Netflix Turns Focus Back to Disc

2 Jun, 2011 By: Erik Gruenwedel

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Netflix chief content officer Ted Sarandos — who credits disc for helping Netflix make its foray into streaming — says the subscription rental service plans to turn its focus back to physical distribution

Netflix appears to be going back to its physical roots while it also amps up efforts to secure coveted subscription video-on-demand rights to movies and TV shows.

Speaking June 2 at the Nomura U.S. Media Summit in New York, Sarandos reiterated previous-day comments from CFO David Wells that the service had been obsessed with streaming to the point that physical rental was “calmly running on its own” and taken for granted.

Sarandos said that even with a $2 monthly surcharge for physical rental compared with streaming-only, the value proposition of Netflix’s disc programs (which include streaming) remains so strong for the foreseeable future that management plans to revisit all facets of the business.

This includes increased marketing efforts in regions of the country with low broadband penetration that would be better served with a stronger disc rental option.

“Over the next couple of months (and couple of years) you’ll see us putting more focus on it,” Sarandos said. “Right now it is a couple of bucks more to get all the discs you want. There is some room in there to right that and put a little more focus on the DVD business.”

Netflix currently offers more than 100,000 disc titles and about 17,000 streaming titles.

Sarandos admitted that the streaming business has been built “on the back of the value proposition of DVD business,” which included using the revenue and profits of the DVD business to seed the streaming business.

“Without the success of the DVD business, I don’t think we would have had either the investment money or investment courage to put the money we were able to put into streaming,” he said.

The CCO said that reality is what is stopping some competitors from entering the SVOD market. He said creating a new business model on a per-sub basis and selling it to content owners is old school; there isn’t room for new competition in the subscription business.

“That train has left the station,” Sarandos said. “There is no reason for any content owner to take to a deal like that when there are real buyers in the space.”

Meanwhile, Sarandos criticized the brick-and-mortar industry for not pushing their advantage compared to Netflix. He faulted studios and retailers for not more aggressively pursuing 28-day delays on new releases, including organizing studio-wide participation and greater marketing efforts at retail.

He said efforts by select studios (Warner Home Video, Universal Studios Home Entertainment and 20th Century Fox Home Entertainment) to promote physical and electronic sellthrough failed without full participation from all studios and retailers.

“It would have been much more effective on DVD sales had other studios done it, had other retailers got into it and had retailers embraced it more,” Sarandos said. “There should have been end-caps at Best Buy that said ‘Not on Netflix’ and moving those movies to the front of the store. That barely happened.”

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