Umm, No. Netflix Isn’t Dumb When It Comes to Release Windows

Sorry, TechCrunch, but Netflix isn’t the bunch of ninnies that you’re making it out to be.

At issue is the possible 30-day delay on new release movies Netflix is willing to accept from Hollywood studios in exchange for lower acquisition costs. According to a Video Business report last week, Netflix has been negotiating with studios to try and get as much as half shaved off the price of films to compensate for the delay in receiving new movies.

Much of TechCrunch’s coverage of the news talks about how a release window will only drive people to piracy. That’s a fair point, but the piece’s characterization of Netflix is a little short-sighted:

What’s really befuddling is that Netflix lacks the vision to see thorough this BS. They don’t seem to realize that longterm it’s going to screw them too. While new movies may not be as core to their business as they are to Redbox (which is suing many of the studios to stop something like this), new movies are the sexy lures that bring in new business.

To be sure, release windows suck from a consumer standpoint. But Netflix hardly lacks vision. On the contrary: It’s losing the DVD battle in order to win the overall streaming war.

Netflix CEO Reed Hastings has talked about how kiosk-based rentals like those from Redbox are Netflix’s primary competition. Hollywood is split on Redbox and kiosk rental; studios like Sony, Lionsgate and Paramount are for (and are working with) Redbox, while Fox, NBC Universal and Warner Bros. are against it.

The anti-Redbox camp wants to impose a 30-day new release window on Redbox. Redbox relies more on new releases than Netflix, which says that 70 percent of its business comes from its older title business. Kiosks by their nature are smaller and can’t hold a massive library of movies.

Netflix stated in its last earnings call that it was all for a “sales only” window before movies became available for rental. The enemy of my enemy is my friend and all that. If Netflix can push the release window idea and slow down Redbox’s rapid growth with little (apparent) impact on Netflix’s core business, well, why not?

But Netflix’s move extends beyond the physical DVD.

Netflix claims that 42 percent of its 11.1 million subscribers streamed content in the third quarter vs. 22 percent in the same period the year before. Meanwhile, an outside survey found that 54 percent of Netflix subscribers stream at least one movie or TV show per month. So the number of people streaming content is growing.

The problem with Netflix’s current streaming offering is its small content library, and the company has said over and over how it plans to invest more heavily in acquiring titles for streaming. If Netflix can negotiate half off its acquisition of DVDs, it can funnel that money into acquiring content for streaming to bulk up its library as the streaming service expands to more devices.

That doesn’t mean Netflix will suddenly get new releases to stream. The company is sticking with its subscription model instead of an electronic sell-through one, which naturally limits its ability to get newer releases. But if it can create a massive library of on-demand titles and secure more premium content, its subscription streaming offering would become even more compelling and Netflix would maintain a dominant role in the over-the-top video world.

At the end of the day, Hastings is neither stupid nor blind. Perhaps he’ll shed some light on his thinking during his talk at our NewTeeVee Live conference this Thursday.

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