By any measure, Netflix, the company that rents movies to the public is a hugely successful enterprise. According to Techcrunch, Netflix has just under 24 million subscribers. But Netflix is also in transition. Last summer the company raised its prices, angering many to the point of canceling their service. Techcrunch reports that Netflix lost nearly three quarters of a million customers and that its stock has suffered as well. The reasons executives at Netflix chose to split their company into two, and to charge for each separately are many and varied, and many analysts such as abovethecrowd, have tried to explain it all. But what it really all boils down to, is the Copyright act of 1976.
The copyright act of 1976 basically says that if you sell a copyrighted product, than the buyer of that product has the right to sell or give that product to others. For example, if you buy a printed book at a bookstore then sell it to your friend, that’s perfectly legal. Unfortunately (at least for those who rent) the same cannot be said for renting copyrighted material. If you rent a copyrighted work, such as a book, movie, or even a statue, you have no right offer it to the public, except under the guidelines set forth by the person or company that is renting it to you. An example here would be if you rented a physical DVD from a store (Netflix, etc); because the original owner of that DVD has not given you the rights to do so, you cannot show the contents of that DVD publicly, whether you charge admission or not.
In some cases, as explained by the Hollywood Reporter, the original owner of copyrighted material does grant rights when it offers its products for rent; for a fee. This fee is a called a licensing agreement. Thus, if you rent a movie directly from a distributor, you would have to pay the distributor for the privilege of showing that movie publicly. Taking that a step further, if you were a big company, such as Netflix, you would still be subject to the same agreement. Thus, if you rent a movie from a distributor than choose to stream it on your web site, you would have to pay the original distributor a sum of money. And because we’re talking Hollywood here, you’d have a pay a lot of money.
And that’s why when you go on Netflix’s site and see all the latest movies available for rent as a DVD, you still can’t watch most of them instantly; it’s because Netflix doesn’t have to pay anyone if it sends you the DVD, but it does if it streams it. The exceptions here are movies and other content that are no longer under copyright (that’s why so many old movies are available).
Unfortunately, it gets a little more complicated. Movie distributors don’t like to collect their fees on a user by user basis, so in order for Netflix to stream a movie, it has a pay a full use licensing fee, which is typically in the tens of millions. If Netflix pays that onetime fee, it can stream the movie to as many people as it wishes without further charges. The problem though, is the licensing fees run to the tens or hundreds of millions for each movie title. This is why Netflix raised its rates; so the company could bring in enough money to pay the licensing fees on more movies.