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Warner Bros. new releases to stay off Netflix for 28 days

January 6, 2010 | 11:29 am

Netflix1

Marking the first step in what could be a major change in Hollywood's relationship with Netflix Inc., Warner Bros. has struck a deal with the fast-growing online DVD subscription service that will prevent it from offering new releases until 28 days after they go on sale.

The studio is hoping that the four-week "window" will push consumers interested in watching movies at home to purchase the DVD. Warner already imposes an identical window on $1-per-night kiosk company Redbox and its competitors. Although its unilateral move against Redbox has led to a court battle, Netflix agreed to the 28-day window in exchange for improved financial terms, higher inventory levels and increased access to content for its online streaming service.

As plummeting DVD sales have shrunk the bottom line of studios in recent years, they have focused on Redbox and Netflix, the two fastest-growing segments of the home entertainment market, out of concern that they are drawing consumers away from purchases. Redbox and Netflix rentals generate the smallest profit margins for studios of any home entertainment transaction, and Blu-ray and DVD purchases are the most profitable.

"The 28-day window allows us to continue making our most popular films available to Netflix subscribers while supporting our sell-through product," Warner Home Video President Ron Sanders said in a statement.

"We have been discussing new approaches with Warner Bros. for some time now and believe we've come up with a creative solution that is a 'win-win' all around," said Netflix chief content officer Ted Sarandos, who handles studio relations.

Warner Bros. first said it wanted to change its relationship with Netflix in August, at the same time that it imposed the 28-day window on Redbox and its smaller kiosk competitors.

Other studios have privately expressed similar concerns recently about Netflix, which has more than 11 million subscribers. It's likely that some or all will follow Warner Bros.' lead and strike similar agreements soon. 20th Century Fox and Universal Pictures are the most likely candidates, as they have imposed windows on Redbox.

The new deal means that for the first four weeks after Warner Bros. movies are released on DVD, consumers will be able to only purchase them, download them them through Internet or cable video-on-demand services, or rent them at retail stores like Blockbuster. Video-on-demand and retail rentals are more profitable for studios than Netflix and Redbox, though it remains to be seen whether Warner will look to impose a window on Blockbuster Inc. and its competitors as well.

-- Ben Fritz

Photo: A Netflix consumer with the "Frost/Nixon" DVD. Credit: Paul Sakuma/AP.

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