The Bogus Netflix Scandal

Netflix (Nasdaq: NFLX  ) recently announced a new 28-day delay before new Time Warner (NYSE: TWX  ) DVDs would make their way into the Netflix library. I sure hope the PR department wore asbestos suits that day.

Angry tirades from disappointed Netflix customers followed just about every article written on the subject. Did Netflix sell out its customers?

In an interview today with enthusiast site Hacking Netflix, the company is telling its side of the story. Chief Content Officer Ted Sarandos explained that a straight-up 28-day wait isn't very different from waiting a few weeks for a hot new release in "long wait" status. Netflix has been buying Time Warner movies on the open market so far, comparing the process to buying DVDs at retail from the local Wal-Mart (NYSE: WMT  ) . That tactic produced a short supply of many Warner movies, which then led to lengthy wait times.

So now Netflix gets those movies at a volume discount direct from the studio, and there will be plenty of copies. If you're anxious to get your hands on the next Harry Potter movie (distributed by Warner Bros.), you can still go and buy it yourself, or order one from Amazon.com (Nasdaq: AMZN  ) if the online ordering and shipping experience is important to you. Go shake down the closest Redbox machine from Coinstar (Nasdaq: CSTR  ) , or gape over the empty shelves at Blockbuster (NYSE: BBI  ) .

If the movie was that great, you probably saw it in the theater already. Many Netflix customers – myself included -- don't really mind waiting a little bit longer for guaranteed, easy, cheap delivery of our movie fix. The top spot in my queue right now is held by As It Is in Heaven, a Swedish movie from 2005 that took a while to swim across the Atlantic. Would it ruin my Friday night if I had to settle for my No. 2 choice instead (There Will Be Blood)? Heck, no.

Also, the Time Warner agreement gives Netflix the ability to stream valuable Warner properties like the entire Matrix series, and the cost savings from cheaper DVD purchases go straight into buying more digital licenses from Warner and other movie studios.

All-digital entertainment is the wave of the future, and Netflix is building a solid presence in that future through deals like this one. CEO Reed Hastings should be applauded, then given a medal for Excellence in Forward-Thinking Management. Hold the jeers and rotten tomatoes, please.

Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Amazon.com and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (5) | Recommend This Article (13)

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  • Report this Comment On January 19, 2010, at 4:27 PM, stan8331 wrote:

    Couldn't agree more. Netflix is run by some very sharp folks and this is actually a great deal for their customers (of whom I am a very satisfied one).

  • Report this Comment On January 19, 2010, at 4:52 PM, blanketcoverage wrote:

    What an awful, awful article. No facts at all to back this up because too much BS and push. Why is this guy talking about Blockbluster as though it doesn't have mail renting like netflix? It does! Check any listing of Hot rental lists see how a film does after 28 days, its not good. People will still want to rent now, still watch that favorite movie again, on video, and they will be doing so at Netflix's expense.

  • Report this Comment On January 20, 2010, at 11:06 AM, Fool wrote:

    I will just run down to my local blockbuster. There shelves are never empty and I can always get the newest dvd's even on a Friday night.

  • Report this Comment On January 20, 2010, at 12:39 PM, balaray wrote:

    The Blockbuster mail order service does offer these movies without the 28 day delay that Netflix users will experience. I will admit that from Netflix's purchase cost perspective, it is a win but it is definitely a loss from a customer value proposition. BBI is now the only player who can rent warner movies in store and online within the 28 day window.

  • Report this Comment On January 20, 2010, at 1:46 PM, stan8331 wrote:

    Blockbuster offers a service that's inferior to Netflix in just about every way. Even if they do have sufficient copies of hot new titles to meet demand on day one, that is not going to send large numbers of Netflix customers rushing into their arms.

    And something tells me Blockbuster, with it's sub-dollar stock price, DOESN'T have the cash to go buying untold thousands of expensive new titles to make sure every customer gets the hot new release they want immediately. If they do blow their money on a bazillion copies of What's Hot Right Now, any minor gains they make in market share will be eaten up by acquisition costs because after that initial release window closes, all those extra copies of the once-hot new titles will be collecting dust on a shelf somewhere.

    Netflix has both a superior service and a superior business model.

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