BusinessWeek: Squeezing Every Dime from DVDs (as Sales continue to decline)

Connect to Facebook/Twitter, recommend via email and much more.

---

Note: the following news is courtesy of our friends at BUSINESSWEEK.com »
(published in the October 19 issue)

Squeezing Every Dime from DVDs
-With consumers flocking to low-cost Netflix and Redbox, Hollywood wants a bigger share of the profits

With frugal consumers renting rather than buying DVDs, Hollywood's $14.5 billion cash cow is getting thinner by the month. And even when the economy recovers and people feel flush again, it seems clear that DVDs will not be high on shopping lists.

"The days when you [could] get anyone who wants to see a movie to pay $15 at a Blockbuster, Best Buy, or Wal-Mart are in significant decline," former News Corp. President Peter Chernin told a recent University of Southern California roundtable. "And you're going to see [DVD sales] continue to decline."

It is a measure of Hollywood's desperation that the studios, which rarely agree on anything, are closing ranks to shore up the business. This past summer, Sony, Paramount, and Fox discussed combining back-office and distribution operations as a way of cutting costs and boosting DVD margins. Those talks have since bogged down because hoped-for savings might not materialize quickly enough.

SHARE THE WEALTH?
Meanwhile, some of the largest studios are looking to squeeze more money from Netflix, the fast-growing online behemoth that revolutionized the DVD rental business. Jeffrey L. Bewkes, CEO of Warner Bros.' parent company, Time Warner, told an industry conference in mid-September that his studio wanted "better economics" from its Netflix deal. Time Warner, according to knowledgeable industry sources, is pressuring Netflix to rewrite its agreement either to share more of its subscription revenues or to get DVDs from the studios weeks after Wal-Mart and other retailers get them. A Netflix spokesman says only that it "continues to discuss the changing market" with the studios.

Another player feeling the hot breath of Hollywood is Redbox, the fast-growing upstart whose $1 DVD rental kiosks are in supermarkets across the U.S. In a bid to protect DVD sales, Warner, Universal, and Fox have threatened to withhold titles from Redbox unless it agrees to several restrictions. According to a lawsuit Redbox filed against Universal, they include limiting the number of titles rented in each machine, sharing rental fees, and waiting 45 days after a film has been in stores before renting it. "We think there is a place for very low-priced rentals, but obviously not in the middle of when we are trying to sell higher-priced [products]," said Bewkes at the same conference.

Most studios argue that DVD sales will come back when the economy recovers. But even as the studios take defensive steps against cheap rentals, they're looking at a future without DVDs. Warner recently made two new releases available for rent to a small number of Atlanta cable subscribers four days before the DVDs were set to appear in stores. Warner is waiting to see if making the films available on demand would prompt folks to visit their local Wal-Mart and buy the disk. Fox recently offered a three-disk package of X-Men Origins: Wolverine for $26.99 that included a Blu-ray disk, a traditional DVD, and another one that can be stored on a computer hard drive.

After toying with online distribution for years, Hollywood finally seems to be rushing the Net as well. Walt Disney may launch an online subscription channel featuring some of its older family classics. And by Christmas, say industry insiders, Google's giant YouTube video service could start renting movies from most of the studios. "They've been practicing some of these dance steps for a long time," says Lazard Capital Markets analyst Barton Crockett. "It's time they hit the dance floor."

By Ronald Grover and Tom Lowry
(BusinessWeek, Oct 19, 2009)
________________________________________
(bonus article below)

Note: the following news is courtesy of our friends at VIDEO BUSINESS »

Rental thrives in down economy
-Q3 spending rises 10% on Blu-ray, kiosk growth

If the lackluster economy this year has been good to one business, it's packaged media rental. Summit Home Entertainment's KNOWING was the top rental in the third quarter.

U.S. consumer spending on rentals of DVD and Blu-ray Disc surged 9.9% in the third quarter over the same period in 2008, according to Rentrak Corp.'s Home Video Essentials, as consumers hunkered down with inexpensive entertainment. Rental spending across both formats and all retail channels hit $1.6 billion in the quarter, fueled by big gains in Blu-ray and the growing popularity of Redbox.

For the full year through September, overall rental spending is up 8.2%, to $5 billion, according to Rentrak.

"The widespread distribution of Blu-ray titles into the primary rental channel is supporting the rapid adoption of the format by consumers, greater than what we saw on DVD," Rentrak VP Brad Hackley said.

Consumers spent more than $111 million renting Blu-ray discs through bricks-and-mortar and online outlets in the third quarter, 44.5% more than a year earlier. Year-to-date Blu-ray rentals are up 53.8% to $313 million, Rentrak reports.

DVD rentals through traditional and online retailers are off 2.8% for the year, to $4 billion.

The kiosk channel still represents just about 14% of all rentals, but is growing at a speedy clip. Kiosk rentals have grown by more than 120% this year, as Redbox has surpassed more than 17,000 kiosks in stores and Blockbuster and NCR gear up their kiosk joint venture.

Kiosks face new challenges in the fourth quarter, however, as 20th Century Fox Home Entertainment, Universal Studios Home Entertainment and Warner Home Video all impose a window of four weeks or more after their titles' general release for the kiosk channel. The three studios combined represent about a 40% share of the rental business.

The studios are concerned that inexpensive kiosk rentals and the used DVD inventory they create cannibalize higher-margin revenue streams, particularly DVD sales.

Continue reading...
View the entire news report at VB's website.

By Marcy Magiera
-Video Business, 10/09/2009
________________________________________

Related Industry News:
—> Hollywood vs. Redbox (BusinessWeek) » - 20th Century Fox, Universal and Warner fear the upstart's $1 DVD rentals are digging into studio profits: "Having our movies rented at $1 is grossly undervaluing our products," said an executive at News Corp.

—> Netflix CEO: Disc their primary format for just two more years » - In an Oct. 7 interview, Reed Hastings said DVD would thereafter play a supportive role as the online DVD rental pioneer transitions further into digital distribution and streaming.

—> He Got Mail! – How Reed Hastings revolutionized the movie-rental business with NETFLIX » - Reed Hastings reveals how he got the idea for the DVD-by-mail service (now with more than 9 million customers).

—> How Hollywood Creates Video Pirates » Why does it continue to withhold content that should have been made available long ago? (from BusinessWeek, Jan 12, 2009)

—> Paramount comes to terms with Redbox in new revenue-sharing deal » - Similar to deals with Sony and Lionsgate, Redbox will continue to buy Paramount titles the day they are released, on the condition that those discs are subsequently destroyed and not sold on the used-DVD market.

—> Redbox creates website to plead case » SaveLowCostDVDs.com - new site to publicize Redbox lawsuits against studios such as Universal Studios and 20th Century Fox, spinning its claims as part of an effort to save consumers money on DVD rentals.

—> Redbox files a third lawsuit - this time against Warner Home Video » The suit, filed Aug. 18 in Delaware Federal Court, mirrors similar actions brought against 20th Century Fox for its 30-day window and Universal Studios (45-day window) for DVD discs distributed to rental kioks. "Warner has no legally valid right to restrict or govern how or to whom VPD and Ingram resell Warner DVDs that they have purchased," the suit continues.

—> Redbox CEO Mitch Lowe said the kiosk company took Fox to court ´reluctantly´ » "We had two choices presented to us: delay these great Fox titles for 30 days. Or force us to increase our pricing... we believe the customer and ourselves should decide what price we charge, not the studio."

—> UPDATE: Warner now takes aim at Redbox, Netflix (& other subscription services) » Warner Home Video is drastically changing the way it sells DVDs and Blu-ray Discs to rental kiosks such as Redbox and by-mail services such as Netflix.

—> Warner lines up with Fox in seeking a 28-day delay for rentals discs offered thru Redbox » Warner said that it will sell its titles directly to the kiosk channel, led by Redbox, beginning in October and will offer Warner titles 28 days after their general market release.

—> 20th Century Fox wants to delay Redbox rental DVD availability for 30 days after release » Fox is directing wholesalers not to sell new releases to Redbox (and others). Delay begins with fall release of Ice Age: Dawn of the Dinosaurs.

—> Redbox files suit against Fox » Kiosk operator Redbox protests 30-day vending window for upcoming Fox video releases, beginning with Ice Age: Dawn of the Dinosaurs.

—> Redbox profit grows as execs at Coinstar eye more studio deals » The total number of Redbox kiosks as of June 30. 2009 was 17,900, compared to 9,600 at the mid-point of 2008, as Coinstar more than doubled its second quarter profit to $7 million for the 3-month period ended June 30.

---

Connect to Facebook/Twitter, recommend via email and much more.

---