What Warner Bros.’ 8-week DVD window really means

Warner Bros. is doubling the amount of time that it asks DVD rental firms to wait between the day that DVD and Blu-Ray discs go on sale to the general public. Now those companies, which include Netflix, Redbox and Blockbuster are faced with a choice: They can wait eight weeks and purchase discs at a steep discount from the studio itself, or they can find alternative sources for those discs and pay considerably more to have them available on the same day and date that DVDs can be purchased by consumers.

The reaction from the industry follows a change around working with studios to provide content that can be rented out to consumers. Originally, video rental outlets operated by purchasing VHS cassettes — and later DVDs — from wholesale suppliers and then making them available for a nightly fee to their customers. But over the years, as the industry matured, both the studios and the rental chains themselves determined they could operate more profitably by cutting out the middle man and sourcing copies directly from the source.

That’s given the studios a little bit of leverage over the rental firms, which they first chose to employ two years ago. Beginning with Netflix, Warner Bros. set a 28-day window — a move that was quickly followed by the other studios. Now that Warner Bros. is taking the lead by extending that window another four weeks, we expect other studios to do so as well. With that in mind, here’s how each of the major companies affected will likely deal with the newly extended Warner Bros. window.

Netflix

As reported by AllThingsD, Netflix is expected to abide by the terms set by Warner Bros. and to continue sourcing its discs directly, waiting 56 days before making those titles available to their customers. But there are a few important points to keep in mind here:

The vast majority of Netflix DVD rentals aren’t new releases. While many were critical of Netflix’s decision to swap a longer DVD window for more streaming content, the company has seen little effect from its decision to do so. That’s because only a very small portion of Netflix DVD-by-mail rentals actually come from new releases, with most subscribers using the service to watch older, more obscure long-tail content.
Netflix has shifted its focus from DVD to streaming. It’s not news that Netflix is a streaming company now as opposed to a DVD-by-mail business. But that shift is primarily what’s driven the company’s growth, and why it hasn’t been affected by the longer DVD windows. In fact, in the two years since striking its first DVD windowing deal with Warner Bros. (as well as subsequent deals with Fox, Universal and Sony), Netflix has grown from 12.3 million subscribers to nearly 24 million subscribers. More importantly, while all its users at the beginning of 2010 subscribed to a DVD-by-mail plan, now just 13.9 million do so.

The point is, even though Netflix users are faced with longer waits for new releases, the company isn’t likely to see much effect from that window. While there will be some users for whom an additional four-week wait for new releases will be a deal-breaker, we believe few users will actually notice. And even if they do, let’s face it — the company doesn’t seem terribly concerned about users unsubscribing from its DVD-by-mail service.

Redbox

Redbox, like Netflix, agreed to a 28-day window with Warner Bros. and other studios, including Universal and Fox. But unlike Netflix, having access to new releases is a material part of its kiosk rental business. Since it provides instant gratification to consumers wandering in and out of Walmart and other big box stores, its users are more likely to be aware of what’s new, what’s hot, and what DVD titles just went on sale and seek them out.

Want proof? Just take a look at Redbox’s most-rented titles for 2011: In addition to being horrible movies, they were also all produced and distributed by studios that Redbox didn’t have a 28-day window with. Just Go With It, The Green Hornet, The Tourist and Insidious are all Sony titles, while Rango, its most rented family movie, was produced by Paramount.

When asked about the window, a Coinstar representative sent us the following statement: “The current agreement Coinstar has with Warner Bros. is to receive movie titles 28-days after their release. No revised agreements are in place.”

The deal that Redbox cites expires at the end of this month, according to sources. When it’s over, you can expect the company to find alternative sources for Warner Bros. DVDs. It might pay a little bit more for each title, but it’s likely to make up that cost in the eight weeks that its users would have to wait for those movies to hit its kiosks. As a result, the new Warner Bros. window could actually end up being a net positive for the kiosk rental firm.

Blockbuster

Of all the DVD rental firms, Blockbuster is least likely to be affected by the Warner Bros. window. Why’s that? Because it’s used “day and date” as a key differentiator in its marketing ever since Netflix and Redbox first started doing windowing deals, and that’s unlikely to change.

In fact, Blockbuster has already found alternate sources of DVDs from Warner Bros., not bowing to the 28-day window that the studio had earlier tried to impose. As that window gets extended even further, Blockbuster is even less likely to play ball with Warner Bros. According to a person familiar with the situation, Blockbuster will continue to offer its customers day-and-date releases of movies by Warner and other studios.

Photo courtesy of Flickr user Al Pavangkanan.

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