I have posted in the past about the relationships between video rental services and movie studios. Basically, the movie studios have been busy trying to rearrange the deck chairs on their Titanic. They would like to preserve their DVD business as much as they can even though that is not the way the market is going. Redbox has been the subject of much the studios’ collective ire. They are unenthusiastic about Redbox’s focus on new releases and willingness to sell used, not-quite-so-new-releases very cheaply. Studios have tried their damnedest to keep new releases out of Redbox’s boxes.
One of the possible work arounds here is to delay giving new releases to some rental firms. Netflix has been on board with this (and Redbox has signed a similar deal with at least one studio). A blog on The Atlantic‘s web site reports that Netflix has now signed such a contract with Fox and Universal (Who Wins in the Latest Netflix Deal? Apr 9). The deal in a nutshell allows Netflix to rent DVD’s 28 days after their release as opposed right away. So what’s in it for Netflix? For one, the studios are promising greater availability of DVDs. More importantly, they will make a greater portion of their catalogs available for video streaming. Included in video streaming are Fox TV shows.
It is easy to see that delaying renting new releases is much less onerous to Netflix than it would be for Redbox. The latter needs new releases to create impulse sales. Netflix needs a broader selection to keep people updating their DVD queue. But still it is worth asking, as the article does, who is going to come out ahead on this deal? The author seems to think that it is likely to be Netflix. Part of the argument is based on the idea that Netfix is not missing that many customers by letting Blockbuster have the first shot at movies:
Will Blockbuster’s 28-day head-start hurt Netflix? Some more impatient consumers might care, but most of those likely to rent might not mind. There are two factors at play here: First, any current Netflix subscribers aren’t as likely to spend additional money to go to their local Blockbuster to rent a movie sooner. Second, think about the psychology of those wanting to see the movie post-theater run. If they first saw the movie in the theater and loved it, then there’s a greater likelihood they’ll buy it anyway, rather than rent it. Those who don’t, or who are less passionate about seeing it again, aren’t likely to be as impatient, and probably won’t mind waiting an additional month.
Then, there are those who didn’t see it in the theater. By definition, these individuals probably aren’t in that much of a rush to see the movie. If they’ve waited this long, they can wait another month. This logic suggests that Blockbuster’s advantage might not amount too much. Any damage to Netflix should be minimal.
I would argue that this is to some extent the wrong way to think about this problem. Netflix customer aren’t really trading off renting from some video store or from Netflix. They are trading off maintaining their Netflix membership against other alternatives. This is not movie by movie issue. It is about whether delaying new releases sufficiently degrades the service that it is not worth maintaining.
That’s what makes the question of streaming so interesting. Add enough options here and you create a lot of value for customers. The Atlantic writer is pretty sanguine along these lines:
The expansion of its streaming library is a huge win for the company. This must be its preferred method of subscriber viewing — think of all the savings on shipping costs. the company also would need to purchase fewer physical DVDs if it has more subscribers streaming, which means less warehouse space and fewer personnel. Naturally, its customers who have the ability to stream movies also love this method. Through streaming they don’t have to wait for the movie to arrive in the mail — it’s available at the click of a mouse or the push of a remote control button.
I have to admit that I am little less optimistic about this. I agree that streaming movies is the way of the future and that Netflix would prefer to slap a file on a server than put a DVD in the mail. But I suspect that Fox and Universal are not giving away the good stuff. That is, whatever downloads that are made available are not going to be the newest releases. This move will increases Netflix’s offerings but it is not a straight up substitute for having the newest releases on DVD.