Don't let the chumminess distract you. Netflix (NASDAQ:NFLX) and Time Warner (NYSE:TWX) were high-fiving and fist-bumping yesterday over a deal that will give Warner Bros. four weeks to sell its Blu-ray discs and DVDs before making them available through Netflix's service, in exchange for some sweetened conditions. But subscribers are getting hosed.

Time Warner is trying to secure a 28-day window from Netflix, Coinstar's (NASDAQ:CSTR) Redbox, and Blockbuster (NYSE:BBI) because the movie studio thinks it will maximize its sales if it's not competing against discounted rentals. Warner Bros. claims that 75% of its DVD sales come during the first four weeks of a film's release.

In other words, Netflix is going to start offering you Warner Bros. DVD rentals after most of the demand has gone away.

Time Warner throws a lot of money behind its theatrical releases, only to embark on a marketing campaign several months later, when the flick is out on Blu-ray and DVD. Netflix subscribers are now going to be kept in a penalty box -- for 40,320 minutes -- until they get a crack.

I'm moving Network to the top of my queue
In Netflix's defense, it's securing a few extra goodies for keeping its members in the dark as a film's home release is peaking.

  • Netflix will get more copies of month-old Warner Bros. releases, but the spike in supply will be ironically accompanied by what's likely to be a shriveling up of demand.
  • Netflix will pay less to Time Warner, but don't expect to pay lower monthly subscription rates as a result.
  • Warner is expanding the number of older catalog titles and direct-to-video releases available through Netflix's online streaming platform. Hooray! More of the old stuff that's probably showing on some cable channel right now.

OK, that last point actually does benefit subscribers. It would be great if Time Warner had agreed to license its new releases for online streaming, but that's still a small step in the right direction.

In a nutshell, just as book publishers like to space out the releases of hardcover books and their eventually cheaper paperback offshoots, Netflix subscribers are about to become paperback riders.

You know what's going to set them off, though? The press release claims that this move will allow Warner Bros. to "get the most from the sales potential of those titles" and "maximize VOD usage."

In other words, cable companies -- including Comcast (NASDAQ:CMCSA) and Warner offshoot Time Warner Cable (NYSE:TWC) -- come out as the real winners if their video-on-demand offerings are now not competing against Netflix for the biggest month of any Warner Bros. release.

The 30% lie
Something I saw repeated often by the media outlets covering yesterday's news is that Netflix subscribers don't care about shiny new flicks.

  • "How much will it hurt Netflix," Silicon Alley Insider asks. "Maybe only a little, because Netflix does not rely on new releases as much as movie stores like Blockbuster and kiosks like Redbox."
  • "I don't think most people join Netflix specifically to get DVDs on the street release date," Netflix chief content officer Ted Sarandos tells Reuters.
  • "But because the majority of Netflix's shipments to customers are catalog titles, it is less dependent on new releases than its DVD-based competitors," writes MarketWatch.

It's certainly true that Netflix isn't as new-release driven as the $1-a-day Redbox machines are, but let's put this claim into its proper perspective.

"New releases from all suppliers account for about 30 percent of Netflix shipments," claims Netflix in yesterday's press release.

That's quite a claim, but it ignores something that should be glaringly obvious to any active Netflix subscriber: The company stocks a limited number of new releases. The vast majority of new releases requested through my own queue are listed as having a "long wait" or "very long wait." Since they aren't available, Netflix just ships an older catalog title that's further down in my queue's priority. It irks me, but not as much as if Netflix buries the lack of access to new titles within the first month or two and plays it off as some success story in shipping out older titles. If Warner Bros. claims that 75% of the movie buffs who buy its discs pick them up during the first four weeks following release, why should the appetite of the DVD renter be any different?

Netflix can use its recommendations engine to suggest worthy catalog titles that are readily available, but let's not assume that 70% of its members have catalog titles at the very top of their queues. I'll bet CEO Reed Hastings a month of rentals that I'm right.

Oh, and I did ask Hastings about this when I had a chance last year.

"It's hard to know, if we had unconstrained new release inventory, what it would be," was his response. "It would be a little higher, but not dramatically."

Well, now that new-release inventory is going to be even more constrained, I wonder how ridiculous that metric will be.

In Netflix's defense
The one thing that Netflix has been adamant about in its efforts to build out its library of digital content is that it wants to parlay any savings in release-window concessions and postal-shipping savings into securing more licensed streams.

I just don't think Netflix realizes what it's doing by turning its subscriber base into second-class citizens in the home-video space. Once it lets the retail world have dibs on a new release's first four weeks, it's simply opening up the door to companies such as Blockbuster and Amazon.com (NASDAQ:AMZN) that can both sell a DVD and stream it a month later to become bigger full-service players in this game.

And here I thought that 28 Days Later was a fictional horror flick.

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Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He's 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.