DRM News

For years, movie studios have cried poverty due in large part to piracy of their movies. And one of the suspected culprits in the rapid appearance of new DVD releases on to torrent sites is Netflix.

Basically, for $16.99 per month, Netflix customers get access to up to three movies simultaneously with the ability to exchange movies at any time for any other film in the Netflix catalogue. The movie studios have decided that this rapid and regular exchange of titles explains in part the speed with which new movie releases appear on popular download sites.

Well, Netflix has begun to cave.

From Dailytech :

Under pressure, Netflix just announced that it has incredibly consented to enter a deal with Warner Bros. that will essentially begin to kill its new release program under the premise of fighting piracy.  Under the agreement, Netflix agrees to not offer new releases until 28 days after the DVD/Blu-Ray release goes on sale in stores.

Netflix COO Ted Sarandos appears to have wholeheartedly embraced the idea, which he originally suggested to studios in 2007.  Netflix likely gets a major kick back from the deal, though; if the terms of Mr. Sarandos’s original pitch hold true, Warner Bros. will cut its inventory costs with Netflix (the amount it charges the company for its movie stockpile) by 50 percent.

Describes Mr. Sarandos enthusiastically, "Creating a rental window is not a punitive action. It’s a decision that the retailers and studios can make together. If the studios can entice a rentailer to create a rental window, I believe that rentailers, studios and consumers can all benefit from it."

With that attitude and the mutually positive reaction from Warner Bros., it seems likely that other movie studios will follow in suit, signing agreements to cut inventory cost in exchange for no more new rentals.  Netflix is reportedly in advanced talks with Fox and Universal as well.  Other unnamed studios are also discussing similar plans with the rentailer.

So, here we have another example of studios putting controls on the way distribution of their product works because they believe it to be partially responsible for piracy. No evidence, no ‘smoking gun’, just a typical reactionary big media response. And if it doesn’t work? The studios just drastically reduced their profits from Netflix without reducing the rate piracy of their product.

Meanwhile, the customer is tossed aside as Netflix enthusiastically signs off with the movie studios. Sure, they’re likely reducing their own bottom line by a substantial margin, but at what potential cost in terms of subscription rates?

It will be interesting to see what the fallout of this decision is for both sides.