Why the Netflix/WB deal isn’t a bad thing
This afternoon, Netflix announced that it wouldn’t be shipping new releases from Warner Bros. until 28 days after street date. In exchange for this window, WB is giving better prices and — most crucially — deeper access to its library for Netflix’s streaming service.
The deal makes sense for Warners. Most DVDs are sold in the first month after release, so if they can turn rentals into sales, they come out ahead.
The deal makes sense for Netflix, too. They’re lowering one of their primary costs and getting more content for their Watch Instantly service. To their credit, they understand that the business of mailing DVDs will end. The future is streaming, and they’re increasingly well-positioned.
If you’re a Netflix subscriber who mostly watches new releases, this deal sucks.
Netflix will probably lose some customers in the near term, particularly as other studios cut similar deals. But they may gain more customers with a better streaming library. Netflix has a strange relationship with subscribers: they want to keep them happy but not too happy, since shipping each disc costs real money. My hunch is that the company has crunched the numbers and discovered that the folks who mostly rent new releases end up costing more to support.
If you’re a writer with a movie on home video, this is probably a good deal. You make residuals on DVD sales and streaming, not subscription rentals.
When Netflix ships a disc of Corpse Bride, I get nothing. When Netflix ships those bits over the internet, Warners gets paid, and I get a few cents. That’s good.
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January 6th, 2010 at 6:16 pm
The new release hit won’t be that significant for me. Unlike browsing the video store, on Netflix you have to work fairly hard to even figure out what the new releases are, so I don’t discover that the film’s out until a few weeks down the line.
If I’m assiduous, I’ll go to IMDb, look up the new releases, then schedule them on Netflix. But that’s typically too much effort. In fact, this is one of the downsides to Netflix for me, that you don’t have the shelf to walk by and the convenient big stretch of empty shelves telling you which movies are high profile.
January 6th, 2010 at 6:24 pm
I’m with you Mr. August. I think it’s win-win-win for Netflix, Warner, and the consumer. I don’t mind waiting an additional 28 days to get access to the latest and greatest, especially when a broader catalog will be available through streaming. I think it’s unfortunate that the media houses still covet DVD sales and don’t fully jump into the streaming world. But, I guess I should be happy with this baby step.
January 6th, 2010 at 6:29 pm
@mikedickens:
The studios aren’t opposed to streaming — they just want to make money on it. Right now, they’re getting a lot more for DVDs.
January 6th, 2010 at 6:36 pm
I’ve never understood the DVD rental business from the studio’s perspective. Whey sell to rental companies for retail (or below) when that company is going to get potentially hundreds of rentals out of one disc(and possibly less sales for the studio)?
Why don’t the studios charge the rental companies more than retail?
January 6th, 2010 at 6:50 pm
August is right– Netflix has no interest in making us too happy.
New releases are hidden, home deliveries are purposely throttled down, the queue UI is intentionally obtuse… these are all heavily calculated elements of their product, implemented to maximize profits. Netflix has zero interest in making their customers happy, their goal is to simply avoid pissing us off to the extent that we cancel our subscriptions.
Netflix actually seems to push very old and inaccessible cinema at their audience. Ideally, I suppose, a customer who fancies himself sophisticated will rent von Stroheim’s “Greed” but never find the impetus to watch it. Ultimately he pays $15 per month to feel guilty for not wanting to watch the DVD collecting dust on his desk.
Netflix knows their customers won’t defect to a competitor with better customer service because, well, there aren’t any. At least none that have a similar catalog of films. And it’s pretty impossible for any new competitors to gain similar access to the major studios’ vaults.
Don’t get me started on iPod.
January 6th, 2010 at 6:51 pm
Wait a minute, John, why do you get paid for an internet stream and not for the rental? It’s just a different delivery service, right? But stepping back a minute, you might of got paid instead when netflix bought the dvd for loaning to customers, and really once they’ve got it, they can do whatever the hell they want with it, right? I don’t know. I didn’t even think writers got residuals.
January 6th, 2010 at 8:14 pm
“these are all heavily calculated elements of their product, implemented to maximize profits. “
Sounds suspiciously like a business. :)
I think streaming is undoubtedly the future, for the simple fact that you can’t mail discs to China or Abu Dhabi.
January 6th, 2010 at 8:31 pm
I may be one of the oddballs, but this deal wouldn’t affect me negatively. If my desire to see a film the instant it is released on DVD is so high, then I will be buying that DVD anyway.
If it’s not one I’m not going to buy, then I probably won’t be seeing for a few months anyway.
However, I am a pretty regular Watch Instantly user, and there are a lot of items in the WB catalogue I would love to have instant access to. In fact, I pretty much just have the account so I get Watch Instantly and only send discs back every few weeks
January 6th, 2010 at 9:01 pm
@DougJ:
If studios are selling DVDs for one price at Walmart, they’re not going to be able to charge Netflix or RedBox some multiple of that price. They’d love to, but nothing would stop a rental company from buying those discs at retail.
Studios sometimes get a cut of rentals; they’ve made deals with Blockbuster to get them at a reduced price in exchange for a piece of the rental revenue.
@Jaberwocky:
When a movie like The Nines is available for streaming at Netflix, it means that Netflix is paying the studio (Sony in this case) some amount of money for the right to stream it. Maybe the contract is for a certain length of time (six months) or a certain amount of play, but it’s analogous to how movies are sold for television.
Screenwriters get residuals on the money studios make off of selling or licensing movies. The percentages for internet streaming are a big source of contention, and were a major focus of the WGA strike.
January 7th, 2010 at 4:11 am
This is topical as I just watched “Go” streamed from Netflix. I mean I just finished it twenty seconds ago and came here to read more about it. Weird. Anyway, it’s a fun movie.
January 7th, 2010 at 5:45 am
This is a colossal mistake by WB. Irritating customers in the name of shipping a few more units of DVD sales. Was the set of customers who were going to buy the DVD but got it from Nextflix really that large? Is this really going to drive sales of “Unrated Special Edition” three weeks after it has been out?
It’s shortsighted and will contribute to the imminent irrelevance of the mega-studio.
I don’t care much though. I watch most of my stuff on streaming so the more that is there, the more win for me. I’m happy to hear that the artists get more on the back-end from streaming.
“They’d love to, but nothing would stop a rental company from buying those discs at retail.”
There’s a law suit surrounding this.
http://www.businessinsider.com/redbox-employee-buys-100-dvds-at-wal-mart-to-stock-kiosks-2009-12
January 7th, 2010 at 6:53 am
Gotta say, I don’t feel like this is a bad move for either party. Certainly doesn’t have any negative side effect on me anyway. If I want to see a new release that badly, I’m probably going to buy it, as WB no doubt figures. Netflix is, for me, mostly a gateway to content I wouldn’t otherwise go out of my way to find. I just spend thirty minutes or so retooling my que every now and then Icelandic fantasy marionette epics come to me without a hassle.
January 7th, 2010 at 7:43 am
I really don’t care either way because there is a hundred years between the creation of movies and me so there is more than enough stuff I can watch. I’m prefectly fine if when it does become avaialble I can stream it the same day.
My question is if there is something I REALLY REALLY want to see and am not going to buy it and it isn’t available for rent, doesn’t this increase the incentive to download it for free of the internet?
It’s like when iTunes went to $1.25 and watched their sales dive. I was watching Weeds on Xbox and when the current season hadn’t been released I downloaded it so I could finish it. When it became available I watched it legitimately. I’m not proud of that but that is what people do when they can’t get something.
You really want to make some money, you price all your DVDs for $50 initially and make your money off the videostores and legit downloads like iTunes and Xbox. Then one month later you release it at a sellthough price of $15 (the same as what a used copy would cost you at Blockbuster). The rental companies and those who are willing to pay the $50 create a windfall for the studio. The people with collections get their copy one month later.
If the inevitable increase in rental fees from Netflix and Blockbuster may drive away renters which, if anything, eliminates the rental business which again, benefits the studio.
The only problem is the studio has to hope interest still exists a month later for the sellthrough and the money generated by rentals offsets the unavoidable piracy.
January 7th, 2010 at 9:42 am
I don’t get that people that say they can’t find anything to watch – I have had Netflix for three years now and I have gotten at least 5 or 6 DVDS (which is how many I think makes it worth it) a month 95% of the months. There are so many TV shows and amazing selections on it.
Also, it isn’t THAT hard to find the new releases. Go to “New Releases” and pick the category you want to look at them in – I every Tuesday or Wednesday I got to “Time Released” and make it “1 week” so I can see what is new for the week. You can’t click two buttons?
My only issue with this deal is that right now, only the main name under the account can stream. My husband and I share a 4-at-a-time account, and only he can stream movies. If they are trying to get the streaming as their main business, all names on an account need to be able to do it…we are paying a little over $20 a month. I have sent Netflix messages about this and don’t hear anything back.
January 7th, 2010 at 9:43 am
I use iTunes and my AppleTV for all my movie rentals and iTunes has been doing this for a while. The wait between purchasing a movie and renting a movie is a little annoying, but from a business standpoint I think it’s brilliant for the studios.
I’m not one to buy a lot of movies because I rarely watch anything more than once, but knowing I have to wait a few weeks has actually made me purchase the movie. Their scheme works.
On one hand, it means I got stuck with owning G.I. Joe, on the other, I’m proud to say I own The Hangover.
January 7th, 2010 at 10:41 am
Netflix seems like the only fish in this pond. I mean, how many people do you know who still go to Blockbuster? I understand why they made this compromise, but please, where’s the competition? Netflix can get away with a great deal more than they should simply because they’re the next hot thing.
But I can’t be that mad at them, after all, their selection is awesome.
January 7th, 2010 at 11:20 am
@Gary:
To clarify: Redbox is suing distributors, claiming that the studios are pressuring retailers not to sell DVDs to Redbox.
http://www.latimes.com/business/la-fi-ct-redbox4-2009dec04,0,2713370.story
Studios aren’t suing Redbox, because to the best of my knowledge, there’s nothing to unlawful about buying a DVD at Walmart and renting it to someone.
@James Ford:
I agree that access and price are crucial factors in reducing BitTorrent piracy.
@Jonathan Peters:
I’d argue that going forward, iTunes, Hulu and cable/satellite VOD are really bigger competitors to Netflix than Blockbuster.
January 7th, 2010 at 11:29 am
I was dubious about Netflix Watch Instantly when it first came out (low-quality streams that you have to use Windows to access? Meh), but now that I’m watching near-HD-quality shows and movies on my 50″ plasma via the PS3, I’m fully convinced that it’s the future of rental. (I still don’t think VOD in any form will supplant disc ownership, though. People like having movie collections and studios like having physical inventory.)
January 7th, 2010 at 11:59 am
Will they really lose subscribers over this? If you weren’t excited enough about a movie to go see it in theaters, you aren’t so amped up for it that you can’t wait 28 days to rent the movie. I’m having trouble envisioning the person who gets shafted.
January 7th, 2010 at 12:33 pm
John, do the writers get residuals for stuff sold on PPV platform? Nearly everything that’s out on home video now is available via PPV on my cable system the same day as the street date. I can see a surprising selection of independent films at home before or while they’re playing at my art house theater. I’m hoping you and other writers are getting a piece of that action.
Considering I have Time Warner cable, I wonder if they’ll delay the PPV window for 28 days, too
January 7th, 2010 at 12:34 pm
I feel like you really missed an opportunity to title this post 28 Days Later.
January 7th, 2010 at 6:39 pm
@James Ford is right. While piracy is obviously illegal, the fact of the matter is (as has been clearly demonstrated over the past decade) that it’s just going to get easier. The reason the movie business has not suffered the way the music business has is because a DVD is 4 GBs, while an MP3 is just a few MBs. It is not hard to imagine 2, 3 or 5 yrs from now where it is a matter of minutes to download a full HD movie. That’s just fact.
No sustaining business is built on protectionism. Businesses that succeed and sustain are built around innovation and evolution. Bottom line is that protecting these turfs will help the studio exec keep his job the next yr or two, and it will get the talent paid in the short term. But this could all come at the cost of cratering the industry. Simply sticking your head in the sand to protect the old way of business is not sustainable. It is incumbent upon everyone in the industry to figure out the technology and business model to effectively monetize content without deploying temporary protectionist techniques because consumers simply want the path of least resistance, and the path of resistance to piracy gets shorter every day. Not saying it’s right, but just saying that’s the way its going. As you’ve already pointed out in your post, the deal’s not a bad thing except for the consumer, which is totally backwards. Focus on pleasing the consumer, because when you have them craving something they’re happy with, they will be willing to pay money for that. But if they have to get something from you that they’re not happy with, they’ll pay for it until the next thing comes along, and everyone will be left wondering what happened.
January 8th, 2010 at 12:56 am
I’d much rather get to stream movies on a subscription basis than “buy” them at iTunes for half the cost of a DVD, but never be able to burn them to disc or play them on anything other than an iPod.
Funny thing, I was watching Season 2 of “Entourage” on HBO’s VOD service one night. I was 2 episodes away from the end of the season when the clock struck twelve and all the episodes expired.
I ran to the web to find the episodes. Hulu had clips and recaps, but no episodes. I could buy them for $2 each on iTunes (but I have an Android phone and all the video content is still heavily DRM’ed). I found a site with links to illicit streaming sites that also advertised Netflix’s “Watch It Now” so I went and signed up for a free trial at Netflix. Turned out that “Entourage” isn’t available as a “Watch It Now” offering. I cancelled the free trial.
Long story short, if Netflix had all the Entourage DVD sets available for “Watch it Now” they might have kept me as a customer for longer than 10 minutes. So this deal could be good for them next time I get on an Entourage kick.
I’m starting to dislike the inconvenience of finding a DVD, putting it in the player, switching inputs, switching remotes. Streaming and VOD are the wave of the future.
January 8th, 2010 at 8:08 am
@ Caitie F:
I could be wrong about this, but I bet the reason Netflix only allows content to be streamed to one name on the account (through one portal) is because there would be no way to prevent any two people — or group of people, for that matter — from signing up and claiming the same “family” account. We’re married . . . sure you are. Not saying that is your case. But you can see the challenge from the company’s perspective.
January 8th, 2010 at 8:12 am
Man, John, I totally disagree. The studios should be making it easier for people to pay to watch their stuff, not harder. These artificial roadblocks put in place by the studios weaken Netflix, weaken the paid model, annoy customers and strengthen piracy. Until the studios understand that they are operating in a buyer’s market, they will continue to fade into irrelevance.
January 8th, 2010 at 3:57 pm
The DVD business is dying worldwide and will be all but non-existent in the very near future. The studios will no doubt be putting more and more titles out as digital downloads. They will also be pushing titles out on VOD which many think will replace the lost revenues from dwindling DVD sales. As more and more content distribution moves online this will be an interesting and exciting time.
January 8th, 2010 at 6:54 pm
@Sean Coffee:
This was a WB/Netflix deal, but I’m sure WB has many irons in the fire because of exactly what you’re describing. They want to get movies to buyers as painlessly as possible, and make money at it. That’s while they’ll continue to push VOD and other ways.
January 8th, 2010 at 11:56 pm
Sounds suspiciously like why some big three companies went and started Hulu. Makes sense to me and I’m quite pleased with Netflix’s Watch Instantly these days and Hulu. It’s nice to have the subscription (or free w/ Hulu) and not have to worry about clogging up space on a hard drive. I haven’t bought a single DVD since starting Netflix since I can watch anything that has come out in the past century, for the most part, if I wait three days or less. Not a bad deal. Just curious to see how it’s going to work internationally for the studios and streaming.
January 11th, 2010 at 11:24 am
“…to the best of my knowledge, there’s nothing to unlawful about buying a DVD at Walmart and renting it to someone.”
I don’t have one in front of me, but doesn’t the FBI piracy warning say something like “The unauthorized reproduction or distribution of this copyrighted work is illegal”? If Redbox didn’t purchase specific redistribution rights, wouldn’t their renting out of the copy they purchase be a violation?
January 13th, 2010 at 9:59 am
I think this is a great idea and I cant wait. It does save a lot of dvd space and hard drive space.
Only bad thing is purchasing a good film wont be easy to lend to a friend.
January 13th, 2010 at 1:53 pm
I’ve been a Netflix subscriber since the days when people actually rented movies at Blockbuster. I like documentaries and foreign films (my husband is Dutch). We’d rent new releases from Blockbuster, and use Netflix for their backlist. (Also, I have a horrible memory, so when someone recommended a movie, I just put it on my queue right away and didn’t have to try to remember it when I was in Blockbuster).
The one major advantage for us with getting our DVD shipped to us is access to closed captioning and DVD extras. Since English isn’t my husband’s first language (and Dutch isn’t mine), we always watch with subtitles. I like the immediacy of streaming, but until subtitles are available when you stream (and preferable other DVD extras), we’ll continue to get DVDs in the mail.
January 18th, 2010 at 5:54 pm
Hey, I know this post is almost two weeks old, but quick question – you get residuals for “Corpse Bride”? An animated movie?
How did you arrange that? Did your representatives insist upon it because of your stature as a writer?
Does Warner Bros. have a residual deal in place for their animated product, as the prime time Fox animated series do?
Curious to know….
February 17th, 2010 at 10:21 am
I received the Invention of Lying DVD from Netflix yesterday, and in addition to the month wait, this DVD does not have ANY extras. The only options on the menu is Play and Setup (which is a language selection screen). That’s it.
Will this now be the norm, i.e., nothing but the movie on WB DVDs? If so we lost more than just a month delay for new releases.
March 1st, 2010 at 9:37 pm
It’s great to hear that you are getting kicked back a little piece of the revenue with each streaming instance for your films. On the indie side, I have licensed films to Netflix directly as well as through third party DVD partners and my understanding in my experience they generally pay a flat fee of anywhere from $3,000 to $15,0000 for unlimited streaming rights for a set period of time. The level of E&O insurance coverage Netflix requires sometimes makes it not worthwhile for an indie title.
I have enjoyed using the Netflix streaming service since I purchased a blu-ray player a few months ago with that functionality and some of the titles look fantastic (720p resolution perhaps?), while others look much worse than NTSC quality. I hope they continue to improve the service – it’s quite convenient!