Netflix Caves Again

The list of DVDs that will no longer be available to Netflix (Nasdaq: NFLX  ) subscribers during their first four weeks on the market is growing. News Corp.'s (NYSE: NWS  ) Twentieth Century Fox and General Electric's (NYSE: GE  ) majority-owned Universal became the latest studios to ink deals that will freeze Netflix availability in exchange for lower disc prices and broader streaming licenses.

The deals are similar to the one that Time Warner (NYSE: TWX  ) brokered with Netflix and Coinstar's (Nasdaq: CSTR  ) Redbox earlier this year.

I don't like this as a Netflix subscriber, but I appear to be in the minority. Right now, Warner's Sherlock Holmes and The Blind Side aren't available through Netflix, though they can be found through Blockbuster (NYSE: BBI  ) and on most cable and satellite television on demand packages.

Blockbuster has been hooping it up, with a wave of online display ads promoting how the two films are available through Blockbuster -- in-store, by mail, or streaming -- but not through Netflix and Redbox.

However, if Netflix is able to get through this month without an uptick in churn, then the coast may very well be clear for the company to strike similar deals with all of the major Hollywood studios.

Netflix appears to be weaning its users from new releases, which may be a challenge because it's also the period when studios invest in marketing their retail releases. The push is clearly on expanding its streaming library -- which is a bit of a gamble in the near-term since more than half of the service's subscribers didn't stream Netflix content (for at least 15 minutes) during its most recent quarter.

Netflix will continue to make the migration easier, though. It rolled out a streaming app for Apple's (Nasdaq: AAPL  ) iPad last week and a version for the iPhone and iPod touch is in the works. Hacking Netflix even unearthed a job opening at the company for an Android video playback expert, so it won't be long before most smartphones are Netflix-centric.

The digital push has helped deflect concerns that its disc-based subscribers are being sold out in these four-week freezes. As long as Netflix knows its audience -- and its data-mining prowess is committed to exactly that -- the company will be able to silence skeptics like me.

Will this policy come back to haunt Netflix and Redbox? Share your thoughts in the comment box below?

Netflix and Apple are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (17) | Recommend This Article (18)

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  • Report this Comment On April 09, 2010, at 12:14 PM, stan8331 wrote:

    Netflix isn't caving at all - it's making a business decision intended to enhance the long-term prospects of the company. In any battle of wits between Netflix, the movie studios and Blockbuster, I know where I'll be putting my money...

  • Report this Comment On April 09, 2010, at 1:00 PM, BioBat wrote:

    The title could just as easily be "Netflix Gains More Digital Content". Yes, they're giving up new release rentals for 28 days but they know the digital revolution is going to put an end to solid media rentals in the not too distant future. They're going to be more prepared for it than anyone.

  • Report this Comment On April 09, 2010, at 1:00 PM, BioBat wrote:

    The title could just as easily be "Netflix Gains More Digital Content". Yes, they're giving up new release rentals for 28 days but they know the digital revolution is going to put an end to solid media rentals in the not too distant future. They're going to be more prepared for it than anyone.

  • Report this Comment On April 09, 2010, at 1:55 PM, jonj1020 wrote:

    The MAIN POINT is that Netflix no longer can offer new release DVDs to its customers for 4 weeks!!!

    Thats a long time to wait when you actually want to watch a particular movie. NFLX customers may not even know this at the beginning. But when they see more and more movie studio commercials about new releases and they can't find them on their Netflix accounts, they'll find out that Netflix sold them out for better pricing to cut cost.

    The truth is Blockbuster's plans are now better than Netflix. For a new customer, the most popular plan is the $16.99/month for 2 dvds at a time. Both companies are at the same price. The difference is BBI includes NEW RELEASES + BLUE RAY + 5 IN STORE EXCHANGES.

    The in store exchanges will make a huge difference when US Postal stops delivering on Saturdays and/or raises the prices again for postage. Saturdays & Sundays are the biggest movie nights. If there is no Saturday delivery, Blockbuster customers can go to the stores and get a new DVD. Netflix customers will have to wait until monday.

    Also, Netflix charges extra for Blueray while Blockbuster includes it in their plans already.

    For these reasons, I just changed from Netflix to Blockbuster and convinced 2 of my friends to make the switch also once I told them of the new differences.

  • Report this Comment On April 09, 2010, at 1:58 PM, BroadwayDan wrote:

    I wouldn't watch Sherlock Holmes with the one dark eye peeking out my back side.

    This is a brilliant move, paving the way - inch by beautiful inch - toward an all digital future. The studios are terrified, and Reed continues to navigate their fickle, lunatic ways like a Ninja warrior.

    Blockbuster is being put on life support because the studios obviously like having them around. It is the equivalent of a golf handicap or being given a walker.

  • Report this Comment On April 09, 2010, at 2:40 PM, nomdeweb wrote:

    If we REALLY want to see a film, we see it in the theatre. If it's a new release and we're reminded of it on a TV ad, we add it to our Netflix queue. Waiting is absolutely no issue at all. We watch most of our Netflix on streaming now anyway. As for Blockbuster's exchange at the store - the whole point of Netflix for us is NOT having to go and pick up the film in the first place. Ergo streaming & mail works perfectly well for us. Couldn't imagine going into a store for DVDs anymore. Netflix has so many films we want to see on their streaming list, half the time we forget to watch the physical DVDs they've shipped to us.

  • Report this Comment On April 09, 2010, at 3:20 PM, LDSGJA wrote:

    I'm watching King of the Hill on instant watch right now and loving it. This is only good for $NFLX!

  • Report this Comment On April 09, 2010, at 4:04 PM, BioBat wrote:

    Of coure Blockbuster is going to tell it's customers they're expanding the offerings they have. They've lost so many customers over the past 4-5 years, it isn't funny.

    The 5-day mailing week isn't going to hurt anything. Netflix is moving to digital, which means we wont' have to leave our homes, we just plug in our internets, pick what movie we want to watch and voila - instant gratification all for the low price if $8.99. Nothing BBI can do can compete with that. They're trying but it's too little too late and their investors know it. Do you think Carl Icahn would have sold essentially all of his holdings in BBI (retaining only 3.5% of class A shares) in the past 3 months if BBI had a real shot of turning around? The hammer's going to drop on this company sooner rather than later.

  • Report this Comment On April 09, 2010, at 5:06 PM, daniinLA wrote:

    If the 4-week delay ends up being more of a burden than Netflix anticipated, won't they just renegotiate? So far, they seem to be pretty savvy...

  • Report this Comment On April 09, 2010, at 6:46 PM, ejclason2 wrote:

    I think the real losers are the studios. I can't see very many people thinking "I'd like to rent the DVD now but since I'd have to wait 4 weeks, I'll buy the DVD instead". People who need to watch a movie now, see it in the theatre. I suspect that most people who buy a DVD have either already seen the movie and think that they would like to see it multiple times or are getting it as a gift. So the studios aren't going to see the increase in sales they hope for in exchange for selling DVDs cheaper to Netflix.

  • Report this Comment On April 09, 2010, at 7:51 PM, mp685 wrote:

    It's so funny to read Netflix subscribers posts. When big titles like 'The Blind Side' come out, people want to see them now. If I am having some people over to watch movies, or to watch movies with the family, I don't want to tell them that we can't watch this movie for a month because we subscribe to Netflix. I want to take a movie I received in the mail, and exchange it for the title I want NOW and pay no extra charge. It's too expensive to take a family of 5 to the theatre, so we watch a lot of movies at home. My brother is a Netflix subscriber. When we want to watch a new movie, suddenly Blockbuster isn't so inconvenient after all! Blockbuster just makes more sense.

  • Report this Comment On April 10, 2010, at 7:22 AM, BioBat wrote:

    The old adage of invest in what you know and products you believe in really applies to NFLX.

    What I know is that NFLX streaming is already good enough that I had no qualms about cancelling my cable package.

    I also know that this new deal with Universal is going to make that streaming content even better than it already was.

    I also know that NFLX is turning into a LEGAL streaming version of what Napster was.

    These deals have nothing to do with delayed movie releases but with Reed Hastings pulling a fast one over on Hollywood because the studio execs (much like their record company counterparts) are stuck in old models of profit generation and haven't grasped that those models will be dead within 5 years.

  • Report this Comment On April 10, 2010, at 11:12 AM, RadioFreePG wrote:

    I feel it is a good move, but it would have been better if NFLX could have held off just a little longer until it has finished killing off Block Buster. It has done in with just about everyone else. The reason the stock price is doing so well is that the investmnent comunity believes (as I do) that Netflix will complete its domination of the video rental market and then start killing cable TV -- oh yes they will!

    -Radio

  • Report this Comment On April 10, 2010, at 6:03 PM, BioBat wrote:

    Radiofree makes a great point but I don't think Netflix will totally kill cable simply because sports is such a big part of what keeps the cable system afloat.

    BUT Netflix will cause the non-die hard sports fans to stop and take pause wondering why they're spending $50-100 on a cable package when they can get an excellent collection of streaming media without commercials for $9 through their bluray/tivo/ps3/xbox/wii/ipad players. I don't think it's a matter of if that will happen, but a matter of when especially if cable companies don't adapt.

  • Report this Comment On April 14, 2010, at 3:55 PM, frankz00 wrote:

    I'll take the bigger library over just released movies any day. The studios are the dummies in this case because they see no value in their back-catalogue. That's good for NetFlix because, I'm loving the variety of movies and TV shows I get with my $9 cable package. Keep ignoring your own stuff cable companies! I'll watch more!

  • Report this Comment On April 15, 2010, at 6:05 PM, jdwk wrote:

    Reading the comments, it's clear that what we have here is called competition. It's what happens when two companies offer similar products.

    There is no reason that Blockbuster and Netflix can't co exist, and in fact, as consumers we should want exactly that.

    Netflix definitely has the upper hand as more and more people connect their tv's to the web, but I don't think it justifies the current discrepancy in stock price.

    Blockbuster is getting its act together, let's just hope that happens before it needs to file ch 11.

  • Report this Comment On April 24, 2010, at 9:09 PM, DonnyBahama wrote:

    I was an early Netflix adopter, and continue to have a few hundred movies in my queue. Since they introduced streaming for free, I've taken full advantage. But when Avatar and Crazy Heart recently came out - and I couldn't get them via Netflix for a month - I headed to Blockbuster's website. I was ready to make the switch - until I realized that you have to pay extra for streaming movies. For now, I remain a Netflix customer... but reluctantly, and only until something better is available.

    On a side note, I have to say that, in general, the pricing for digital media is objectionable to me. A kindle book has almost zero cost relative to a printed book, yet kindle offerings are only slightly cheaper than their physical counterparts. The same holds true for a CD. Why should a digital album download cost $10 when a physical CD can usually be found on sale for the same price? (And with better sound quality!) At a minimum, the digital version should be half the price! This brings me to streaming movies... Netflix streaming movies are of lower quality than a DVD (let alone Blu-Ray). I'm fine with that as long as they're free, but Blockbuster want to charge me $2.99?! Absurd.

    Consumers need to revolt. People need to realize that the manufacturing and distribution costs of digital media are near zero. DEMAND LOWER PRICING FOR DIGITAL MEDIA!

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