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.
Last year, holiday disc sales fell short, as the careening economy took its toll on gift giving. DVD sales are still down, although it’s unclear how bad the situation is.
All this sets the stage for the most important time of the year for homevideo: The big summer hits are about to roll out on disc. “Transformers 2” comes out Oct. 20, for example, followed by “Ice Age 3” the next week, “Up” Nov. 10, “Star Trek” Nov. 17 and so on. Will they all sell? Or will consumers opt to rent instead? Rental’s making a big resurgence, thanks to the recession and cheap Redbox kiosks.
Wal-Mart apparently has some doubt: The chain reportedly cut back on shelf space for DVD. And, as the WSJ notes, the chain accounts for a third of DVD retail sales in the U.S.
To hedge their bets, more studios have decided to follow Warners lead and release pics simultaneously on DVD and VOD. Sony and Universal collapsed the VOD windows for “Angels & Demons,” “The Ugly Truth,” “The Taking of Pelham 1 2 3,” “Julie & Julia” and “Bruno.” Warners will do it on “Orphan,” “Four Christmases” and “Terminator: Salvation.”
If people are going to rent rather than buy, studios vastly prefer they view movies on VOD. It’s simple economics: Studios get a bigger cut of each VOD transaction than they do with disc rentals. The shorter the VOD window, the more enticing a rental prospect that delivery platform becomes.
For more, see my Variety story from yesterday.
In yesterday’s NYT, Beastie Boy turned indie film distributor Adam Yauch made a very pithy prediction about DVD:
I think that VOD, streaming and/or downloading will soon replace the rental market. And buying DVDs will just be for serious collectors, or when someone really loves a film. DVD sales are becoming more like people who collect vinyl records.
This seemed very wise for a number of reasons, not least being I’ve believed for a while that VOD and streaming will supplant DVD rental and sales. But I especially liked the comparison of DVD purchasers to the hobbyists and purists that collect vinyl records. Coming from a musician, the metaphor packs extra punch.
As Internet and cable VOD becomes easier to use, it will grow in popularity: The convenience of ordering a movie from your TV or computer outweighs a trip to the rental store. And let’s face it, more and more people are realizing they won’t necessarily watch the movie a second time, making a purchase harder to justify. But those than do want to will be able to download the movie for repeat showings.
This isn’t necessarily tragic: As I’ve pointed out before, studios wouldn’t mind a shift away from DVD rentals to VOD, for they get a greater cut of the action.
The NYT story explores indie film distribution in great detail. Read it here.
So Sony believes that if they just try a little harder to market PS3 to moms and families, they will sell more Blu-ray discs. Color me skeptical.
Sony has been trying to get that movie market from the start, but the massive sales predicted by studio Blu-ray proponents never came. You know what PS3 owners like to do on their consoles? Play games.
Still, can’t blame Sony for trying to make the most of its price reduction. According to the LAT, the Japanese consumer electronics giant plans to remarket its console as an all-in-one entertainment device. The company gave Ben Fritz a sneak peek at its campaign, which will play up users ability to play games and watch movies on disc or via download. An exec told him research “confirmed there is a larger proposition under our nose,” confidently adding, “we feel like we can really own entertainment.”
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.
When the consortium bought MGM from Kirk Kerkorian five years ago for major bucks, they argued the Lion was worth every penny due to its enviable library. Never mind that MGM’s previous owners had mined it over and over again on DVD. Harry Sloan, ousted this week, maintained the library qualified MGM as a major studio in Variety coverage. Never mind that the studio hadn’t released much for years. Several years later, that hasn’t changed, although Mary Parent, one of the troika that will run the studio now that Sloan’s been forced to the sidelines, has been doing her darnedest to get a slate into motion. “I believe we’re going to get through this,” she told the LAT.
The same day, Sony finally lowered the price of the PlayStation 3 console in hopes of goosing sales of that platform and maybe even Blu-ray discs. From the beginning, Sony and other Blu-ray backers have talked up the console as a game changer for home entertainment, and some in the media credulously passed along that projection. You know what? Hasn’t happened. Just as PlayStation 2 didn’t really boost DVD sales, PlayStation 3 hasn’t really goosed Blu-ray sales. Hope springs eternal, however. “Many in Hollywood have been eagerly awaiting a PS3 price cut in hopes it would boost sales of high definition Blu-ray discs at a time when the overall DVD market is contracting,” the LAT reported in a story that adjoined the MGM reorg jump in the print version. A Sony exec suggested that the price cut would be enough to entice recession battered consumers off the fence.
I wouldn’t count on it boosting Blu-ray sales. Consumers have found a better way to vote with their pocketbooks in this recession — $1 DVD rentals at Redbox kiosks. Hard to argue with that consumer logic.
As for MGM? Per LAT’s Claudia Eller, most industry watchers don’t expect it to last much longer as an independent studio.
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