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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 michal1980 on 1/20/2010 11:16:19 AM , Rating: 1
but now your new release will be long wait PLUS 28 days.

Netflix should just come out and be honest about what they want and do not want.

Netflix "We do not want disk renters"
Netflix "We do want steamers"

BTW, Caddyshack streaming? WOW amazing title that netflix will now offer.

I already cut my service from 3out to 1out so I can get unlimited streaming. Thats obivously what they want. So they can now live with 50% less of my money. might go to 100% soon.

RE: I'll take it ...
By slashbinslashbash on 1/20/2010 12:38:56 PM , Rating: 2
but now your new release will be long wait PLUS 28 days.

Well, he said that they'd be fully stocked on Day 29 instead of the current situation. I guess since they're getting a better deal from Warner, they will be able to buy more DVD's.

Overall, I agree with the CEO. As a subscriber this sounds to me like a net win. More movies (and more mainstream movies) available for streaming is what I want.

RE: I'll take it ...
By michal1980 on 1/20/2010 2:54:55 PM , Rating: 2
what does "fully stocked" mean?

After all, if netflix gets 10 copies of a movie. Getting them day 1, or day 28, means they are 'fully stocked'.

Claiming you are going to be 'fully stocked' is PR double talk, sounds good, but if you stop and think about it, you haven't said anything.

RE: I'll take it ...
By Oregonian2 on 1/20/2010 3:21:06 PM , Rating: 2
Good question. One can only assume what it means (like getting 12 instead of 10 seeing as how it costs them less).

At very least, the reason the studios like it would increase the likelihood of "fully stocked". Studio wants folk to buy DVDs instead. Assuming some do rather than waiting for Netflix will reduce the demand when Netflix gets them -- and therefore is closer to being "fully stocked" (which is "vs demand"). Likewise, if folk go to alternatives like Blockbusters (although their stores locally have been dropping like flies) that also will contribute to Netflix being "fully stocked". :-)

RE: I'll take it ...
By Screwballl on 1/20/2010 5:54:55 PM , Rating: 2
Under the proposed system (wait a month), they can gauge desire for the movie based on the number of people on the Save and Wait lists +10%. So if they have 100 people on save and wait, they will probably get around 25 discs so within 2-3 weeks all 100 + 10% have been served and the late renters that wait a month or two anyways get it closer to on time. Of course half my list is always on Short wait, long wait or very long wait so someone is not gauging their "needed stock" numbers properly, or people are ruining too many discs for these movies.

We started a 1 at a time, then jumped to 3 at a time but I think soon we will be dropping back down to 2 or 1 at a time and watch more streaming, which I have setup on my laptop via VGA-out to my 720p 32" LCD TV, which also shares the same native resolution as my widescreen laptop (1366x768).

RE: I'll take it ...
By Lifted on 1/20/2010 1:42:43 PM , Rating: 2
Seriously? I haven't found more than 3 or 4 movies available via streaming at any one time that interest me. The streaming movies are mostly newish crap or old movies I've seen several times already.

RE: I'll take it ...
By Mitch101 on 1/20/2010 3:40:13 PM , Rating: 2
What's great is you can kick off a movie and if in 10 mins its lousy your off to the next one without having to return a disc and wait for the next one to arrive.

Also found a lot of great documentaries I would never have bothered to put in my queue.

Great for kids stuff too. If the kids want to watch something or get into a new show there is no waiting. Someone visits with their kids and they love bob the builder I dont have to TIVO a few episodes I can select it for streaming and there you go shut up kid.

RE: I'll take it ...
By Hiawa23 on 1/20/2010 2:33:15 PM , Rating: 2
I already cut my service from 3out to 1out so I can get unlimited streaming. Thats obivously what they want. So they can now live with 50% less of my money. might go to 100% soon.

I am thinking about doing the same. I hope their inventory reduction costs will offset many reducing their rental numbers. Many claim they usually never got the new releases. Well, that was not the case for me, as most of the new releases I usually got on day 1 or close after.

Netflix needs to just be honest about what they are trying to do. At worst they need to make the movies available for streamin if this is the road they want to take. Like many of you say, life will go on, not really worth me fussing over but I might reduce my acct down to 1 out at a time as it's no longer beneficial to maintain my current level.

RE: I'll take it ...
By foolsgambit11 on 1/20/2010 8:10:15 PM , Rating: 2
Netflix "We do want steamers"

Hahaha! Classic misspelling.

RE: I'll take it ...
By rdawise on 1/21/2010 12:18:04 AM , Rating: 2
I'm glad I'm not the only that thought of this. So instead of having a massive rush on the day it releases, you want a massive rush 28 days later? I am a Netflix subscriber, so I know getting a DVD on day 1 release is difficult. Currently, however, I have to wait NO MORE THAN 2 WEEKs before I get it. Now you want to wait nearly a month?

Also to those who say that this is a net positive, please explain how? Streaming content is great, until you are hit by ISP caps and poor selection (ahem...Netflix).

Not a net positive for the customer, but a huge positive for Netflix.

RE: I'll take it ...
By Vinb2k10 on 1/21/2010 3:59:48 AM , Rating: 2
I agree with the ISP Cap. Comcast has a 250GB limit and actively throttles bandwidth (as it happened last night while downloading a game from STEAM). My wife an I pay for our games and streamed music, have BOINC running on three machines, and tend to watch a lot of shows online as well. Throw movies into the mix and it looks like Comcast will simply say:

"No Internet for you. Come back one year!"

I miss Verizon FIOS.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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