Despite that resounding success, all is not
rosy for Netflix. Netflix has been under fire from movie
industry, which claims its unlimited deliveries of new rentals is
piracy of films.
Under pressure, Netflix just announced
that it has incredibly consented to enter a deal with Warner Bros.
that will essentially begin
to kill its new release program under the premise of fighting
piracy. Under the agreement, Netflix agrees to not offer new
releases until 28 days after the DVD/Blu-Ray release goes on sale in
Netflix COO Ted Sarandos appears to have
wholeheartedly embraced the idea, which he originally suggested to
studios in 2007. Netflix likely gets a major kick back from the
deal, though; if the terms of Mr. Sarandos's original pitch hold
true, Warner Bros. will cut its inventory costs with Netflix (the
amount it charges the company for its movie stockpile) by 50 percent.
Describes Mr. Sarandos enthusiastically, "Creating a
rental window is not a punitive action. It’s a decision that the
retailers and studios can make together. If the studios can entice a
rentailer to create a rental window, I believe that rentailers,
studios and consumers can all benefit from it."
attitude and the mutually positive reaction from Warner Bros., it
seems likely that other movie studios will follow in suit, signing
agreements to cut inventory cost in exchange for no more new
rentals. Netflix is reportedly in advanced talks with Fox and
Universal as well. Other unnamed studios are also discussing
similar plans with the rentailer.
For both Netflix and the
movie studios the plan is a risky gamble. Without new rentals,
Netflix risks being undercut by Blockbuster. While the
inventory cost cuts ultimately result in a greater monetary gain on
paper (as 70 percent of Netflix rentals are from older catalog
titles, with approximately 30 percent coming from new releases),
whether customers will stomach the change is questionable.
for movie studios, if customers do accept the deal, but it
does not significantly affect buying rates/piracy, the studios stand
to lose a great deal of money offering movies to Netflix at greatly
reduced rates. In all likelihood, the biggest loser, though,
will be Netflix customers who may soon lose access to the hottest new
rentals, which Blockbuster will continue to provide.