Changed the article title for the relevant info for this forum.

I highly recommend reading the entire article as it touches physical media, Digital Distribution and the relationship with Netflix.

That said, Martin reiterated that company executives continue to stress the bottom line. He said electronic sellthough can generate 25% to 30% greater margins than physical sellthrough and the margin on VOD compared to physical rental is anywhere from 250% to 300% better.

The CFO said the combination of VOD and electronic sellthrough as a percentage of Warner’s home entertainment business from a profit basis is about 20%, which he characterized as “not immaterial.”

“We don’t know if [the shift from physical digital distribution] is a sustainable shift or whether that is reflective of the overall economy,” Martin said. “But it’s something we are watching. More and more we are paying attention to the dollar margin contribution of our titles relative to the box office revenue they generate.”

http://www.homemediamagazine.com/warner/time-warner-cfo-studio-purposely-delaying-q4-titles-retail-17010

He also implies what I've been saying about Netflix. The all you can eat sub model for new releases won't happen because the economics don't work. Netflix can ask for it but they'll never get it unless they show studios the money and start charging more than $9/month subs. There's way more money in pay per view VOD.

Hastings needs to get smart and implement a hybrid unlimited streaming and PPV model to really take over the digital landscape.

He also implies what I've been saying about Netflix. The all you can eat sub model for new releases won't happen because the economics don't work. Netflix can ask for it but they'll never get it unless they show studios the money and start charging more than $9/month subs. There's way more money in pay per view VOD.

Hastings needs to get smart and implement a hybrid unlimited streaming and PPV model to really take over the digital landscape.

I wouldn't discount the idea of a hybrid model, but Netflix has stated in their earnings call that they do not want to go in that direction. There is more money per transaction in VOD, but subscriber systems are steady revenue streams at almost zero studio cost (for streaming).


What Netflix's CFO did state is:

McCarthy said the primary deterrent to acquiring newer-release content for streaming is licensing costs, which he said would require upping spending by 15% to 20%.

“It’s just about money,” he said.

http://www.homemediamagazine.com/netflix/netflix-cfo-game-platforms-key-streaming-growth-16985


15-20% increase in spending seems mighty small, especially when you consider that Netflix already spends ~$.80 (roundtrip) to the USPS in postage fees for each DVD/BD sent out.

I really think 15%-20% more is what they're hoping to spend to get new releases. The subscription model cuts the pie among the major studios up into too many small slices for unlimited rights while pay per view gives studios $3 per viewing window.

This is why I think Netflix is trying to too hard to play hardball with the studios. Once YouTube enters the game and if they're willing to pay/partner with studios on a rental model, Netflix will be left as the premium cable channel of the digital world. Just my speculation of course.

I really think 15%-20% more is what they're hoping to spend to get new releases. The subscription model cuts the pie among the major studios up into too many small slices for unlimited rights while pay per view gives studios $3 per viewing window.

This is why I think Netflix is trying to too hard to play hardball with the studios. Once YouTube enters the game and if they're willing to pay/partner with studios on a rental model, Netflix will be left as the premium cable channel of the digital world. Just my speculation of course.

I believe that Netflix will eventually to some sort of revenue sharing model for streaming. I would dump my 1 disc at a time privilege and pay the same price for streaming only of they had new releases available. Then they could simply give studios 2/3 of my revenue directly to the studios (which the studios would be pocketing at practically zero cost).

The challenge with the subs is that each of the 6 major studios would come in at different times. If they're lucky, 2 or 3 will come to Netflix together to negotiate jointly. If not, Netflix is left negotiating with each independently. I think it'll be very difficult to get everyone to agree to what their rightful share of the pie is. Just like Redbox where some support it more than others.

The challenge with the subs is that each of the 6 major studios would come in at different times. If they're lucky, 2 or 3 will come to Netflix together to negotiate jointly. If not, Netflix is left negotiating with each independently. I think it'll be very difficult to get everyone to agree to what their rightful share of the pie is. Just like Redbox where some support it more than others.

I think Netflix is likely going to break ground with one of the majors and then end up working with 2-3 jointly. Warner Bros seems to be the most aggressive about embracing new formats and in tweaking release windows.

I am guessing that terms based on streaming frequency is most likely.