How Your DVD Rentals Are Changing Hollywood
Quick quiz: If you were made to wait two months in order to rent say, Final Destination 5, are you going to be more likely to purchase the DVD, or is it more likely you will forget it was on the saturated home-video market? An easy enough answer, maybe, but not for some of Hollywood's major studios. They continue banking on the former scenario, despite your continued insistence on renting movies at affordable rates. As it turns out, a number of Hollywood’s companies are trying to revitalize their revenues and expand their scope -- but those plans are getting screwed up by your viewing and spending habits.
Let's first reflect back to last fall, when Netflix announced the concept of Qwikster -- the home-viewing giant's infamous and short-lived plan to split the company into services (and prices) for DVD rentals and streaming video. The inspiration for that debacle was their forecast of dwindling DVD demand. The result? Vilification, ridicule, mass subscriber exodus, and a plummeting stock price.
What a difference a few months makes. The company recently announced a surging final quarter, recovering swiftly from its folly and managing to replace a majority of those subscribers lost during the split-up proposal. More surprising was the news that Netflix's main rival, the DVD-kiosk operator Redbox, took over as the number-one renter of DVDs and Blu-ray discs. Expect the company to maintain that top position, as this week it announced the purchase of 10,000 kiosk machines operating under the Blockbuster Express banner from rival company RCR. All of this is due to a simple market fact: Demand for affordable DVD rentals remains strong.
Meanwhile, studios cling to the evaporating segment of DVD sales -- and some are fiercely digging in under the delusion that if you have to wait longer to rent at low prices, then you will become motivated to purchase New Year’s Eve. Right. On the one hand, Hollywood is hardly wrong to anticipate movie fans' demand-shift with content -- and not just with the wait-to-rent audience that sat out the worst filmgoing year since 1992. The popularity of streaming proves it to be the future of content delivery, but companies seem intent on leaving their customers behind.
Anybody with a Netflix Instant subscription and a Roku box can attest to streaming's fertile future, and from the studios' own multi-platform content outlet Ultraviolet to Redbox's just-announced streaming deal with Verizon, the major players are staking out their territory. On the other hand, all of this energy is channeled around the enduring demand to rent new DVDs at affordable rates. Redbox's ascension speaks for itself, but the fiscal reality at Netflix is that even with twice the streaming subscribers, the DVD-by-mail division provides 50 percent of its gross (streaming thus far only manages 11 percent). “The discrepancy underscores an inconvenient truth for Netflix," noted industry trade publication Home Media, "namely that while the future may belong to streaming, the present still is very much a disc-driven business, no matter how much management wants to spin it otherwise.”
Yet as we drift from DVD purchases, the studios are reacting all too desperately to retain those sales numbers. Disney recently announced its intention to join Fox, Universal and Warner Bros. in invoking a 28-day waiting-period to rent new releases on DVD -- news that followed Warners' own decision last week to extend its own rental waiting period for new titles to 56 days. This despite the facts that these windows accompanied a continued plunge in DVD sales in 2011; in the fourth quarter of last year, more market revenue came in from DVD rentals than sales -- the first time that has occurred since 1998. Those sales are likely to drop even further, in no small part due to the poorly received cinema titles of last year coming onto the home market.
How have the rental companies responded to the call for longer delays? Mostly with a shrug: Netflix decided to simply go along with Warners' new eight-week window. Redbox, meanwhile, pledged that if it cannot get titles from the studio, then it would seek alternative wholesale outlets for discs. It's costlier, sure, but when the company raised its base rental price to $1.20 per title, up from 99 cents, it only went on to become number one in the marketplace. Consumers' obvious preference for low-cost rentals means Redbox flourished as the one company with the continued confidence (or competence) to follow the money. In order to keep that strategy going, it needs to supply a diverse catalog one way or another.
Predictably, Warner Bros. has become only more defensive, now leaning on wholesalers to restrict the number of copies sold to any vendor, hoping to limit the amount Redbox can acquire. And even when the studio gets its way -- as when Netflix acquiesced to the extended waiting period -- it remains unhappy. To wit, when these titles are not instantly on hand via DVD, Netflix subscribers wait it out by placing the titles in their rental queues until they are available. That's not acceptable to Warners, which now forbids renters from so much as reserving one of its titles in their queues before the eventual rental date. Time Warner claimed last fall that this waiting-game strategy has been successful for them, but factoring in the continuing slide in disc sales would mean that Warner's on-demand and brand new Ultraviolet titles would have to grow appreciably to compensate for both that drop and its widened rental window. We can reasonably call his bluff, however, especially with content providers like Warners remaining notoriously secretive about VOD numbers and applying persistent pressure upon discount renters in an effort to curtail their proven desires for affordable rates.
The whole condition makes for a curious economic scenario: Studios looking back to an era of vibrant DVD sales, vendors looking forward to the streaming era and a majority of consumers left squarely in the middle. But one fundamental factor never changes: The companies need us more than we need them. And as long as we vote with our wallets, we'll be heard.
[Photo: Getty Images]