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Netflix, which recently signed a much-discussed deal with Warner on a 28-day new release embargo, is expected to sign additional streaming deals with other studios this year. Michael Pachter, an analyst with Wedbush Morgan Securities, feels that such delayed release windows represent attempts by Netflix to “appease” studios with a larger share of its profit margins, and could come at the expense of market share. Said Pachter:

“The new release window may erode Netflix’s market share in favor of Redbox in the future, as the latter can secure new titles through retail workarounds,”

According to Home Media Magazine, Pachter projects “Netflix’s revenue growth to fall below 20% over the next several years, with downward pressure on average revenue per subscriber as increasing numbers of members join just for streaming and not DVD/Blu-ray Disc rentals”.

Another industry analyst, Ralph Schackart with William Blair & Co., feels that the Netflix/Warner embargo and similar deals may accelerate digital adoption through the creation of a new digital window. Schackart used the digital availability last week of The Invention of Lying and Whiteout, both embargoed titles, as examples of this nascent window. Both films were available through CinemaNow and Amazon VOD. Said Schackart:

“Some industry insiders have doubted digital sellthrough and rental’s ability to offer digital titles when a studio embargoes it in physical DVD. . . [We believe] a digital window is opening.”

Are these analysts right, Insiders? Will Redbox be able to pounce on lost Netflix market share due to the latter’s kowtowing to Hollywood? Is a new digital release window opening up, as Schackart says? Sharpen your commenting pencils and let us know what you think.

[via Home Media Magazine]

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    Group Says Wal-Mart, Target Mandate New-Release DVD Purchase Limits

    By : Erik Gruenwedel | Posted: 26 Jan 2010

    Wal-Mart Stores and Target Corp. have apparently begun limiting quantity purchases of new-release DVD movies to five copies per title — a move that further underscores an emerging sellthrough window and could pose a serious challenge to rental kiosks.

    The world’s largest retailer, and Target, which represent two of the largest retailers of new-release DVD and Blu-ray Disc movies for the studios, instituted the policy Jan. 26 in time for the weekly new releases, according to Ted Engen, president of the Video Buyers Group, which represents more than 1,000 video stores.

    In contrast, Best Buy typically advertises a five-copy limit on new DVD releases in its weekly ad circular.

    Although representatives from Wal-Mart and Target were not immediately available for comment, Engen said he confirmed the new policy in calls with the retailers and VBG members.

    Wal-Mart has had a five-unit limit on new-release DVDs but left implementation of the purchase restrictions to individual stores and managers.

    Eric Wold, analyst with Merriman Curhan Ford who covers Redbox and Netflix, said that in calls with Target and Wal-Mart stores, the retailers are implementing the restrictions from one-to-four weeks after street date.

    Separately, Steve Turk, owner of Video Theater in Post Falls, Idaho, said he noticed for the first time a sign at Wal-Mart posted among Tuesday’s new releases highlighting quantity limits on DVDs.

    “They have signs around the new releases (Surrogates, Saw VI, Whip It, Michael Jackson’s This Is It) stating this limit along with “No Dealers Please,’” Turk wrote in an e-mail. “Looks like they’re trying to lay the groundwork for a sales window.”

    The quantity limits could put a serious damper on kiosk operator Redbox, which employs significant resources purchasing embargoed new releases from Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment from Wal-Mart, Target and other retail sources.

    The studios last year imposed delays to kiosks on new-release content from 28 days and up, a move that triggered litigation from Redbox.

    “Those retailers were a major source of the units they were getting for studios that are on workaround,” Engen said. “That [limit] is going to dry that up pretty dramatically.”

    Wold said company-wide implementation by Target and Wal-Mart would just require more visits by the Redbox field-service staff to get the needed copies.

    “By no means would this be a deal-killer or hurt Redbox,” he said.

    A Redbox representative declined comment.

    In addition the move appears to be another stone in the studios’ foundation of a sellthrough window ahead of rental. Warner earlier this month struck a deal with Netflix, whereby it gave the online DVD rental pioneer increased copy depth and catalog titles in exchange for delaying shipment of new releases for 28 days.

    Engen said the limits return emphasis on traditional distribution channels, including revenue sharing, and allow the studios to better assess where their titles are going.

    “How many units truly are being sold in the rental industry, and what are the real sellthrough numbers,” he said. “This is just another card by the studios to get vending and everybody else into that sellthrough window.”

    Ralph Schackart, analyst with William Blair & Co. in Chicago who covers digital media, said the new restrictions underscore studios’ desire to retain control, ultimately through digital distribution, which he said does not have first-sale doctrine safeguards.

    “If the studios continue to implement restrictive windows, it moves them closer to digital, [where the] economics are nearly 300% better [than physical rental],” Schackart said.

    Engen said Redbox could still find increased copy depth availability at other retailers, including Sam’s Club, which Engen said typically charges more for movies than parent Wal-Mart.

    In addition Wal-Mart earlier this month said it was closing 10 Sam’s Club locations across the country and cutting 1,500 workers.