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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 hyvonen on 1/20/2010 12:21:52 PM , Rating: 2
That's exactly it. Netflix streaming (especially HD streaming) is the #1 reason why I'm not considering switching. I've been staying on the 1-out "unlimited" plan just to keep the streaming; having one bluray per week is pretty much enough for me.

Regarding the 28-day delay... Anything brand new has been "very long wait" or "long wait" on my queue for months. If the comment about having everything in stock on day 28 is true, maybe I will end up waiting less..?

I've tried Redbox; it's ok, and 1DVD/$1 is cheap for new movies. But if they offered 1BluRay/$2, I would be all over it on a regular basis.


RE: I'll take it ...
By Suntan on 1/20/2010 3:35:32 PM , Rating: 2
The other reason I stay with netflix is that they treat me like a customer. Unlike Blockbuster who always treated me as nothing more than a source of revenue.

Further, getting the movie on the first day is not worth it if I have to go to a Blockbuster store... <shutters>

Redbox does have some kiosks that they stock with blu rays, but I was told it is a regional decision.

I emailed them stating that I would happily pay $2 a night to rent a Blu ray. If more people did likewise, I would think it would make them evaluate rolling the (blu ray) service out to more areas.

-Suntan


"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997














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