Netflix New Rental Gamble: CEO Says Cuts are Good for Customers

From DailyTech: Netflix is the biggest player in the by-mail rental business, though it faces tight competition from Blockbuster. Earlier this month Netflix announced a controversial decision, which took many by surprise -- it cut a major chunk of its new releases. In return for essentially ending new rentals from Warner Bros, Warner reportedly agreed to cut the company's inventory fees in half. Netflix has since implemented the agreement by introducing a 28-day waiting period on new releases from Warner. Warner argued that the move would cut piracy and increase DVD sales.

With similar deals with Fox, Universal, and others near completion and the wholesale discontinuation of new releases from Netflix nigh, Netflix CEO Ted Sarandos has gone on the record with blog Hacking Netflix to defend the move. He states, "The most practical reason is that the savings derived from this deal enable us to be in stock completely on day 29. Remember that we’re a subscription service and the way that you manage the economics of a subscription service is to manage the demand of any disc, depending on the economics of the disc... The net savings derived from technically creating a better customer experience have been redeployed in additional streaming content for all customers."

In short, Netflix is taking a gamble, cutting new releases in exchange for expanded streamed offerings. Among the new streamed offerings from Warner are Caddyshack, The Matrix 1, 2 & 3, the entire Dirty Harry film collection.

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