Amazon-owned disc-by-post and streaming service Lovefilm has signed a multi-year content deal with Warner Bros that will give its subscribers exclusive access to Warner titles in what it describes as 'a second window' for subscription pay TV. From 2012 the deal will also introduce a 60-day window between a Warner title's initial transactional (retail and rental) release on DVD/BD, online and pay TV platforms and its availability on disc to Lovefilm's customers. The multi-layered deal also secures digital retail (download-to-own) and transactional rental rights for Lovefilm.
The 'second pay TV window' will launch in early December with catalogue titles including The Dark Knight, The Hangover, Gran Torino and Sex and the City 2, but according to Warner it will extend to cover more recent titles 'in the months and years ahead'. Lovefilm will not, however, be able to offer the latest Harry Potter titles which have already been sold on an exclusive basis to free TV.
Fundamentally this deal is an extension of the horse-trading around subscription DVD and digital rights that led to the existing 28-day holdback on subscription new release rental DVD/BDs in the US and greater streaming content for Netflix.
For Lovefilm, it represents an opportunity to buttress its UK streaming offer ahead of the arrival of Netflix's streaming service in 2012. Competition for rights has already been hotting up between the two companies for access to any studio titles that are not already under licence to BSkyB: prior to this announcement Lovefilm had signed deals with Entertaiment One and Studio Canal, while Netflix itself has secured agreements with MGM, Miramax and Lionsgate. For both streaming companies the real impact of this agreement on their UK business will depend on whether other studios opt to follow Warner's lead by introducing a second exclusive subscription window.
Meanwhile, redefining its later pay TV window - an iteration of which was already being used non-exclusively by both BT Vision and Lovefilm - gives Warner a new opportunity to exploit the increased competion for titles without damaging its existing relationship with BSkyB, owner of the existing first run pay TV rights in the UK.
The studio has also secured Lovefilm's agreement to a 60-day window between DVD/BD retail and store-based rental release and the discs' availability through Lovefilm's online subscription rental operations. IHS Screen Digest now expects the studio to seek to carry this new windowing over to other DVD subscription services (effectively Blockbuster.co.uk). Meanwhile it appears that Lovefilm subscribers will be able to stream new Warner titles before they can order them on disc for home delivery. This in turn remains well before their availability to free-to-air TV, which currently comes two years after the first pay TV window services in the UK. This will no doubt provide leverage in Warner's quest to extend the similar 28-day holdback it operates in the US rental market to two months.
The home entertainment industry has a history of being dominated by a handful of large players - Blockbuster and iTunes globally; Walmart and Netflix in the US - a few of which have ended up controlling such an important part of the market that they could negotiate favourable terms. Warner may therefore consider it beneficial to ensure that Netflix faces real competition from the local incumbent in its first European market, although in reality that competition is more likely to manifest itself in the form of Sky, which boasts roughly 6m Sky Movie customers compared with Lovefilm's estimated 1.4m subs and already has a tight grip on the best studio content in an earlier window. For while it goes without saying that if Netflix and Amazon/Lovefilm find themselves competing for rights in this exclusive window in due course, that can only benefit the studio, things become much more interesting for Warner if Netflix decides to get into a bidding war with Sky for the more important, earlier rights when that deal comes up for renewal.
Find Out More > IHS Screen Digest Video Intelligence