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Summary:

Netflix (NSDQ: NFLX) is facing changes to its DVD business with two Time Warner (NYSE: TWX) programmers after months of CEO back-and-forth a…

DVD in case
photo: Shutterstock / S.Dashkevych

Netflix (NSDQ: NFLX) is facing changes to its DVD business with two Time Warner (NYSE: TWX) programmers after months of CEO back-and-forth about the competition perceived and real between the subscription service and HBO.

The changes are unrelated. One is a sort of “take that, Reed Hastings” aimed at the bottom line: HBO will no longer sell DVDs to Netflix, instead forcing the company to buy them at retail or drop them. In a no-brainer, Netflix will shop at retail for DVDs and Blu-Ray discs rather than disappoint subscribers. How much this will affect that bottom line is unclear but it is making a public splash. (Greg Sandoval reported the HBO policy change first.)

The other change will be a little more apparent to subscribers but goes beyond Netflix. According to sources familiar with the plans, Netflix, Redbox and Blockbuster (NSDQ: DISH) have agreed to Warner Bros.’ plans to double their current 28-day DVD window. The studio, which has signed on with the DECE UltraViolet Alliance to provide day-and-date release for UV digital libraries, is moving to a 56-day window for rental and subscription DVDs.

The announcement, set for early next week at CES, sets in motion plans Warner Bros. has had in mind for some time. Unlike HBO, my understanding is that Warner Bros. will continue to provide pricing incentives as long as Netflix sticks with the 56-day agreement. That fits with statements Netflix CEO Reed Hastings made when the original 28-day deal was struck two years ago: delays were ok as long as the price was right. A Warner Bros. spokesman declined to comment “on speculation.”

But that 2010 deal also included enhanced streaming rights for back titles and direct-to-video. This deal doesn’t help the streaming side at all — unless you stretch to consider that it might make original programming like the upcoming Netflix Lillyhammer series more appealing.

For the studio, the overall goal is to make buying DVDs — or paying retail DVD prices — for new releases more appealing. Put another way, the studio is trying to wring every last dime out of the DVD business before it disappears while transitioning users to digital sales. A lot of people are willing to wait a month for a new release to show up as a DVD rental; the hope is that two months is too long.

The unrelated changes at HBO and Warner Bros. highlight the complexities faced by Time Warner CEO Jeff Bewkes. Netflix and HBO are competing for content, attention and premium dollars, while other parts of Time Warner, like Warner Bros., need Netflix either as a partner or a bidder on streaming rights.

One example: Netflix recently signed a major streaming deal with Warner Bros. and partner CBS (NYSE: CBS) that could be worth $1 billion for programming from The CW. Yes, Netflix needs the programming but Hastings has shown a willingness to drop out of negotiations when he doesn’t see a payoff. Witness the Starz deal coming to an end next month.

  1. The 56 day window is another example of studios ignoring changing consumer demand and clinging to release windows that don’t matter. All this will do is encourage piracy.

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