Time Warner May Charge Netflix, Redbox More for Its DVDs

Jeff Bewkes - Brookings Institute CEO Panel - 2011
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CEO Jeff Bewkes also says Warner is launching premium VOD films in the second quarter with titles being available 60 days after their theatrical release.

NEW YORK - Time Warner chairman and CEO Jeff Bewkes said Wednesday that the company is considering increasing the prices it charges Netflix and DVD rental kiosk operator Redbox for DVDs and reiterated that the company will also consider lengthening the current window it has set for them.

The latter was a reiteration of his previous comment that TW may look to add to the 28-day delay after which the two companies currently get Warner DVD releases.

On his company's earnings conference call, Bewkes also made official that Warner Bros. will launch premium VOD films in the second quarter. The company had previously signaled a launch "by the second quarter." Importantly, he also specified that such releases to homes will come 60 days after their theatrical release, a sign that the company wants to protect its theatrical release window and movie theater partners at least to some degree.

Theater operator have balked at studios' plans to offer premium VOD films before the end of the 90 day theatrical window. Most major studios have looked at premium VOD offers with a 30-60 day delay, although Viacom has said its Paramount Pictures studio will not offer premium VOD content to satisfy the needs of movie theater operators. TW's decision to use a 60 day delay was seen as a possible precedent for other studios.

Bewkes didn’t disclose pricing or likely first titles, but sources said the company has been eyeing a $25-$30 price per movie. Fox has also been looking at a $30 price.

Asked for more color about the Netflix and Redbox DVD windows and fees, Bewkes said the company is “very happy” with its current 28-day delay, which is better for its home entertainment business than day-and-date availability. But he said the DVD fees TW gets from Netflix and Redbox are “not really commensurate with the value” the company provides. He said that value is “considerably higher” than current prices account for. And amid increased consumer adoption of Redbox and Netflix, Bewkes said he feels the time is right to re-evaluate financial terms.

A Netflix spokesman declined comment. Redbox couldn't immediately be reached for comment. However, the company's corporate parent Coinstar recently said that the 28-day delay has affected demand more than it had expected, causing it to reduce its financial outlook.

An analyst suggested that Netflix and Redbox are paying prices close to or equivalent to retail prices for DVDs.

Shares of Netflix and Redbox parent Coinstar didn't take a big hit, showing investors weren't majorly concerned immediately. "But clearly Bewkes has been at the forefront of making sure the content industry does not undersell its content to these distributors as a much more important distribution network is in place to fund content companies' growth," said Miller Tabak analyst David Joyce. "If Netflix and Redbox were charged more, they would have to increase prices - especially in Netflix's case since they are paying so much for access to streaming content."

Wedbush Securities analyst Michael Pachter said the cost of DVDs is "only a problem when people know the movie is out, so that's
generally tentpole titles and holiday releases. The rest of the year, it doesn't make much difference."

He suggested that Warner could go to a 45 day delay with Redbox and Netflix. If the theatrical-to-DVD window is also squeezed a little, Netflix and Redbox could get movies only slightly later. Pachter described that as "not horrible for them since they are such low-cost alternatives to VOD."