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article imageHBO stops selling DVDs directly to Netflix, competition heats up

By Leigh Goessl     Jan 6, 2012 in Business
HBO has announced the company will no longer sell DVDs to Netflix.
In an earlier agreement Netflix was able to purchase movie and TV shows on DVDs directly from HBO at a wholesale price, due to volume discounts.
The severance of this relationship, after the previous agreement had expired, is believed to have come into effect on Jan. 1.
Now that HBO no longer will supply Netflix with its media content, if Netflix wants to still have these entertainment offerings on DVD/Blu-ray available for customer rentals, the company will have to pay retail price from other avenues.
According to the New York Times, this won't be a large "financial hit" on the struggling company, "but it is a signal about what the competitive landscape looks like."
Last month Netflix made it clear it views HBO as a competitor, and in light of this decision, it appears HBO feels the same way.
This doesn't mean Netflix can't acquire HBO DVDs, CNET reports the service does have other options in terms of suppliers.
Despite HBO cutting off discounts, the company indicates customers won't see any changes. In an e-mail to CNET, Netflix spokesman Steve Swasey said "Netflix will continue to provide HBO titles on DVD and Blu-ray."
However, Netflix has made it abundantly clear the company is no longer truly interested in a DVD rental service, but sees the future in online streaming of content. As does HBO, which is investing in its online streaming service HBO Go.
Last month at a UBS media conference Netflix CEO Reed Hastings said, "Streaming is the future. We're focused on it. DVD will do whatever it's going to do. We're not -- we're going to try to not hurt it, but we're not putting a lot of time and energy into doing anything particular around it."
Hastings also had said, "The competitor we fear the most is HBO Go," adding, "They aren't competing directly with us now, but they can. HBO is becoming much more Netflix-like, and we're becoming much more HBO-like."
Despite no longer any real deep investment into the DVD side of the business, the company has said it will continue to serve customers that prefer DVDs, a move that perhaps bridges to the future of online streaming.
But for how long?
Netflix appears to be reinventing itself, trying not to remain stagnant and looking at the future with a change in direction from its initial business model which was solely based on DVD rentals. Not only is the company looking to stream more entertainment content, but is also working on producing its own original content.
And this appears to be dipping into territory where HBO has traditionally reigned.
Earlier this week Digital Journal reported the company is premiering its own new original series, 'Lilyhammer' on Feb. 6 and more series are on the way.
The year 2011 was a devastating year for Netflix and the company had admitted 2012 was not shaping up to be profitable either. Yesterday Netflix announced it will share fourth quarter earnings on Jan. 25
More about Home box office, HBO, Dvds, Netflix, Competition