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Sarandos: Netflix Welcomes Extended Disc Embargoes

30 May, 2012 By: Erik Gruenwedel

Ted Sarandos

Chief content officer says Netflix isn’t killing off its disc rental business, but merely reflecting generational changes in media consumption

Studio efforts to maintain and/or lengthen new-release access of movie discs to Netflix are welcomed and encouraged, Ted Sarandos, chief content officer of the subscription video-on-demand service, told an investor group.

Speaking May 30 to the second annual Nomura U.S. Media, Cable & Telecom Summit in New York, Sarandos said that in an effort to secure long-term working relationships with studios, he is embracing ongoing 28-day delays on new releases with some studios and a 56-day delay with Warner Home Video.

“I believe that is good for the overall ecosystem,” Sarandos said, adding that consumers fixated on new releases most likely aren’t Netflix subscribers. “This way we stay out of the path of the first 28 days of [higher margin] VOD transactions or DVD sales. And that is a good thing because it supports the overall creation of content.”

The CCO dismissed notions Netflix is intentionally downsizing its pioneering by-mail disc rental business with streaming. Indeed, physical rentals continue to drive the strongest margins at Netflix, with hybrid streaming/disc rental subs generating the service’s lone operating income this year.

“It’s not to say the DVD business is dead or necessarily on a glide-path to death,” Sarandos said. “While we do think there is a lack of physical rental [options], the growth in click-and-watch options is really what we have our eye on.”

He said there continues to evolve a generational shift among movie renters, with younger viewers opting for streaming, while older viewers prefer disc rentals and sellthrough.

“My teenage kids will probably never buy or rent a physical disc, but we have people like me who still buy a CD at Starbucks,” Sarandos said.

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