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Oh Hollywood: Netflix Profit Leaching and Longer Movie Rental Delays

October 28, 2009 , ,

Admittedly, we here at Public Knowledge spend a lot of time fighting with Hollywood and the MPAA. It is not that we think that the MPAA is full of bad people, just that the policies that they fight for are not always in the public interest. Of course, it is not their job to fight for the public interest – their job is to fight for movie studios. Fighting for the public interest is our job. However, sometimes the MPAA or one of its member studios says something that makes us wonder – are you even doing a good job fighting for movie studios? Here are two developments that really beg the question.

Netflix’s Success = Bad for Movies?

A recent example of this are the comments made by an unnamed studio executive to CNET about Netflix. At this point, Netflix essentially offers two related services to customers – DVD by mail and streaming movies over the Internet. Both of these services are becoming increasingly popular. Recent reports from Cisco and Sandvine show that licensed streaming video is starting to draw users away from the P2P networks that studios point to as hotbeds of piracy.

Consumers like the way that Netflix allows them to watch movies so much that Netflix has been able to report a string of profitable quarters. This might seem like a good thing – in an age where studio executives repeatedly warn that their business is being undermined by Internet piracy, a paid movie service is growing like gangbusters.

Apparently at least one studio executive sees it otherwise. As CNET reported “’The thing with Netflix is that people are taking notice that they keep reporting these big quarters,’ said one studio exec. ‘We aren't participating in that and that's going to change.’” Keep in mind that Netflix does not rent and stream movies that it gets from some mythical “free movie tree.” Every DVD that Netflix sends through the mail was purchased from . . . a movie studio. Every movie that is streamed by Netflix is licensed from . . . a movie studio.

I encourage more appropriate analogy suggestions in the comments, but to me this is like steel companies complaining that Honda is making too much money selling too many cars, and that they “aren’t participating” in the success. Just as Honda needs to buy steel to make cars, Netflix needs to buy movies to make its service work. When Honda is successful it needs to buy more steel. When Netflix is successful it needs to buy more movies. Sorry to belabor the point, but studios are “participating in” Netflix’s success – they are selling more movies to Netflix. Oh Hollywood.

People Like to Rent Movies – Make Them Wait Longer?

People seem to like to pay to rent movies. While plenty of people like to purchase DVDs, others don’t necessarily want to pay to own the movie and are more than happy to just pay to rent. Again, companies that rent movies don’t get them from the free movie tree – they buy them from studios. How is Hollywood reacting to the fact that people are willing to pay to rent movies? They are making it harder.

Last week, reports started to surface that Hollywood was considering changing the DVD release window. Instead of making consumers wait until well after a movie has left theaters to buy or rent the DVD, studios are going to make consumers wait until well after a movie has left theaters just to buy the DVD. Then, they are going to make consumers wait even longer to rent the DVD. It is possible that the best way to fight the scourge of Internet piracy is to make it harder for people to pay to watch movies the way they want to, but that strikes me as unlikely. Instead, this is another barrier making it harder for people who actually want to pay to watch movies, instead of simply downloading unauthorized copies from the Internet. Oh Hollywood.