Netflix Caves to Warner Brothers
techcrunch.com
techcrunch.com
You had a chance to see the movie in theaters. You either saw it or you didn't. The DVD comes out for sale. You either buy it or you don't. 28 days later the movie is available for rental, however long after the theatrical release. It just increases the wait time from the theatrical release by 28 days. ?
By the author's own definition, if you're renting at all instead of buying, it's crap. It's OK to wait 28 more days for crap. I may have even said this to my 12 year old in another context.
It's an amazing amount of text for such a trivial issue. What am I missing?
[Edit: added 2nd to last paragraph; the "crap" paragraph.]
The film sales markets (where producers sell to distributors) also take place in Q1, so if your goal is to make the hit horror for 2011 you start planning now to shoot in summer so you can be done editing by fall and sell it in winter so you can market it during summer for people to see during fall and buy during winter. Whew!
28 days is a small price to pay for an improved streaming selection. Especially with Warner Brothers who has a massive catalog of titles. If you're not seeing it in the theater, not buying the DVD, chances are you really don't absolutely need to see it in the first 28 days either. Pretty good deal by Netflix.
The claim of "improved streaming selection" hasn't been elaborated on or even substantiated anywhere that I've seen.
Even if it were, I'd still disagree. Now my Netflix account is no longer sufficient to handle all of my DVD rental needs and I have to go to one of their competitors to fill that gap. It's a real shame and a major ding to one of the few services that I considered practically perfect (on the physical DVD side) and improving (on the streaming side) every year.
People like new things. Netflix will no longer be offering new things. That smells like market opportunity to me.
Acting through the distributors is a feint, which Universal is big enough to attempt (in that they have sufficient influnece with distributors) but which doesn't cost them too much if they lose. Note that they haven't lost yet - The court has dsimissed some of Redbox's claims, but affirmed their right to bring a case asserting antitrust behavior by Universal.
Whether they'll win it or not I don't know, although the judge seems sympathetic to Universal in their distributors voluntarily entered into an agreement with the studio to distinguish between DVDs sold for retail and for rental, and Universal are just asking them to stick by that contract, which predates any agreement between those distributors and Redbox.
I don't know the specific strategic thinking of Universal's lawyers and here, and as I said I'm not a lawyer myself - this is just my reading of what's taking place. I can say that the distribution executives that I have spoken to about this all hate RedBox - while admiring their chutzpah and business drive, they loathe seeing their product dispensed and priced like a bag of potato chips.
Thanks for reposting that opinion, BTW. I'd forgotten how many jokes it contains :-)
Making your products as easy or easier to consume by legal means than not is how to win.
The argument is more of "1 download != 1 lost sale" because I can download and watch more movies for free than I could afford to watch at all but the lowest of prices. And even then "1 download != 1 watched movie" because I might be someone that is compulsively downloading as much as I can. In that case, the amount of movies that I can download is only limited by the bandwidth available to me (and the access to downloadable pirated movies). I could easily be downloading more movies than I could afford to buy/rent at any price. Therefore saying that each movie I've download is a 'lost sale' is disingenuous because converting me to a paying customer would only net you a revenue for a fraction of the amount of movies I've downloaded.
The people that are compulsively 'hoarding' movies are not likely to become paying customers, but what percentage of downloaders/pirates are they? The studios don't have the answers to these questions as much as they might like to seem like they do. They only trot out the raw numbers for shock value, though I wager that behind closed doors they might have a better understanding that these numbers are bunk.
The sentiment behind that wager is why I think this deal with Netflix is calculated, and that the outcome will be favorable (short run, long run all bets are off) for both the studios and Netflix.
Yes it is too much work to walk down to my mailbox and wait 2 days for my damn DVD when the technology is there to deliver it straight to my TV in seconds.
Of course this all would have to come at a price but I would gladly pay 20 or 30 and possibly even 40 bucks a month to have unlimited access to their full DVD collection on-demand.
Shelling out 20 bucks for something you'll end up watching once or twice 95% of the time is throwing away your money. So until they (the studios) stop attempting to rip us off like the greedy bastards we know they are then I'll get the new releases elsewhere for free.
There is an ideal price to be set on the curve where everyone wins it's just that the aging execs in charge can't change fast enough to keep pace with their consumers changing preferences. Time to get someone new in charge..
Ditto. If I were WB or Fox, I'd work out a deal with NetFlix to provide this 'premium' content SOONER than the DVD release, or I'd be hard at work developing my own CDN.
So it's all a very complicated problem. Movies that already have the rebroadcast rights sold off would be tough without the sort of cross-licensing Netflix does with Starz; the studios don't really have further control until those deals expire, since they're legally-binding, exclusive contracts. Rentals don't conflict with those exclusive rights, which is why the studios can license Amazon or iTunes to offer the movies for a fee, but can't license Netflix to stream them.
What they could do is to stop doing those sorts of exclusive deals, but those deals bring in a fair amount of money, so someone like Netflix would need to pony up enough cash on their end to make up for the loss of revenue that would come with either the total loss of those broadcast deals or with the loss of exclusivity on those broadcast deals. But I'm sure that even renegotiating non-exclusive contracts to use in the future deals with existing broadcasters would take a pretty long time once they've decided to do it; those sorts of legal maneuverings take a long time.
So certainly the studios could start trying to do something about it, but it's not a simple problem that they could just change their minds about and make go away instantly.
I don't know if this increases piracy because most of the time you will be able to get a DVD quality download before it's even been released to rent and buy.
Um, I'm not currently a netflix customer because of how small their streaming selection is.
I'm going to say, the fact you can't get new releases anyway ("long wait"), means they're basically vastly increasing their offering of streamed movies....something they have unlimited capacity to do, while decreasing a service that sucked anyhow and was virtually useless.
I don't see why they're doing something bad here.
With Watch Instantly on Netflix, I rarely bother with physical media anymore.
I've paid money to stream a movie I can rent on netflix. The experience is so much better, even with DRM which only lets you watch once. Netflix lets you watch many times.
We need to move to a future where people can pay to watch the movie on their TV instead of paying to get a ticket at a theatre. Then we need to enable subscription pricing for movies that aren't new releases.
Eeek - no thanks! I'd like a future were we can do the former as easily as the latter - but absolutely not instead. I have a number of reasons for this:
1. I love watching a movie in the theater. I know, adverts, overpriced popcorn, sometimes the person in front is too tall or the person in back keeps whispering, but I like sitting in the middle of a crowd that gasps or laughs in unison, and I particularly like seeing the film on a creen bigger than my house...
2. ...because when we make movies, we at least try to have them look good that way. It's supposed to be all-enveloping and ridiculously bigger than life. TV diminishes movies: reducing them in size robs them of much emotional impact. And it is our big fat emotions which we wish to impose upon - er, share with you, the viewers.
3. if you've made a film and got it into an important festival (the kind that buyers show up to, rather than just film buffs), then the reaction of a full-size audience sells the film better than any private screening possibly could. So it's more likely to sell, and for more money. And we crave your money almost as much as we crave your adulation. More, in some cases.
4. Seriously, we need the money. People have this image of the film business as being full of greedy executives and pouty stars, but that's like saying everyone in the software industry is like Steve Ballmer or Larry Ellison. The vast majority of people make a much more modest living. If you want to make your own films, that's pretty expensive so you usually have to beg other people to lend you the money.
5. If you're not in a festival but you know what you're doing, you can rent a theater relatively cheaply and screen your film there. For some kinds of material this can be an effective sales strategy - and it may be much faster and cheaper than trying to persuade a distributor by renting a tiny stand at a film market...
6. ...and you need a distributor, because it's bloody hard to get your movie into Netflix's catalog otherwise, and Netflix is the 800 lb gorilla of DVD rental. You can also put a movie on iTunes, but it turns out that not that many people want to rent their movies that way and I'm told by distributors that having your film there isn't worth nearly as much as on Netflix.
7. Of course you can self-distribute, but it's very hard to make money this way. You could give it away free on the net, but your return on paypal donations will be pretty minimal. I very much liked the idea of TipJoy, but as you found yourself it's hard to build a business model around micropayments. It's even harder if you're trying to share revenue with a CDN that can offer decent streaming.
Don't get me wrong, I'm all in favor of streaming and other methods of web delivery. In some senses it's easier to market your film than ever. But as film becomes more of an on-demand commodity rather than something people get up and go to (as in theaters), building a revenue model becomes very tricky. It's far cheaper than it used to be to make a film, thanks to technology, but it's still a tremendous amount of work, and as I said elsewhere you can't iterate - when someone decides to watch a movie, they want a finished product that runs for 80+ minutes, and that's quite a bit of work to put together.
How can you provide a rental service to people during the 28-day DVD sales window without breaking the license terms? That's basically pay-per-view, and PPV is dead from the distributor's standpoint, there is almost no money in it now.
Part of the problem (for the distributors) is not that netflix rents to everyone, but that they don't charge any late fees. for years the video business made profit in 2 ways: new hit films that everyone wanted to watch but couldn't buy yet, and late fees - both of which subsidized all the other movies that didn't attract such a big audience but still took up shelf space. Well Netflix's business model depends on massive volume and warehousing, and it turns out consumers are willing to wait the 2-3 days required for postal transfer. And since there's no late fees, if there's a movie you really love you could just keep it out for a month and watch it 20 times until you're sick of it, whereas previously you'd rent it, go crazy about it, and then buy the DVD because that was much more economical than keeping it or wasting time at the video store waiting for it to go back on the shelf so you could rent it again.
So the problem is not that most movies are crap, because only a very small number of movies appeal to almost everybody; most people only like a narrow range of genres and actors and find others uninteresting. Furthermore, we've only been able to rent videos/DVDs for about a single generation; before that the only way to see great old movies was in art theaters and on TV. Now you can fit the 100 greatest movies of all time onto an IPod, goddamn. It's easy to be sniffy about what's on at the theater when you can hire a comfy chair for the price of a few lattes and pull a century of movie greats out of your pocket or laptop bag.
Obviously the answer is 'make something awesome' and people will throw money at you. But this is quite hard to do. I'm in the middle of making a somewhat awesome little movie right now (today is a day off) and we're doing it in a very hacker-ish way with a tiny budget in the 5 figure range. But in the movie business you can't iterate, you have to commit and ultimately we, the makers, only have our own feedback and critical skill to judge the project on while we're making it - so in startup terms, you are stuck with a very high burn rate, and you have to deliver a lot of (entertainment) functionality in your first release - you don't get to do a public beta, nor can you make any money by releasing a fabulous film that's only 5 minutes long. When people want to watch a movie, they're expecting 80 minutes minimum, and the bare minimum length of time/money to go from concept to delivery is 6 months and $25,000. You do hear bout people doing it for less...as part of a marketing campaign. No matter how passionate you are or how fast you work, writing, editing and shooting take up time during which you still need food, a place to sleep and a moderately fast computer. In short, we lie about these things in a desperate attempt to engage your attention :-)
If you begin with a decent-sized budget, then you can presell into overseas markets, but to do so you'll need famous names, which generally don't come cheap.
On any size budget, you also have to invest a lot in marketing (like 50-60% of said budget for optimal results) so you can open well in theaters, because for most films, the theatrical release is not profitable. You only hear about the big grossers - and in any case, the bulk of that money stays with the theater owner. Most films lose money or barely break even at the box office. The dirty secret of the movie business (for those thinking of getting into it) is that the theatrical release is just a giant advert for the DVD. You spend this huge amount of money on marketing in order to establish your film in the public mind as 'a real movie', and to provide a moment of recognition when they see your DVD available for rent or purchase - 'oh yeah, I never went to see that! What the hell, I'll watch it now'. It's incredibly hard to get people to even rent your film if they've never heard of it or seen an advert for it.
And all that goes times ten for getting people to buy it, which is where you have the potential to make some decent profit. If that isn't there, then investors are less likely to put money into films because the (significantly high) risk isn't justified by the (comparatively low) rental profits, unless the film is a relatively sure thing due to the combination of spectacle and star power - but as people often complain, such films tend toward the bland, with obvious stories and pg-13 ratings.
I have to say I'm rather with Warner Brothers on this one, and hope the other studios back them up. Partly because I can see benefits as a film consumer in studios having a more stable profit model, but also because as an indie filmmaker, a 28 day DVD sales window at least gives up-and-coming filmmakers a month to sit on shelves and be seen by consumers, who might later spend money on renting the film because the title is vaguely familiar from a previous visit to a store.
Excuse the rambling explanation. I just get irritated by people like this TechCrunch writer who have no idea wht goes into making and selling a film and seems to think they pop out of a machine like bubblegum.
Citation?
As you'll note therein, if a DVD is on sale in the store, the first sale doctrine of copyright law means you can legally rent it out to people, same way you can sell second hand books without getting publishers' permission to do so.
The reason I cite the rental version above is that is how it has been done up to now: the rental version is made available with a restrictive license before the consumer version goes on sale, precisely to avoid the cannibalization of rental revenue due to the first sale doctrine - which is why studios are looking at adding value to rental version by including content that won't be available on the consumer one.
But even then, renting out the consumer version is legally dubious. It would appear to be OK under the first-sale doctrine, and the link above mentions a case known as NEBG vs Weinstein, (the film studio), with the implication that studios can do nothing to prevent such rental. So says Wikipedia too, but without any citation for this assertion.
Here, on the other hand, is a description of how the case went down, including the fact that it was dismissed on the basis of ripeness (ie a complaint brought about something that hasn't actually happened yet) rather than being adjudicated and thus settled case law: http://williampatry.blogspot.com/2007/05/first-sale-fandango...
In a nutshell, a video rental business sued a film distributor over their plan to label consumer DVDs as 'for sale, not rental' claiming that to do so would be an unfair restraint of trade, not least since the distributor had an exclusive rental deal with blockbuster at the time.
It would be foolhardy to assume that freedom to purchase automatically implies freedom to rent, as a rental exception for musical works already exists in law, and while this does not explicitly mention DVDs, the spirit of that legislation (Record Rental Amendment of 1984 which modifies Section 109 of the Copyright Act) would clearly apply, and courts would certainly take that into consideration.
so you might get away with it, and studios/distributors would rather not go to court and been as the same kind of bad guys as the RIAA. But if push came to shove, I believe they would do so since a consumer-copy-rental business would horribly gouge their profits, significantly increasing their commercial risk.
After spending 45 minutes or so googling "Blockbuster", "Netflix" "Retail Chain" "channel" - I can't find any reference whatsoever to "costs considerably more".
Indeed, it appears that blockbuster doesn't even buy the DVDs that it rents, but instead just gives a cut of their revenue to the movie industry:
http://nwitimes.com/business/technology/article_feee2db5-425...
Which probably explains how they can guarantee availability of recent releases - they get a basically infinite supply of the DVDs and only have to pay for what they rent out.
With regards to Netflix, they too will be getting a significant discount now that they've signed their "30 day blackout" window.
Indeed, the only people I could find paying retail for DVDs were Redbox - and that's because the movie industry is forcing them too.
Retail prices appear to be a _ceiling_ - it's what you pay if you can negotiate a discount.
Any citation indicating otherwise would be appreciated. I really have enjoyed reading your review of the case law, I'm just wondering if you've got the pricing on DVD rentals correctly leveled.
Generalities about the film business are awkward; it's opaque insofar as much pricing is contract- rather than market-based.
http://en.wikipedia.org/wiki/Blockbuster_Inc.#Business_model
Seriously, though: I've organized several dozen publicly-advertised movie screenings of movies (new release or not) and have had to pay anywhere from $50-500 for the rights to do so.
When you pay for such a thing (through Swank [1], for example) you get a box with a DVD and a piece of paper with a mailing slip and a license for showing the movie publicly on a certain date. The DVD has a different silk screen printed on it than a retail DVD and was sometimes even a different color (purple or yellow plastic instead of clear).
Here are before-and-after articles about the lawsuit from Video Business, the trade publication for the video rental industry:
http://www.videobusiness.com/article/CA6398859.html
http://www.videobusiness.com/article/CA6461951.html?q=nebg
NEBG, a retailers' association, sought to prevent Genius group, a distributor, from including an 800 pritned on the front of discs along with the message 'for sale only, call if you suspect piracy', arguaing that including this on DVDs would damage their members' businesses by implying criminal activity on their part. The case was dismissed since the labeling never took place, and so no harm had actually occurred. they were particularly annoyed because an exclusive rental distribution agreement existed between the distributor and Blockbuster, such that NEBG members had no way to obtain rental copies to offer to their customers.
They assert it is legal for them to do so under the first sale doctrine, but this has never actually been tested in court, so it would be more accurate to say it has not so far been forbidden. It is not established case law, and in this sense the Wikipedia article is incorrect.
If the studeios and distributors establish a 28 day sale window with Netflix's agreement, and if they make rental copies freely available to wholesale buyers, then there may well be a test case brought against anyone who sell consumer copies for rental, brought by both the distributors and very possibly Netflix themselves.
IANAL, but I am an industry professional, so that's my humble opinion.
I also know that redbox is buying retail dvds (http://www.latimes.com/business/la-fi-ct-redbox4-2009dec04,0...)
netflix used retail dvds for years. AFAIK netflix stil does for certain low volume titles.
Please see the copyright Act s109.b.1.A, which states (in part - software-specific verbiage removed): unless authorized by the owners of copyright in the sound recording ... neither the owner of a particular phonorecord ... may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord ... by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending.
http://www.law.cornell.edu/uscode/17/usc_sec_17_00000109----...
I mean look, it's pretty clear that you can not rent audio recordings without permission (there's an exception for libraries). It's just not allowed. Now if the film industry's back is against the wall and they either make a case or lobby Congress to extend the same protection to movies, they can make two parallel arguments:
1. it's ridiculous and unfair that you should be able to prevent the rental of a movie's soundtrack on CD but not have the same control over the movie itself on DVD; and
2. while there is an explicit distinction between phonorecordgs and audiovisual works such as motion pictures (so that it can be argued the above simply does not apply), there exists a compulsory license for phonorecords - ie you can license a piece of published music for distribution whether or not the copyright holder wishes to sell it to you - hence all those awful compilation records - but there is no such right for motion pictures, and thus a distributor of same is perfectly at liberty to refuse to sell to someone, and impose contractual conditions to that effect, which is the path that Universal appears to be taking (See s.115 of the copyright act). In short you don't have an automatic right to be able to obtain a copy.
Incidentally, since you work for Netflix, and I presume your presence here means you're probably programming for them, the main complaint that I hear from distributors about Netflix is opacity - they really want better metrics, of the kind Apple supplies to their content providers. They like the checks but find it very hard to track the performance of the individual films they distribute, which in turn frustrates producers.
Yes. I write software for netflix.
Do you honestly believe that Apple has any choice as to how much data they provide? Do you think apple give detailed metrics because they're warm and kind business partners?
I'm pretty certain apple provides very detailed data because they sell digital ownership rights and PPV contracts. Their contracts/agreements with the distributors would mandate detailed reporting of each sale.
Netflix does not sell digital movie nor do they offer PPV.
Fine, but my point about the First Sale Doctrine stands - it is not the settled legal situation Wikipedia (and thus you) claim it to be, and I've shown why. You can take or leave my other opinions as you see fit.
Do you honestly believe that Apple has any choice as to how much data they provide? Do you think apple give detailed metrics because they're warm and kind business partners?
It's part of their offer, not a matter of compulsion. I'm just pointing out that distributors would love to have similar information from Netflix, so you could, you know, make more money by trading it for a small reduction in your wholesale costs.