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Disney raises wholesale price on Redbox and Netflix

Amid calls from some on Wall Street to choke off the supply of newly released DVDs to discount movie rental services, Walt Disney Co. has quietly decided to hike its wholesale prices on new-release DVDs for Redbox and Netflix, according to people familiar with the matter.

The move marks a subtle shift in Disney's relationship with Netflix and Redbox, and one that stands in contrast with most of Hollywood's dealings with the two rental giants. Other studios have refused to supply DVDs to Netflix and Redbox until 28 days after they are released out of concern that low-cost rentals will undercut DVD sales. Disney, on the other hand, all along has been supplying Netflix and Redbox with DVDs at the same time they go on sale, albeit at a lower price.

Disney will now charge Redbox and Netflix the full wholesale rate -- as much as $17.99 -- for its DVDs, the people said. That's more than studios often charge their largest wholesale customers and less than big retailers like Wal-Mart charge consumers for the popular new releases.

The change started with "Secretariat," which was released on DVD on Jan. 25, even though the studio said nothing public about it at the time.

Disney believes that its family-friendly fare, particularly animated films, is the type that consumers want to own for repeated viewing and therefore is not likely to be hurt by rentals, according to a person with knowledge of the situation.

How the new policy with affect Disney remains to be seen. By increasing the prices Redbox and Netflix pay for new releases, Disney could either increase the revenue it generates from those companies or force them to buy fewer copies and reduce their supply. That in turn could push frustrated consumers who want to rent toward other options like cable and Internet video-on-demand.

Redbox President Mitch Lowe confirmed that his company had reached a new agreement with Disney but said it would continue to offer Disney DVDs the same day they go on sale for $1 per night. A Netflix spokesman declined to discuss the issue. However, "Secretariat" is currently available to the company's subscribers.

The wholesale price Disney charges Netflix and Redbox for DVDs would drop to $10.79 at 28 days after they go on sale, according to one person with knowledge of the matter. That's the same amount of time that Fox, Universal and Warner make Redbox and Netflix wait to offer their movies. Sony imposes the four-week delay on Netflix only for movies that gross more than $50 million at the domestic box office. Paramount offers its movies to Redbox and Netflix the same day they go on sale.

The studios that have imposed delays have contended that $1-per-night rentals from Redbox kiosks or Netflix subscriptions devalue their content and undermine more-profitable disc sales and video-on-demand rentals.

There has been pressure on Disney to follow their lead. Outspoken media analyst Richard Greenfield of BTIG recently recommended that the media giant do just that, saying it would be "an important step in diminishing the negative impact Redbox is having on the movie industry."

A Disney spokesman declined to comment. However, the company will probably discuss its home-entertainment strategy at an investor conference in Anaheim on Thursday, a person familiar with the matter said. 

-- Dawn C. Chmielewski and Ben Fritz

Comments () | Archives (6)

"That in turn could push frustrated consumers who want to rent toward other options like cable and Internet video-on-demand."

There are always limits to how many copies Netflix or Redbox will have on hand. The price increase isn't as much as you think, but they may still impact availability. Consumer who can't wait will not be good Netflix or Redbox customers. In other words, if they are not willing to wait, they will drop the service.

I never get new releases in the first month. It is always 3 or 4 months after release. I'm not willing to break the bank and start expecting to watch new movies immediately every time they come out.

BTW, who is frustrated that they can't see "Secretariat"? What a ridiculous example.

Now rumors are swirling that Redbox and Netflix are going to be windowed by both Lionsgate and Sony in the summer. Paramount will also be changing to windows in December. And the studios who already have windows will be pushing for 42 day windows. Everyone can keep touting how they can wait a month for titles but in reality this is a hits driven business. If these two companies do not have the titles day and date they will not survive. We live in a immediate gratification society. Also everyone in this industry realizes that VOD or streaming for that matter is along way off before it truely becomes relevant. It's kind of like cord cutting it makes for good press but there is truely not much there.

And the studios continue to wonder why people pirate movies.

No matter, all of the Democrats that are in the back pockets of Hollywood will just scribble up some more sweeping legislation. Thank to Feinstein, it's now a FELONY to have a camera in a theatre. Yes, really.
Using the laws to protect an outdated business model is despicable.

I have been a Netflix customer since 1999 and have never vented about "having the latest release now".

There are so many titles to catch up on, my list is over 250 from 350 last year.

With the adding of streaming, expanding catalog, and television & cable series, my household has a wide selection & watches a full series and/or season in about 2 weeks. Which has added entertainment value by enjoying the whole series as one unit to follow story & characters better.

With real high speed wifi (5.5Mbps+) from Clear Wire & big screen, therefore we have to no need to go the theater dealing with rowdy & rude audiences or purchasing a DVD to see once and take up space. We have little interest in all the add features which we believe takes away from the enjoyment of the main feature and burns available time to see something else.

Also, as Netflix streaming catalog expands, we'll be dropping the mail service probably next year. Should do it now since we have not viewed a disk in over 3 months.

As for Redbox catching up to Netflix, highly doubtful because to reach Netflix's high tech software, combo delivery, customer service and title availability will take a lot money (ok Redbox might have some) and time to build the system out. By the time Redbox gets to today's Netflix level, Netflix will be years ahead.

In closing , as of this posting, Secretariat has had only 76,041 viewers out of 20 million subscribers. I feel Netflix over paid for Secretariat's "same day sales" (could had saved $7 a disk a month later), but then again, when a company has over 2 billion annual revenue and international plans, a "give me" to the "now people" is a nice gesture.

Get this thru your thick skulls - just like CDs, people are no longer interested in owning a DVD disc-we only care to purchase the digital copy; it's cheaper than buying the disc, and theoretically lasts forever; there is no need for discs any longer. Those that refuse to give the customer what it wants will go the way of Tower Records, Virgin Records, Sam Goody, BlockBuster, Circuit City, and others! People vote with thier pocket-pols beware!!!

This article was poorly written.


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