We’ve known for a while now that Redbox is not the only DVD renter that has a pricing/distribution arrangement Hollywood finds unacceptable. We reported a few weeks ago that several major studios are trying to impose a 30-day rental embargo on all new releases, which would also impact Netflix, the other quickly expanding DVD rental provider.
In our previous piece on the issue, we quoted Netflix CEO Reed Hastings, who said that he was amenable to the proposed delay as long as the numbers were to his liking:
“If we can agree on low-enough pricing,” observed Hastings, “delayed rental could potentially increase profits for everyone.”
According to unnamed sources consulted by Video Business, we now know what Hastings’ definition of “low-enough pricing” is: a 50-percent discount on inventory costs. Warner, Universal and Fox are said to be among the studios in negotiations with Netflix, but according to the same anonymous sources, none of the studios has agreed to Netflix’s terms yet.
Because the majority of Netflix’s business is catalog titles rather than new releases, both the rental company and (again unnamed) studio execs feel that Netflix’s model would not be negatively impacted by a delayed-release window, unlike new release-oriented Redbox.
Regardless of the final arrangement, at least one anonymous studio source feels that change is necessary and likely inevitable:
“The economics with Netflix don’t work for us. . . There are several ways to change the outcome, one way is windowing, rev-share or acquisition price. But the economics need to change.”
Are the studios, which are generally not used to the bitter taste of compromise, going to acquiesce to Netflix’s terms? What impact do you see a universal delay window having on the DVD rental market? We want your opinion.