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Thanks to cutting new rentals, Netflix has been able to offer new titles like The Matrix trilogy for the first time in streamed form.  (Source: Warner Brothers)
Lack of new rentals won't hurt customers CEO says, and they will get streamed content to boot

Netflix is the biggest player in the by-mail rental business, though it faces tight competition from Blockbuster.  Earlier this month Netflix announced a controversial decision, which took many by surprise -- it cut a major chunk of its new releases.  In return for essentially ending new rentals from Warner Bros, Warner reportedly agreed to cut the company's inventory fees in half.  Netflix has since implemented the agreement by introducing a 28-day waiting period on new releases from Warner.  Warner argued that the move would cut piracy and increase DVD sales.

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 all customers."

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 collection.

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 universe."

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.

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RE: I'll take it ...
By kattanna on 1/20/2010 11:01:30 AM , Rating: 3
New releases are always on "long wait" anyway, so I've probably been getting them on Day 29 before this deal went through

exactly. im usually in the middle of some TV series via netflix or some other movies anyways.

currently i have 86 items in normal queue, 10 on instant, with 15 items in the waiting.

so if movie remake part 10,000 comes out today, and i have any interest, i will add it to my queue, and it will come when i get to it.

there is maybe a handful of movies a year that i have any REAL interest in, and will see some of those in the theater.

heck when in the theater and watching the previews, we rate the movies either.. hmm interesting.. or netflixable, with most falling to the later one.

RE: I'll take it ...
By Blight AC on 1/20/2010 11:56:11 AM , Rating: 1
See, I'm pretty much the opposite. Half my current list is red, wait, movies. I don't go to the theaters at all anymore, as I refuse to pay to pay to watch a movie once in a theater when I can just pay the same price to buy it on Blu-Ray (2 adults, 1 child).

I also have about the same amount of movies in my Save queue as my normal queue. So basically, around 1/4 of my disc queue is actually available for shipping now.

If it's true though, and Netflix gets twice the amount of new rentals now, then I'd likely end up Receiving the movie about the same time anyhow... and that would be acceptable. If I have to wait even longer though, then I'd like Netflix to give me a free month since that's pretty much what they are taking away from me.

RE: I'll take it ...
By Cypherdude1 on 1/23/2010 5:02:40 PM , Rating: 2
New releases are always on "long wait" anyway, so I've probably been getting them on Day 29 before this deal went through.
No, I was a Netflix customer for over 1.5 years and I was always able to receive new releases on the day they were first offered. Their customer service rep told me I just had to time my returned DVD's. I never had any problems receiving new releases on the first day.

Among the new streamed offerings from Warner are Caddyshack,...
Sure, I am going to forgo new releases so I can see Caddyshack. Sounds like a deal... not.

I do not have a high speed connection so I cannot see streamed content. I prefer DVD's anyway because of the better quality. I'll miss Netflix but I'll probably switch back to BlockBuster. As soon as other Netflix customers realize they aren't getting new releases immediately anymore, they'll leave in droves. I predict Netflix will drop this idea soon after.

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