Arrgghhh this will show those pesky pirates -- we'll cut one of our hottest items!
Netflix revolutionized the movie rental industry when it began offering unlimited movie rentals for a monthly flat rate. Since 2007, a $16.99 (plus tax) monthly membership fee has granted you access to up to three movies at a time, with unlimited exchanges. While Blockbuster rushed similarly priced plans to market, it was arguably too little, too late -- Netflix was already a major player and owned many key patents.
Despite that resounding success, all is not rosy for Netflix. Netflix has been under fire from movie industry, which claims its unlimited deliveries of new rentals is fueling rampant piracy of films.
Under pressure, Netflix just announced that it has incredibly consented to enter a deal with Warner Bros. that will essentially begin to kill its new release program under the premise of fighting piracy. Under the agreement, Netflix agrees to not offer new releases until 28 days after the DVD/Blu-Ray release goes on sale in stores.
Netflix COO Ted Sarandos appears to have wholeheartedly embraced the idea, which he originally suggested to studios in 2007. Netflix likely gets a major kick back from the deal, though; if the terms of Mr. Sarandos's original pitch hold true, Warner Bros. will cut its inventory costs with Netflix (the amount it charges the company for its movie stockpile) by 50 percent.
Describes Mr. Sarandos enthusiastically, "Creating a rental window is not a punitive action. It’s a decision that the retailers and studios can make together. If the studios can entice a rentailer to create a rental window, I believe that rentailers, studios and consumers can all benefit from it."
With that attitude and the mutually positive reaction from Warner Bros., it seems likely that other movie studios will follow in suit, signing agreements to cut inventory cost in exchange for no more new rentals. Netflix is reportedly in advanced talks with Fox and Universal as well. Other unnamed studios are also discussing similar plans with the rentailer.
For both Netflix and the movie studios the plan is a risky gamble. Without new rentals, Netflix risks being undercut by Blockbuster. While the inventory cost cuts ultimately result in a greater monetary gain on paper (as 70 percent of Netflix rentals are from older catalog titles, with approximately 30 percent coming from new releases), whether customers will stomach the change is questionable.
Likewise for movie studios, if customers do accept the deal, but it does not significantly affect buying rates/piracy, the studios stand to lose a great deal of money offering movies to Netflix at greatly reduced rates. In all likelihood, the biggest loser, though, will be Netflix customers who may soon lose access to the hottest new rentals, which Blockbuster will continue to provide.
DailyTech - Netflix Gives in to Warner, Kills New Release Rentals to Fight Piracy
