The ailing chain is touting today’s availability of “The Blind Side” at Blockbuster stores, by mail or on demand. Netflix and Redbox, which recently agreed to a 28-day rental window in exchange for improved terms, does not yet have access to the movie, which notched an Oscar win for Sandra Bullock earlier this month.
The question: How much will this new window help the chain, and rental stores in general, compete against popular Netflix and Redbox? Blockbuster is making a big deal out of the fact that it’s the only “multi-channel provider” with access to big movies on street date. But is it really that great a selling point with consumers?
Studios would prefer consumers buy their movies on disc or via download. Barring that, they would prefer consumer rent movies on demand or at a Blockbuster; the economics are better that way. (Netflix operates on a subscription-based model; Redbox’s bargain pricing is considered a threat to sales, VOD and revenue-sharing rental chains like Blockbuster.)
As for digital: The release carefully notes that existing deals remain in place. The updated deal only applies to DVD and Blu-ray.
So no, bloggers, the studios aren’t really giving Blockbuster scandalously preferential treatment. They’re just agreeing to continue supplying the ailing chain with discs at a time its future looks shaky.
UPDATE: LATimes reports that the new revenue-sharing arrangement improved terms for both parties.
Blockbuster release (via paidContent)
At the time, his comments seemed incredibly self-serving: Warner Bros. was already trying to impose a window on Netflix and other subscription-based rental services. If stores renting movies on a disc by disc basis followed suit, Netflix wouldn’t be operating under a competitive disadvantage.
So Hastings talked about the advantages of such a scheme. “If we can agree on low-enough pricing,” the LAT quoted Hastings saying, “delayed rental could potentially increase profits for everyone.”
And maybe Hastings could get more access to movies for streaming purposes, which is what HE really wanted. Under the vagaries of studio window policies, Netflix has access to movies for a limited period.
Sure enough, that’s what happened. Netflix, Ben Fritz reported in the LAT, got a price break, and more content for its streaming service. Don’t be surprised if other studios broker similar deals with Netflix, and potentially Redbox as well.
The question remains, however, whether ailing chains like Blockbuster will take a similar deal. Even if they did, however, I would expect indies to try and find ways to subvert any DVD sales window studios attempt to impose on rentailers industrywide.
Apparently studios are considering a sales-only window for DVD releases as a way to combat sliding sales and fight back against cheap Redbox rentals.
There are many reasons why this is a bad idea.
1. Rental stores will be able to buy discs and rent them, just like they did in the early days of home video. According to Netflix CEO Reed Hastings, who disclosed the plan during yesterday’s earnings call, retailers might be willing to wait if studios price rental discs cheap enough.
2. But consumers eager to watch the movies will just do so other ways — through pirated versions or VOD. How much will it increase or protect sales? Hard to say.
3. They risk pissing off consumers who are used to renting the movies right away. Pissed off consumers might then feel justified viewing contraband.
4. They can’t stop retailers from renting movies under the sales window due to a little thing called the First Sale Doctrine.
Hastings interest in this scheme should not be overlooked. At least one studio — that would be Warners — is trying to impose a later rental window on Netflix, arguing that its subscription based business should not be considered the same as video stores than rent on a disc by disc basis. Also not to be forgotten: Hastings really wants to focus on streaming movies; that’s been his goal since he founded the company. The technology wasn’t there yet then.
But it sure is now.
For more on studio plans, read Ben Fritz’s LAT story.
More good news/bad news depending which side of the Redbox fence you’re sitting on: Research outfit NPD Group projects that rental kiosks will command 30% of the market next year, a 58% increase over its share as of midyear 2009. As of midyear, kiosk commanded 19% market share compared to 45% for trad videostores including Blockbuster and 36% for subscription services such as Netflix.
Where will this projected gain come from? NPD doesn’t say but trad videostores would seem most vulnerable. “Consumers are obviously responding positively to the perceived value of $1 per day rentals, and they appreciate the convenience offered by video rental kiosks,” analyst Russ Crupnick noted.
With all due respect to my former editor Michael Speier, had to laugh when I read this plaintive studio remark in his Redbox story:
“The comfortable price point is more in the video-on-demand mode or the current Netflix and Blockbuster model,” a studio exec told The Wrap. “Charging $3.99 for a title — and then being involved with revenue sharing. There’s money to be made that way. Who’s making anything on $1?”
The answer, of course, is that Redbox is making money. Lots of it. The kiosk company has hit upon a business model that consumers really like in these tough economic times, and its growth has exploded accordingly.
OF COURSE the studios would prefer that they get a cut of the each rental transaction, as they do with Netflix and Blockbuster under revenue sharing terms, or VOD transactions through iTunes. Studios are making money on each disc Redbox buys through a distributor or retailer; they’re just missing out on coin if consumers choose to rent through Redbox rather than Blockbuster.
More studio observations in The Wrap story here
Redbox made it three for three yesterday, filing suit against Warners as expected. The suit, which comes on the heels of a legal victory for the kiosk company in its antitrust battle against Universal, is similar to the ones filed against that studio and Fox, Video Business reports.
All three have taken a hard line stance against Redbox, in contrast to Sony and Lionsgate, who did deals with the company. Disney and Paramount also sell their product to the Coinstar-operated company, which has exploded in popularity the past year.
A U.S. District court has upheld Redbox’s antitrust claims against Universal, Video Business reports. Universal, you’ll remember, was the first studio to try and withhold movies from the kiosk company. Fox and Warner recently followed suit; Redbox has already sued Fox on antitrust grounds and is expected to do the same against Warner. Read the story
Patrick Goldstein makes many good points about studios’ uphill quest to slow the resurgence of rental, and preserve their profit margins as DVD sales fade. The Napster parallels are very instructive. But I would disagree with him on several points:
1. DVD’s decline was not unexpected by studios, who have been trying to prepare for it for years. They knew that the product cycle for DVD was reaching its end, and did their best to nurture alternatives, first and foremost Blu-ray, but also Internet downloads and video-on-demand transactions.
2. Until the economy really took a dive, accelerating DVD’s sales decline, studios espoused the need for ubiquity, stressing that they would make their content available to consumers however they wanted. In fact they tended to state this as evidence how much they had learned from the misfortunes of the record biz.
3. With DVD sales down sharply, and kiosk companies like Redbox are exploding, certain studios are singing a different tune. It’s no coincidence that they are instituting these changes with the release of their biggest year-end releases. The fourth-quarter has always been a make or break period for home entertainment side of the biz.
“By trying to keep their product away from Redbox for as long as possible, the studios are doing what all businesses do when threatened by dramatic change — they’re trying to hang on to their business model for as long as possible,” Goldstein writes. But they delay at their own peril, he warns. Read the story.
Why can’t I quit the DVD biz? I recently stepped away from covering the vid biz for a third time, yet find myself completely taken by the growing battle between the studios, kiosk companies and now Netflix.
There are so many angles of this story that fascinate me: The resurgence of rental, legal claims of studio withholding content, role of the economy on changing consumption patterns and impact the latter will have on Hollywood. Also intriguing: The fact studios are so divided over how to handle Redbox, and that both Universal and Fox were trying to impose revenue-sharing terms before talks broke down with the kiosk company.
Of course, knowing the tortured backstory helps. Studios have hated rental from the beginning and tried their darnedest to prevent retailers from renting movies; the so-called Betamax case revolving around this issue went all the way to the Supreme Court.
By the time I started covering homevid in1994, the sell-through VHS biz was just starting to take off, but the overall biz was still primarily rental, with most cassettes priced at a premium. The DVD boom came; I married my husband, whom I met during my first stint at a video trade.
Then I stepped away for the first time. My first few years at Variety, I had nothing to do with video coverage, editing party coverage among other duties. When the video guy was shown the door, however, I got back into the game.
Covering the biz again, more from a studio perspective this time, reminded me of the aggravations of the beat: Studios have always protected their numbers, to the point of bullying press with threats of economic reprisals. Execs complain they’re under-covered and -appreciated, without seeming to comprehend basic deadline requirements of daily journalism.
So I wasn’t sorry to step back a second time to focus on film. Only that didn’t last long; my editor reasoned I was good at covering the biz, so homevid one again became my responsibility; eventually my primary beats shifted to digital media and home entertainment, two very dynamic areas of showbiz. Earlier this year, however, the powers that be decided those areas were expendable and I was among those out of a job in sweeping layoffs.
Again, no tears. But this darn Redbox story keeps drawing me back in; I’m fascinated by it and how it’s being covered. It’s a huge story, with many implications for Hollywood. I hope it gets resolved soon. Or maybe I don’t.