Peter Kafka

Recent Posts by Peter Kafka

The Netflix and Warner Bros. Pact: Subscribers Wait for New Movies, Get More on the Web

netflix ticketHere’s a marriage of convenience: A pact between Netflix and Warner Bros. that gives both sides some of what they want, at least for now.

Netflix (NFLX) has agreed not to rent the Time Warner (TWX) studio’s movies for the first 28 days after they go on sale. In return, it will pay the studio a reduced fee when it does rent the discs, and will get more movies to offer via its growing Web streaming service.

Hard to get a very good sense of the deal because no dollar signs have surfaced so far. But the broad strokes sound good for both sides: Warner gets a big distributor to help it protect its retail sales for a bit longer, and Netflix gets to reallocate the money it spends from discs to digital.

Here’s Ted Sarandos, Netflix’s Hollywood emissary, via Reuters:

Sarandos declined to comment specifically on the economics of the deal but said it represents meaningful savings in terms of what it spent on Warner’s physical discs in 2009. He said, however, Netflix was reinvesting those savings in streaming.

“On a net basis in 2010, we’re growing our spending on the studios even if we are saving on physical DVDs,” he said, adding he expects this trend to continue as more and more customers seek movies through its streaming service.

“In 2010, Netflix will spend $600 million on postage,” said Sarandos who envisions “moving that entire bucket of spending to Hollywood and out of the post office.”

Note that this is exactly the agreement that Warner and other studios have not been able to strike with Redbox, the upstart rental outfit, which has led to a legal fight.

And it helps Netflix answer a question I hear more and more often these days: When will it be able to expand its selection of digital movies, which right now remains just a fraction of its physical catalog?

I’ll be able to ask CEO Reed Hastings that question myself on Friday during an interview at the Venetian Hotel in Las Vegas, where the All Things Digital team is gathering for the annual Consumer Electronics Show. You can listen in to what Hastings has to say at CES via a Web-streaming offering of our own Friday afternoon. Some details here, and more to come.


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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus