Netflix Reacts to Blockbuster's Boasts, iPhone App, and Hulu

Blockbuster Netflix

Blockbuster CEO Jim Keyes has been vocal in the press lately, knocking Netflix for its outdated content and boasting of the company's 28-day exclusive window for new releases, even as they flirt with bankruptcy. While Netflix has resisted responding publicly, don't mistake their silence for retreat. I spoke with industry insiders and a rep from Netflix to get a sense of the company's stance on Blockbuster's public criticisms, especially regarding Keyes's comments in Fast Company's recent interview.

In the interview, Keyes flaunted Blockbuster's deal with several major movie studios that gave the ailing video-rental giant a four-week advantage over Netflix for new releases. But this window isn't entirely in Blockbuster's favor—in fact, it was actually a deal Netflix heavily pushed for.

"We actually went proactively to the studios several years ago because the 28-day model is really good for us—we recommended it," says Steve Swasey, VP of corporate communications for Netflix, who explained that the agreement shaved off significant costs, enabling the online-subscription company to provide its customers with better availability and more titles to stream instantly. "We're even talking to other studios about it as well."

This is a far cry from Keyes's description of the 28-day advantage, which, according to one film industry source, was an arrangement that Blockbuster actually had very little control over.

"Blockbuster didn't stay with new releases by choice," explained the source, who is very familiar with the studio agreements with Netflix and Blockbuster. "Movie studios have Blockbuster where they want them—they know Blockbuster is not in any position to negotiate because of their financial position."

"The studios are getting huge payments for new releases from Blockbuster because they know the company needs them."

Requests to Blockbuster for comment on this issue were not immediately returned.

Swasey would only say that the 28-day delay has had little effect on Netflix's customer base. "We've been [under this arrangement] for six months, and there is only handful—I'm talking only a couple hundred people out of 14 million—who have contacted us regarding the availability of new releases," explains Swasey, who stressed that Netflix's rich catalog is what members are interested in, rather than the latest flicks. "More than 70% of Netflix daily viewing is not for new releases, and this is not an availability issue—it's a preference."

"We find that if they were really interested in a movie, they would've already seen it in the theater."

When I asked Swasey about Keyes's criticisms of Netflix, and whether Netflix would ever respond, Swasey declined to comment on the situation or anything directly related to Blockbuster. "Netflix is looking forward and focusing on Netflix—we're running our business for the betterment of our investors and members," he explained.

But another industry insider offered an explanation for why Netflix wouldn't respond: "There is not a whole lot Blockbuster can say that's positive right now, so why would Netflix even respond to a weakened competitor?"

"It almost seems like Jim Keyes is whistling as he walks by the graveyard to convince himself he's not scared—the company is not in good shape, and the numbers don't lie."

While Netflix's membership is growing—35% last quarter year-over-year—Blockbuster has not released their numbers for by-mail subscribers, calling the figures "irrelevant" since Blockbuster customers use many outlets to access films, including the company's in-store offerings, kiosks, and on-demand services. But the source I spoke with believes the by-mail numbers are anything but "irrelevant," as Keyes said.

"Those numbers were extremely relevant for Blockbuster when they were competing head on with Netflix in 2007," the insider explains. "Blockbuster was very eager to report their monthly gains in subscribers then, when they put about $400 million into competing against Netflix."

Swasey again would not comment on the subject, and instead stressed that the number of "by-mail" subscribers doesn't fully capture Netflix's user base, since more than half of its subscribers also access movies online.

Netflix iPhone But Swasey was willing to speak briefly about competition from Hulu and Netflix's upcoming iPhone app, which debuted at Apple's WWDC 2010.

"As far as competitors, there will always be a company that's angling for you, and clearly, we're not going to have this open field forever," Swasey said. "Hulu is rumored—they may have announced it already—that they're going to have a subscription service, so we'll see how that goes, but in the meantime, we're remaining very vigilant."

Regarding Netflix's app for the iPhone, Swasey would only say that it will be available on previous versions of the iPhone and the iPod Touch, in addition to the device's latest iteration, and will look very similar to Netflix's iPad app.

"You'll be able to put Netflix in your pocket," beamed Swasey.

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