and plasma panels, a price war broke out.

The result was a bloodbath in the industry. Sony’s TV division has lost money for eight straight years and Panasonic (PCRFY) is now exiting the plasma TV business altogether. An attempt to convince consumers to pay premium prices for 3D TVs failed to catch on, but the 4K TV (also known as Ultra HDTV) has shown some promise.

Massive 4K TV sets provided much of the eye candy at this year’s Consumer Electronics Show. The buzz over the dramatic picture offered by the new televisions gave hope that Ultra HD would be the technical breakthrough that kickstarts the next wave of TV upgrades and persuades consumers to pay premium prices.

The big problem: how to get Ultra HD content to a 4K TV. Owners of current 1080p HDTVs already know that finding high-quality content can be difficult. Because 1080p video is so data intensive, most HDTV broadcasts max out at 720p. With 4K TV resolution four times that of 1080p, content delivery is problematic. Cable providers won’t touch it and even Blu-ray discs lack the capacity. Sony was reduced to including a few movies on a portable hard drive with the purchase of a new 4K TV, but that’s no solution.

Word that Netflix is testing 4K TV streaming offers a ray of hope to 4K TV manufacturers. The content delivered by NFLX is going to be compressed — there’s no way around the bottleneck of bandwidth caps — but at least it will be labelled as Ultra HD streaming when it arrives in 2014.

That should be sufficient to convince consumers that buying a 4K TV isn’t going to leave them stranded. There’s a shortage of content actually shot in such high resolution, but time (and in the meantime, upscaling) will take care of that.

Assuming NFLX can solve the Ultra HD content delivery problem, there’s yet another problem for companies looking to salvage their TV business. Chinese manufacturers are pumping out cheap Ultra HDTVs for the American market.

If consumers decide their quality is “good enough,” these sub-$1,000 sets may help to actually drive 4K TV mainstream … but will leave struggling TV manufacturers facing another disastrous race to the bottom pricing scenario.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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