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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 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).

"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates

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