How Your DVD Rentals Are Changing Hollywood

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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]

Brad Slager has written about movies and entertainment for Film Threat, Mediaite, and is a columnist at CHUD.com. His less insightful impressions on entertainment can be found on Twitter.



Comments

  • Jerry Rackens says:

    The studios are the reason piracy is so dominant right now.

  • Robert says:

    Unless it's a film I know I'll want to watch over and over again (how often does that come out of Hollywood), I have no interest in buying DVDs. Period. If my punishment is waiting 28-days to see a new release, so be it. And I sure as heck ain't gonna give $10 to Comcast to watch it On Demand -- they get enough of my money as it is!

    • S.T. VanAirsdale says:

      Exactly. While I do own DVDs, I never watch them, and now I can't sell them because they're essentially worthless. I have Time Warner Cable, and half the time I want to stream something on demand it's not even available. I mean... WHAT?

      Just let me rent my DVDs and let's get on with our lives.

  • Mark says:

    Hollywood does everything in its power to make watching a Blu-ray disk irritating. It disables jumping to the movie, forcing you to view all the previews, only the fast forward button works.

    Why would I buy a disk, when I know from renting movies that the format annoys me? I much rather buy something on iTunes where it just works and gives me what I want.

  • tchudson says:

    I love their thinking. So, I've waited three to six months to see a movie on DVD rather than in the theater. They think that delaying the rental of a movie by another month or so is going to make me want to BUY it? Not happening. I only buy dvds that I know I want to view repeatedly, and with Netflix and Amazon streaming, I can get to a lot of things that I would have previously bought.

  • Plum says:

    Amen, brother. The studios are trying to re-create 1882 and the rise of the VCR. They can keep their crappy movies; I am more likely to watch a cool Wilco documentary or discover Archer for the first time than I am to rent a New Bad Movie. I'd rather watch a classic, discover a cool new foreign film and then be able to watch all their films than waste time choosing between crappy rom-coms and cruddy robot movies.

  • kloomis says:

    A July 2010 survey noted that public libraries surpassed Netflix (the top commercial provider at that time)in DVD checkouts by about 5%. These numbers have probably changed due to increased streaming (which libraries do not yet offer); on the other hand, the depression is pushing folks to more and more use of (free) library services.

  • Kellyj says:

    I built a DVD library of over 1000 titles over a 10 year period. I switched to Blu Ray and stopped buying discs because Blu Ray was very expensive and the selection was very limited. Quit Netflix because had to wait forever to get a Blu Ray movie. I sold half of my DVD collection because many of the films I owned I were available through streaming. I'm at the point now where I don't even care about movies anymore. I bought a camcorder and now spend a lot of my time making content and uploading it to Youtube. I watch streaming mainly through Amazon Instant Prime and usually it's a television series not Hollywood movies. The selection has become so narrow...too many comic book movies, too many vampire and zombie movies, too many nerd comedies, and too many movies about law enforcement and criminals.

    Movies are completely out of touch with what is happening in the real world. if I watch a movie, it is usually a documentary.

    • S.T. VanAirsdale says:

      Movies are completely out of touch with what is happening in the real world. if I watch a movie, it is usually a documentary.

      Amen.

  • DharmaOne says:

    Just a few years ago a new release DVD sold for under $15. Now they're $19 DVD/ $24 BluRay with no extra features.

    Get the prices back down and maybe the sales would go back up!

  • David Hoffman says:

    Streaming could not possibly become dominate when too many internet connections are too slow and attached to oversold cable internet nodes and overloaded telephone DSL systems. Setting up a connection between a cable or DSL modem and a television can be a nightmare if you need to do it with WiFi wireless equipment. You can run through several WiFi routers and WiFi adapters before finding a setup that works. Powerline networking is great, if the house has a good wiring system. That the Netflix DVD rental business is still strong does not surprise me. When all the cable internet connected homes of the USA have reliable DOCSIS3.0 300Mbps download and 200Mbps upload connections without low monthly data usage caps, then the DVD rental business will be in trouble.

  • Bob Witmer says:

    Screw Hollywood! There is no movie made that I can't wait two months and pay two bucks to see. The movies coming out of La-La Land are not worth jumping through hoops to see.

  • rhodeback says:

    I can wait for the movies. There's plenty of other things to do. I'd rather rent anyway since I'm hearing impaired and need subtitles to understand the movie. Most actors seem to have learned to speak from the David Carridine "Kung Fu" TV Show of acting...they all whisper and mumble. Besides, I only buy a Blue Ray movie if I really, really like it. That's why we preview it first, by renting it.

  • Lee Ann says:

    I steam most of my movies, television shows, and documentaries through Netflix. The only time I rent a disc on Netflix is it's not available on streaming, or if I think the disc will have special features.

    Once streaming includes special features, I'll never buy or rent another disc.

  • I was happy to read about the success of redbox in USA.i hope that DVD and now bluray continue to thrive.everyone was talking about the drop in DVD and bluray sales ignoring the fact that their has been huge jump on the rental side.no one can deny the fact that bluray with its Highfefinition video and sound is the best way to watch movies and the old classics like wizard of oz and cleopatra never looked better.

  • James says:

    I used to collect movies on VHS... but when the market switched over to DVDs, I realized a few things. 1) I seldom watch a movie more than once. 2) Eventually, even DVDs will go the way of dinosaurs. 3) Redbox and Netflix and my local library provide practically ALL the movies I could ever want to watch. 4) The $20 dollars it costs to buy a single DVD pays for an entire month's worth of movies (3 at a time) from Netflix. I'm perfectly content to wait out the studio's release timeline, since I have plenty of other movies to watch in the meantime.

    ... and like Rhodeback says, with a hearing impairment, the subtitles make a big difference for me. I've been wondering if the manufacturer's decisions on whether to provide subtitles or not could be actionable as being "unequal access" under the Americans with Disabilities Act.

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