It’s taken years to develop, but Netflix has finally launched their video on demand service. I’ve been waiting for this service ever since Netflix first hinted that they would offer a VOD service through a partnership with TiVo. When it turned out that Hollywood wouldn’t license films to Netflix as part of a TiVoFlix program, the partnership evaporated and Netflix was forced to put their VOD plans on pause. Now after years of working on a VOD solution, Netflix is finally ready to take their VOD service prime time.

The program is being offered as an added bonus to Netflix subscribers, instead of making it a pay per view alternative to their current program. For every dollar that you spend each month on your Netflix service, you will be credited with an hour worth of VOD content. Since I’m on the $17.99 plan, this means that I should be able to watch about 18 hours of VOD content each month, on top of the 12 movies that I rent through the mail each month.

The launching of Netflix’s VOD service is an excellent bonus to a service that I already love. There are definetely times when I’m surfing the net and want to be able to watch a quick TV show or movie, but the content simply isn’t available unless you are willing to steal it. Instead of pricing the service at a $7 – $15 download fee, Netflix has instead added this as a free service for their members. By pricing the service as part of a rental package instead of download to own, it will make it easier to convince customers to try the service and will eliminate messy restrictions like being forced to watch a movie within 24 hours of clicking on it.

Not everything about the new service is fantastic though. Netflix’s use of streaming technology will help to eliminate the long download times that plauged Amazon’s Unbox launch, but it also means that consumers will have to watch their films directly from their computer screens. This is OK for TV shows, but pretty terrible if you plan to sit through a 2 hour film. It also means that you can’t just download a film to a laptop and watch it later on a plane. Without continuous internet connectivity, you won’t be able to watch your film.

If you happen to have a media center hooked up to your TV, then this may end up being the most attractive VOD option on the market, but for the rest of the world, it will be all but impossible to watch these films on your home theater system. At the very least, it would have been nice to see Netflix support a .wmv download so you could stream the films onto your Xbox 360 or for them to allow you to burn the films to a DVD, so that you could watch the films in your home.

Netflix’s new VOD service also suffers from the same content restrictions that have prevented all of the digital downloading solutions from taking off. It’s clear that there are plenty of companies who’d like to provide digitial downloads, but Hollywood isn’t anywhere close to opening up their archives for downloads. While Netflix is launching the VOD service with 1,000 movies and TV shows for consumers to select from, this is still a pretty weak selection compared to the 70,000 DVDs that they offer through the mail. It’s hard to fault Netflix for Hollywood’s unwillingness to offer digital content to consumers, considering that San Francisco based Greencine has been offering over 10,000 films on demand for several years now, it makes you wonder why Netflix didn’t release this feature earlier, if they were just waiting for 1,000 films to become available. Considering that Netflix delayed this project until the studios felt more comfortable, I would have liked to have seen more then just 1,000 films made available, even if most of these films were independent films.

I also think that choosing to rollout the service over a six month period may also be a mistake by the company. On one hand, I can understand why Netflix wants to roll out the service instead of creating a massive traffic jam by making it available to everyone at once, but on the other hand, as a consumer who would definetely make use of this feature, it’s a little frustrating to know that I may have to wait until the end of June to access this functionality, especially when I know that other Netflix users will be able to use VOD right away. Because Netflix doesn’t provide a way for me to put myself on a priority list for downloading or any assurances that if a new customer signs up for the program, that they’ll immedietely have access to this service, it will limit it’s use as a marketing tool for the near future. By taking 6 months to rollout the service, Netflix could split their customers into a group of have and have nots when it comes to downloading. If you happen to be in an early group, this isn’t all that much of a concern, but if you really want VOD capabilities, but are forced to wait until June to get access to it, I can’t help but feel that this could create some disatisfaction amoung members, especially those who already feel like they’ve been waiting years to see this service launched.

The final question mark that I see for Netflix’s new VOD service will be the quality of the streaming movie. In their press release, Netflix doesn’t indicate what resolutions will be supported, but given that these films aren’t designed to be displayed on the big screen TV, it wouldn’t surprise me if the streaming is being done at a lower encoding rate, then the quality we get from the DVDs by mail. While initially, Netflix may be able to offer a lower resolution files without customers being able to tell the difference, once consumers figure out how to get these films off their computers and onto the TV, this will become a bigger issue for how popular the VOD feature will turn out to be.

While the new service is undeniably cool, after waiting so long for movie downloads, I can’t help but feel a little disappointed that Netflix didn’t offer something a bit more progressive. I love that they priced the service as part of a rental instead of making customer buy digital copies of films, but I still wish that the service offered more choices and was immedietely available to all subscribers. With Blockbuster’s total access program beginning to gain traction in the market, digital downloading can be a great way for Netflix to differentiate their program, but until it’s available to all subscribers and until we see more then just 1,000 movies available, and until we see an easy way to get these films to the TV, it will certainly limit it’s appeal.