While movie studios including Disney (NYSE:DIS), Warner Brothers, Fox and others are trying to implement rental windows, rental companies such as Netflix (NASDAQ:NFLX) and Redbox are trying to bypass them. The rental window is a time period between the day the DVDs go on sale and the day the rental companies can rent them out. Netflix has entered into such agreements with several movie studios, but it appears that the company could not negotiate with Disney.  As a result, Netflix as well as Redbox have resorted to buying DVDs of Disney’s recent releases from retailers such as Wal-Mart (NYSE:WMT).
Although Netflix is paying higher than it would have if it were to abide by the rental window deal, the motivation comes from Disney’s reportedly steep demands and Netflix’s own attempt to mend relations with its subscribers. Even though Netflix has been consistently adding new content, it is perhaps difficult to satisfy some of its old-time customers who have cycled through most of the appealing content and some new subscribers who are more into newer movies and TV shows.
Netflix does not put a limit on viewing amount and hence runs a risk of subscribers cycling through the content quickly. Although it claims to have thousands of titles, only a fraction of it would suit a particular viewer’s tastes. Thus there is always the pressure of procuring additional good quality content. Buying DVDs directly from retailers could help it stop the DVD subscriber decline, although that is not its primary strategy.
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Our price estimate for Netflix stands at $110, implying a premium of more than 65% to the market price.Notes:
- Netflix joins Redbox to defy Disney’s new DVD policy, Los Angeles Times, June 7 2012 [↩]