Fast Company

Did Warner Bros. Ditch Netflix for Nearly Bankrupt Blockbuster?

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Blockbuster announced this morning that it had signed a new deal with Warner Brothers to provide "immediate availability of new DVD and Blu-ray releases from the studio." But this isn't just your ordinary licensing wheeling and dealing. The agreement gives Blockbuster a huge four-week advance over Netflix in releasing new films distributed by the second largest (and second highest-grossing) movie studio in the world--a massive advantage considering Netflix subscribers will have to wait an entire MONTH to have the same titles mailed to them. What was Warner Bros. thinking?

After all, Blockbuster is in the tank, having just last week warned that they might file for Chapter 11 bankruptcy protection. Their main competitor, the online-subscription service Netflix, has been pummeling the store-based movie-giant in revenue, grossing over $444 million last quarter in domestic rentals, even while Blockbuster reported a net loss of $558 million for 2009. Moreover, these tumbling earnings have forced Blockbuster to revert back to charging late-fees--a prehistoric idea in today's world of unlimited-content--which had been costing the company about $300 million annually in lost revenue. And do you have a few dimes in your pocket? Feel free to purchase a share of Blockbuster, as BBI shares plummeted about 30% since their bankruptcy announcement, and are now riding at around 34 cents each, even after this deal with Warner Bros.

Warner is sending its cash-cow out to pasture with this agreement. Imagine if Warner Music Group cut a deal with Napster or Amazon for advance-content instead of iTunes. Do you think Apple would be happy? And for Netflix customers, this will be particularly upsetting. Today, for example, Warner released the Blind Side to Blu-Ray and DVD. Netflix subscribers and Sandra Bullock fans will have to wait until April 20 before they can even order the box-office hit--an eternity in the Internet age. The same goes for Sherlock Holmes, which will be released next week.

So how will Netflix respond to this agreement? Why is Warner Bros. positioning their company behind such a declining business model? Does Warner see some benefit to siding against Netflix? Netflix did not immediately respond to our request for comment, and WB declined to comment on the record.

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