Bloomberg
Hollywood studios are considering a “sale-only” window for new DVDs that would delay consumers’ access to rent new titles, Netflix Inc. Chief Executive Officer Reed Hastings said.The delay would be voluntary and discussions are part of an effort by movie studios to give a jolt to declining DVD sales, Hastings said yesterday in an interview. No agreement has been reached and other rental services may choose not to participate, he said. By accepting delayed rental releases, retailers may receive cheaper rates for buying movies, according to Hastings.
“If they can make it economically attractive for us, and it is economically attractive for them, then we both can voluntarily agree to do it,” Hastings said.
DVD sales have dropped about 10 percent this year, as more people get videos online or rent using Netflix’s mail-order service or Coinstar Inc.’s Redbox kiosks. With a sales-only window, customers wouldn’t be satisfied having to wait for new releases, Douglas Anmuth, an analyst at Barclays Capital in New York, said today in a note.
“We must have a level playing field and the right to buy movies at the same time as any of our competitors,” Coinstar said today in an emailed-statement.
Coinstar indicated it may be willing to go along with the plan if it can get equal access purchasing DVDs and if other rental outlets agree to the proposal.
Battling Studios
Bellevue, Washington-based Coinstar is battling with studios including News Corp.’s Twentieth Century Fox Home Entertainment Unit and General Electric Co.’s NBC Universal over distribution agreements that would bar the rental service from offering new movies for as long as 45 days after public release.
“The studios aren’t happy with the money they are making right now,” according to Edward Woo, an analyst with Wedbush Securities in Los Angeles.
Netflix rose $5.26, or 11 percent, to $54.89 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 84 percent this year. Coinstar fell $1.08 to $33.85 and has climbed 74 percent this year.
Coinstar forecasts DVD revenue of $750 million to $780 million this year, Chief Financial Officer John Harvey said on an Aug. 4 conference call. That’s up from $9.5 million in 2007 revenue. The company is adding 8,000 kiosks this year to reach roughly 22,000 in 2009, Chief Executive Officer Paul Davis said on Oct. 6.
In the European Union, there is a legal framework that allows the studios to keep movies from being rented for a short period of time, Hastings said. That statute doesn’t exist in the U.S., so the agreement would have to be mutually beneficial, he said.
Mutual Benefit
Netflix, based in Los Gatos, California, may agree to a deal with the studios in exchange for better rates on DVDs and rights to stream movies through the Internet when the sale-only window lifted, Hastings said.
“It would mean less spending on DVDs, it would mean more money on streaming and it overall could be a benefit for us relative to our competitors because we’re less new-release sensitive,” Hastings said. Roughly 30 percent of Netflix rentals are new releases, according to the company.
Industrywide, DVD sales have fallen by about 10 percent this year, New York-based News Corp. Chairman and Chief Executive Officer Rupert Murdoch said at an investor conference last month.
Time Warner Inc. has discussed creating a 28-day sales-only window, Hastings said.
“For now there’s a lot of modeling and strategic discussions going on, and we’ll see if sales-only windows become a reality at some studio or two over the next year,” Hastings said on a conference call with analysts yesterday.
Warner spokesman Scott Rowe didn’t return a phone call seeking comment.
Netflix said yesterday that third-quarter profit rose 48 percent on increased subscriptions. Net income rose to $30.1 million, or 52 cents a share, from $20.4 million, or 33 cents a share.
To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net
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