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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 Hiawa23 on 1/20/2010 2:24:36 PM , Rating: 2
I am really pissed off at Netflix. I have been a customer since day 1, I mean, since day 1 ot their existence, & the biggest benefit to me was the fact that I could get the new rentals usually on day 1.

I haven't even bought a DVD in years haven't been into a Blockbuster in 5 years, & this sucks as they are punishing all of us for ills of others. I do have a DVD burner but never burned anything other than my own stuff, & this will not deter jack. Alot of movies you can get when they are in theaters now if you want so who is this going to ultimately benefit other than Netflix?

What once was a great service I am not questioning whether I should keep, cause I enjoy the streaming feature, & blu- rays, especially for my PS3 & 360, but now all the new releases I want to see now I have to wait, which is not okay but one good thing is now I can start going through movies at the bottom of my Q that have been at the bottom for along time.

I understand where the movie studios are coming from, I even understand Netflix, but just cause you are making me wait a month for that new release, noway in h*** is that going to force me to go out & buy the dvd, especially in this economy, isn't the whole purpose of Netflix to begin with, so you don't have to buy movies watch em once then they sit on your shelf for life. I have over 500 movies on my shelf & Netflix solved this issue, but now, I don't know. I like movies, but not that much.

"Game reviewers fought each other to write the most glowing coverage possible for the powerhouse Sony, MS systems. Reviewers flipped coins to see who would review the Nintendo Wii. The losers got stuck with the job." -- Andy Marken

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