California-based online DVD rental service Netflix and digital video recorder maker TiVo have announced plans to launch internet-video-on-demand next year.

Netflix, which currently has 2.1 million subscribers, will provide the movie content via a distribution deal with the major studios, while TiVo, whose technology now allows viewers to easily record TV shows onto hard disks, skip commercials and pause live broadcasts, will feed the movies from the web to its set-top boxes.

Says Reed Hastings, ceo at Netflix: "This is the first step in a five or ten year process. We expect it to be of modest consumer interest. ... We expect the DVD to be more dominant in five years than it is today."

TiVo ceo Mike Ramsay, who resigned from the Netflix board, says there are no plans for acquisition or merger between the two companies.

Says Dennis McAlpine of analysts McAlpine Associates: "Given the relatively low penetration of TiVo among cable customers, I doubt that it will be of major significance to the company. For Netflix, it allows them to test the market without spending a lot of money.

"It will allow both of them to learn how easy it will be to work with the studios and what films will be available."

Data sourced from USA Today; additional content by WARC staff