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HBO to Netflix: Buy Your Own Darn Discs!

True Blood, Coven, HBO, 2011
HBO

The premium channel tells the streaming and DVD-by-mail company — which has increasingly been viewed as a competitor — that it will no longer supply them discounted product.

Netflix, which tried mightily but failed to strike a streaming deal with HBO, now has lost the privilege of discounted DVD and Blu-ray discs from the popular premium channel.

While the move doesn’t prevent Netflix from supplying its customers with discs containing HBO content, it’s a symbolic gesture signaling that HBO content is meant to be, at least theoretically, exclusive, and that HBO considers Netflix a competitor that does not deserve favorable treatment.

Insiders say the change started Jan. 1, so that instead of HBO selling discs of The Sopranos, True Blood, Deadwood — and everything else HBO has offered its subscribers — on the cheap to Netflix, the DVD-by-mail service must go elsewhere for them. Due to the First Sale Doctrine, Netflix can purchase discs at retail, if it likes, and rent them to its customers.

Netflix refused to acknowledge a change in internal policy, and instead a spokesman emailed that Netflix “will continue to provide HBO titles on DVD and Blu-ray to our members.”

Even insiders at HBO parent Time Warner acknowledge the move won’t amount to much in the way of extra expenses for Netflix, though it will be a nuisance.

Netflix hasn’t denied that HBO content is important, and that it’s desirous not only of the discs but also of a streaming deal. “They make incredibly great product that is very expensive to produce,” Netflix chief content officer Ted Sarandos told The Hollywood Reporter a year ago. “We’re buyers and they’re sellers, so we’ll figure out a deal that makes sense.”

Easier said than done, apparently, since a streaming deal has yet to be struck and now even a deal for discounts on discs is history.

While HBO makes its content available to outsiders like iTunes for rent on a per-episode basis, it does not want its content easily accessible in another subscription model, like Netflix, insiders say.

Some are speculating that the sudden change of heart regarding discounted discs can be traced back to remarks by Netflix CEO Reed Hastings, who called HBO Go, the channel’s on-demand mobile service, its primary competition. If that's the case, insiders ask, why should HBO sell Netflix its content?

“They’re not competing directly with us, but they can,” Hastings told Wall Street analysts last month. “We’ll push each other like two runners.”

Netflix also has begun to encroach on HBO’s turf by delving into original content, such as Hemlock Grove, Lilyhammer and the much-discussed House of Cards. And Hastings predicted that in 10 years about half of all TV viewing in the U.S. will come via Internet streaming, where it dominates, at least for the time being.

Perhaps throwing a bit more fuel on the fire that ultimately torched a deal for discounted discs, Hastings said last month that HBO is “becoming more like us and we are becoming more like them.”

It’s a comparison that no doubt irked Time Warner CEO Jeff Bewkes, who has been dismissive of Netflix on occasion, likening its influence on the entertainment industry to the Albanian army’s influence on world affairs.

Still, insiders say Bewkes had nothing to do with the decision, and that the primary reason for the change was HBO Go, which was turned into an app with tons of HBO content eight months ago. Hastings' remarks at the investor conference last month that HBO Go was its primary competition was the final encouragement the premium channel needed to cut Netflix off, insiders say.

"The HBO subscription is valuable because the programming is exclusive to the service. That includes the library of HBO programming that is now available on HBO Go,” said Jeff Cusson, senior vp corporate affairs at HBO.