A couple of weeks ago, Netflix announced that it had reached a “deal” with Fox and Universal movies studios, in which it agreed to delay the release of their DVDs to its subscribers by 28 days. Netflix did the deal in order to maintain its access to movies for its streaming service, and the studios think it will help them sell more DVDs. The studios tried to get DVD rental service Redbox over a similar barrel by threatening its access to their DVDs. Redbox had already caved to Warner Bros., and has now done a similar deal to Netflix’s, with Fox and Universal. And, just like all the earlier deals, this one’s pretty stupid on the part of the movie studios. Let’s go over why.
Redbox offers two main benefits to its customers: convenience and price. Its machines are everywhere these days, and its $1 per night price capitalized on the widespread consumer displeasure with Blockbuster and other rental chains’ high prices and late fees. The Redbox customer is price sensitive; so is it really very likely that delaying the release of a movie by a month is going to get them to decide to shell out $15-$25 per movie to see it immediately after it’s released? The same goes for Netflix subscribers. If they’re already paying for their subscription service, why would they run out to buy a new release — particularly when they already have to wait to get some new releases anyway. The studios think they can force customers to change their behavior by controlling access to new movies. All this plan is going to do is to illustrate to them that the part of the market they’re aiming for with these delays really doesn’t care enough — or cares about other factors more — to behave any differently.
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