With similar deals
with Fox, Universal, and others near completion and the wholesale
discontinuation of new releases from Netflix nigh, Netflix CEO Ted
Sarandos has gone
on the record with blog Hacking Netflix to defend the
move. He states, "The most practical reason is that the
savings derived from this deal enable us to be in stock completely on
day 29. Remember that we’re a subscription service and the way that
you manage the economics of a subscription service is to manage the
demand of any disc, depending on the economics of the disc... The net
savings derived from technically creating a better customer
experience have been redeployed in additional streaming content for
In short, Netflix is taking a gamble,
cutting new releases in exchange for expanded streamed offerings.
Among the new streamed offerings from Warner are Caddyshack, The
Matrix 1, 2 & 3, the entire Dirty Harry film
Mr. Sandros, when prompted if the new rental cuts
will cause customers to defect, replies, "I’m always worried
about customer defections. We think we’ve created a net-positive
customer experience. It’s a little complicated, but we think it’s
net-positive for subscribers. If you joined Netflix specifically to
rent new releases in the first week of release, you’re probably
pretty frustrated because we’re generally not in stock on the first
week of street date for everybody, we’re about managing the demand
on the disc over the life of the disc. We never really positioned new
releases on street date as core to our consumer proposition, much
more about all you can eat and low, low prices, in a 100,000 title
While Netflix may be killing new rentals,
Blockbuster will likely to continue to offer them, as will Redbox.
While Blockbuster reportedly pays studios a lucrative sum to maintain
this relationship, Redbox has practiced a novel approach of buying
up new releases from traditional retail channels, after talks
with studios fell through.
As the CEO of Netflix points out,
Blockbuster, Redbox, and Netflix each offer unique advantages and
disadvantages. It should be interesting, though, to see if
Netflix users can suffer not being able to get the latest and
greatest, in exchange for more streamed content.
quote: Movies are losing money for a variety of reasons...