Who Wins in the Latest Netflix Deal?

Netflix is reported to have reached new deals with 20th Century Fox and Universal for movie and TV show rentals. Netflix customers will be able to rent out the studios' titles 28-days after their release for purchase. Moreover, subscribers will also be able to stream a greater portion of the titles from these studios' libraries and will be granted better access to movies-by-mail. While the deal is painted by most accounts as a fair compromise, Netflix appears to be getting a sweeter deal.

The Studios' Demand

The 28-day delay is intended to serve as an opportunity for the studios to sell more DVD and Blu-ray copies over that time period. The studios believe that anyone who really wants to see the title as soon as it hits the shelves won't want to wait for Netflix and will feel compelled to purchase it. Will this really increase disc sales that much?

First, consider Blockbuster. TheWrap notes that the movie rental franchise must be very happy about this announcement. It already gets access to new releases as soon as they hit stores -- now 28 days before Netflix. That means anyone who really wants to view these titles immediately can just go to Blockbuster. So it's still relatively easy for most consumers to avoid purchase, even if impatient.

But even without the Blockbuster element, it's unclear that studios would get many more sales. Is there really much overlap with those who want to rent and those who are willing to buy? With a significant price differential, it's unlikely that many would-be renters will suddenly pay several times the price to own the film, rather than wait a little longer to rent it.

Moreover, the agreement will enable Netflix customers to stream more of these movies now. That's similar to owning the film, since subscribers can view the titles on-demand as many times as they want. So with a little patience and an Internet connection, Netflix customers can get more of these studios' movies for their permanent library at no additional cost.

The Gain for Netflix

Will Blockbuster's 28-day head-start hurt Netflix? Some more impatient consumers might care, but most of those likely to rent might not mind. There are two factors at play here: First, any current Netflix subscribers aren't as likely to spend additional money to go to their local Blockbuster to rent a movie sooner.

Second, think about the psychology of those wanting to see the movie post-theater run. If they first saw the movie in the theater and loved it, then there's a greater likelihood they'll buy it anyway, rather than rent it. Those who don't, or who are less passionate about seeing it again, aren't likely to be as impatient, and probably won't mind waiting an additional month.

Then, there are those who didn't see it in the theater. By definition, these individuals probably aren't in that much of a rush to see the movie. If they've waited this long, they can wait another month. This logic suggests that Blockbuster's advantage might not amount to much. Any damage to Netflix should be minimal.

Yet, the gain to Netflix from making this compromise is enormous. The expansion of its streaming library is a huge win for the company. This must be its preferred method of subscriber viewing -- think of all the savings on shipping costs. the company also would need to purchase fewer physical DVDs if it has more subscribers streaming, which means less warehouse space and fewer personnel. Naturally, its customers who have the ability to stream movies also love this method. Through streaming they don't have to wait for the movie to arrive in the mail -- it's available at the click of a mouse or the push of a remote control button.

All things considered, the studios and Blockbuster get a little, but Netflix gains a lot.