Rental doesn't mean what it used to
By Marcy Magiera -- Video Business, 3/2/2007
MARCH 2 | For 25 years, video rental referred to one thing: a physical copy borrowed, for a small fee, from a retailer and returned a day or more later.
Within the past year or two, the term has evolved—exploded even—to refer to any copy of a movie, physical or otherwise, available to a viewer for a limited amount of time.
All the hype over download-to-burn and electronic sell-through aside, most movie downloads performed by consumers are rentals. Cable VOD transactions are essentially rentals.
Retail purists may debate the point, but studios—and number crunchers both in Hollywood and on Wall Street—see all these limited-time transactions as having more in common with one another than they do with DVD sell-through. And—this is of paramount importance to traditional rental dealers—while they may see a value in the broader “rental” channel in the new sense, they have absolutely no motivation to shore up the narrower rental channel of the old sense.
Sanford Bernstein analyst Craig Moffett recently predicted that if studios would just collapse DVD and PPV/VOD windows, they could gain as much as $2.4 billion in incremental profits by replacing DVD rentals with higher margin VOD rentals, while giving up little in the way of lost consumer DVD sales.
Studios are testing this very scenario with cabler Comcast in a couple of markets, and they’ve been completely upfront about their concern that growing the cable VOD business not cannibalize DVD sales. A decline in DVD rentals, one is left to infer, is not only acceptable, but expected.
In a recent examination of the profit scenarios possible with various reordering of release windows, researchers from the University of Hamburg and Bauhaus University in Germany, Case Business School in the U.K. and the University of Missouri in the U.S. lumped DVD rental and VOD together in one window, distinct from DVD sell-through.
They came up with a couple of interesting possibilities. One showed that a simultaneous theatrical and rental release, followed later by DVD sell-through, would increase studio revenue but maim theaters. In the other, studios could improve their own profit margins without reducing theater revenue by releasing first in theaters, then to DVD sell-through, and only later to rental.
At the studios, DVD sales revenue is sacred. Theatrical revenue is also, given its role as fuel for the studio marketing engines. Rental revenue is, if not expendable, at least experimentable.
Blockbuster gets this, and so does Netflix, as evidenced by Blockbuster’s interest in acquiring Movielink and Netflix’s recent move to streaming.
They want their rental businesses to evolve, not explode.
