November 11th, 2009 | by Jennifer Van Grove
Movie studios are none too happy by the growing decline in DVD sales. So, what’s their solution to the problem? Target the cheap movie rental companies like Netflix and Redbox and force their hand into delaying new movie rentals after release, which would give consumers no other choice than to purchase the DVDs.
According to PaidContent, Redbox, the kiosk distributor, is fighting back with lawsuits, but Netflix is ready to deal.
CEO Reed Hastings is apparently trying to barter with the studios and, in a recent earnings call, has been quoted as saying, “if we can agree on low enough pricing for delayed rental, it could potentially increase profits for everyone.”
Another source is reporting that Netflix would delay rentals by a period of one month in exchange for paying 50% less for movies from studios. While we think this is a terrible idea for both Netflix and consumers, the Video Business article makes an excellent point about why the movie distributor can afford the one month hit, while Redbox cannot.
Netflix’s core business is catalog transactions, which make up about 70% of its revenue. That should help ease an introduction of a 30-day delay on new releases, since most Netflix customers are relatively more interested in older content. Redbox, with nearly 100% of its business in new releases, sees the delay as more oppressive to its operations.
While we understand that studios are anxious to up their DVD sales, we believe this to be the worst way to go about solving the problem. Punishing consumers for an industry problem is a bad idea, and potentially creates a situation where more people are open to watching and downloading pirated movie content. Here’s hoping that Netflix rethinks this strategy.
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