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Sony Delays ‘The Karate Kid’ to Netflix

5 Oct, 2010 By: Erik Gruenwedel

The Karate Kid

In a switch, Sony Pictures Home Entertainment has delayed Netflix’s availability of The Karate Kid on DVD and Blu-ray Disc until Nov. 2, according to the rental service's website.

The re-booted version of the popular 1984 movie, which stars Will Smith’s son Jaden, Jackie Chan and grossed more than $176.5 million at the domestic box office, hits retail shelves today (Oct. 5).

It wasn’t immediately clear if Sony would be joining Warner Home Video, 20th Century Fox Home Entertainment and Universal Studios Home Entertainment in delaying by 28 days new release movies to the Netflix.

A Netflix spokesperson said it was company policy not to discuss individual studio distribution deals. A Sony rep was not immediately available for comment.

Sony released its top box office hit of 2010 to Redbox, Blockbuster Express and related video-on-demand (VOD) and retail channels per normal.

Delayed access to The Karate Kid should barely register a yawn among the majority of Netflix’s 15 million subscribers and actually plays to the online DVD rental pioneer’s strategy to reduce disc costs, according to analyst Richard Greenfield with BTIG Research in New York.

With 70% of Netflix subs preferring catalog titles, delayed new releases by the major studios in turn guarantees Netflix lower (by 50%) disc costs, savings the service can convert to expenditures on fresher streaming content.

“Netflix is rapidly bringing down its physical [costs] by reaching delayed release window deals with studios and using fresher digital content to shift consumer behavior to streaming, reducing the number of DVDs utilized per customer per month (lowering its mailing costs),” Greenfield wrote in a post.

The analyst believes the embargo on new releases should have been longer (about six months) to have much of an impact on Netflix and justify the significant per-disc cost reduction.

“Unfortunately studios were more focused on bolstering sellthrough, which is largely complete within the first month of a DVD’s release, rather than damaging the long-term prospects of Netflix,” Greenfield wrote.

Eric Wold, analyst with Merriman Curhan Ford in New York, said it remains to be seen whether this signals a shift by Sony regarding future street availability of new releases to Redbox, or represents a one-off decision based on the fact "Karate Kid" is Sony's biggest box office hit since Hancock (with Will Smith) in 2008. 

The studio's distribution deal with Redbox, which expires in September 2014, does have an early exit clause that enables Sony to terminate the agreement on Sept. 30, 2011, according to Wold.

"From our conversations with Coinstar management this morning, we beleive the relationship with Sony remains strong and that rental results since the July 17 agreement (and prior to that) have been positive for both sides," Wold wrote in a note.

The analyst said he expects studios to continue testing alternative rental channels, release delays, price points and digital access in order to maximize home entertainment revenue, including offering early premium VOD access to select titles.

"We believe the key to navigating these moves is to understand the underlying relationships between studios and the various channels and what agreements are and are not in place between them," Wold wrote.

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