A few weeks back we noted how Netflix had made a dubious deal with Warner Brothers, agreeing to delay the release of new physical DVDs for 28 days — in order to get access to a great volume of titles for broadband streaming. The deal stinks for DVD users who like new releases, and was driven by a misguided Hollywood executive fear that giving customers what they want (cheap, easy, instantaneous broadband access to huge film titles) will result in fewer DVD sales.

Netflix of course is stuck between a rock and a hard place as they try to convince Hollywood that broadband video isn’t the devil. The company can either make a deal like this that annoys customers — but boosts their streaming title catalog, or refuse to make this deal, probably pay more cash, and offer fewer streaming titles. Hacking Netflix has an interesting interview with Netflix Chief Content Officer, Ted Sarandos, who explains why the company did the deal:

The most practical reason is that the savings derived from this deal enable us to be in stock completely on day 29. Remember that we re a subscription service and the way that you manage the economics of a subscription service is to manage the demand of any disc, depending on the economics of the disc. In the case of the most expensive disc, which in this case is a Warner Bros. disc, purchased through a 3rd party, those discs were out of stock for far longer than 29 days for most Netflix subscribers.

So what were able to is create a deal with them that gave them a little open running room in terms of creating a sell-through window ahead of rental, for us, and hopefully that they ll find enough value in that it ll extend to other retailers and other studios will take note and it ll extend across other studios as well. The net savings derived from technically creating a better customer experience have been redeployed in additional streaming content for all customers.

Sarandos pours it on a little thick, continually insisting that there’s no losers in the deal, and that delaying new physical release rentals somehow creates a “better customer experience.” Of course Sarandos and CEO Reed Hastings need to stay on Hollywood’s good side, so it’s not like they can speak the truth: that Hollywood executives continue to make stupid decisions, and believe that making it harder for consumers to access their content will somehow salvage a dying physical media pricing model.

Fortunately, many Netflix customers won’t care — given they’ll get access to Warner Brothers titles like the Matrix Trilogy, Caddyshack and Dirty Harry. But that still doesn’t make the deal any better, given Hollywood’s simply forcing customers out of their homes and to a brick and mortar rental store (or Redbox) to get content they gladly would have paid for in their living room.
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