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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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Warner Bros. get your head out of the sand.
By Golgatha on 1/20/2010 11:59:37 AM , Rating: 5
Warner argued that the move would cut piracy and increase DVD sales.

Hahahahahahahahahahahahahahahahahahahahahahahahah ahahahahahahahahahahahahahahahahahahahahahahahahaha hahaha!!!!!!!!!!

Oh wait, they were serious when they said this?!

By theinnkeeper on 1/20/2010 1:13:46 PM , Rating: 2
Funny, but there are two sides to what they are saying. One, yeah, that's going to make a difference. Two, they are implying that Netflix people are responsible for the pirating that goes on.

I didn't know that Netflix profits all derived from pirates.

By Oregonian2 on 1/20/2010 3:28:35 PM , Rating: 2
I'd assume that they define a pirate as someone who watches a DVD movie without having purchased the disk.

Seeing as how one doesn't own a Netflix rented DVD disk, one is therefore a pirate to watch one of those (according to the studio definition).

By bigdawg1988 on 1/20/2010 4:33:51 PM , Rating: 2
Funny they say that when the bootlegs are out the same time as the theatre release! Maybe Warner and the other movie guys ought to get better security and quit sending those early screener copies all over the place. I bet those SAG guys who are cast as "villian #57" and the people who actually make the DVDs are the main pirates. Quit blaming the wrong people. You know you just want some of the netflix people to run out and buy DVDs they could have a month later.
BTW I use netflix because I have two kids and can't take them to R movies. No babysitters; that we trust. That Redbox sounds go though for some releases I really want to see, like "Inglourious Basterds".

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