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March 09, 2010
Who Needs a Portable DVD Player?

I think the disc — especially Blu-ray — will be around for some time, but I think one place where digital delivery has taken root is in the portable market.

Back in 2006, we prepared to take a long road trip by buying two portable DVD players. We got two so each girl could watch whatever she wanted (no fights that way). We packed 20 or so discs in a CD case and were on our way. Other than the youngest one asking for help changing the DVD selection every so often, it was a peaceful trip. We also used them on one or two plane trips.

Four years later, those two players sit gathering dust. With her new Apple iPod Touch, my 11-year-old can watch digital copies. And the younger one uses her father’s iPod to do the same on long road trips. Before leaving, they peruse the digital copies available, load them on the iPods and we’re off.

The iPods are certainly lighter and easier to store than the portable players, and the girls don’t mind only having a few movies from which to choose; they just switch iPods when they want to swap movies. We don’t have to lug around a CD case of discs. On the next trip, they dump the movies they’ve already watched and put new digital copies on the iPods.

The only downside is selection. There’s often a groan when they learn a particular digital copy isn’t Apple compatible. Compatibility doesn’t seem to be studio specific. It’s random. Some, such as Sony Picutres’ Cloudy With a Chance of Meatballs, work only with Sony’s PSP and a PlayStation 3.

Just when we thought the format wars were over, we find a new one in the digital realm. Some things never change.

February 24, 2010
Blockbuster Blames the Red Menace

Blockbuster CEO Jim Keyes is seeing red — as in Redbox kiosks — in his explanation for the chain’s continuing woes.

Redbox, that wily competitor, has successfully been working around the windows imposed on it by Warner, Fox and Universal, he said in a conference call, and that’s why Blockbuster posted continued negative same-store rentals in the fourth quarter.

But now that Warner has struck a month-long window deal with the Red Menace, Keyes hopes Fox and Universal (both embroiled in lawsuits with the kiosk company) will do the same. That could give the chain an edge and prevent further store closures in the future, he said. Also, the closure of Movie Gallery and Hollwood Video stores could prove a boon for the company, he added.

“We remain cautiously optimistic ... with tailwinds becoming clear,” Keyes said.

Heck, Blockbuster couldn’t ask for a better hand of cards dealt it in recent months. The studios are forging later windows for competitors Netflix and Redbox. The only other big rental chain still kicking, Movie Gallery, has filed bankruptcy for the second time in three years. And yet nothing seems to move the needle much on Blockbuster’s fortunes.

There may come a time when blaming the Red Menace and other competition won’t hold water — when the real menace, Blockbuster’s crushing debt, mostly inherited when it spun off from Viacom years ago, will bite back with a crushing blow. Just before the chain’s financial results hit the wires, Blockbuster reportedly hired legal and financial experts to help it to restructure nearly $1 billion in debt. That debt has been the real villain in Blockbuster’s struggles. It prevented the chain from quickly modernizing, advertising and innovating in ways that could have held off the likes of Redbox, Netflix and others. The Red Menace may be the cause du jour of Blockbuster’s troubles, but it’s the debt that may eventually do it in.

February 17, 2010
Redbox Deal Points to Blu Skies Ahead

One of the reasons Redbox has waved the white flag in its fight with the studios is because it is turning Blu.

Redbox executives said one of the motivating factors in making this week’s deal with Warner to accept a 28-day window on new releases was access to the studio’s Blu-ray titles.

The kiosk company plans to roll out Blu-ray rentals, which it has been testing for some time, by the middle of the year, likely at a higher rental price, according to executives. Netflix already offers Blu-ray rentals at a premium, charging customers $1 to $3 more on their monthly subscription for renting titles in the high-def format.

Blu-ray’s detractors — often digital delivery backers and Wall Street analysts who invest in that new technology — have long called it a dud, but last time I checked, getting customers to pay more for a product meant it was doing pretty well. Redbox consumers commenting on various discussion boards have indicated that they’d pay $1 more a night for Blu-ray rentals. Netflix’s Reed Hastings recently commented that the premium on Blu-ray rentals has helped the by-mail rental company grow the average profit per customer.

Blu makes more green, and one of the fastest-growing companies in the rental business adopting the format is a sign that its is gaining traction in the mainstream market, and will likely see great growth in the years to come.

The signs of adoption are all around. Consumer spending on Blu-ray purchases topped $1 billion in 2009, according to DEG: The Digital Entertainment Group. Just about everyone on my block has a Blu-ray player following the recent holiday season. Most members of my family have gone Blu. And — perhaps the biggest indication of all — I no longer have to explain to aquaintances what Blu-ray is.

There are still a few hurdles. For instance, one of my neighbors didn’t realize until last October that her PlayStation 3 played the format. (I’m sure she’s not alone.) Hopefully, Sony’s ad blitz will right that perception. Also, my mom hasn’t adopted Blu-ray, but she still has a 15-year-old TV and didn’t get a DVD player until they were $29.

Blu-ray is finally stepping into the spotlight, and, thanks to Redbox’s new deal with Warner, will soon be available at a kiosk near you.

February 10, 2010
Netflix and Redbox: The New Low-Price Leaders

I recently heard a report that, while liquor sales are doing well during this recession (as they always do), consumers are increasingly opting for the lower-priced booze. Instead of Grey Goose vodka, they are buying Popov. Instead of Gentleman Jack, they are opting for Black Velvet whiskey.

The same thing seems to be happening in the video industry. Wal-Mart used to be the low-price leader on packaged home media, offering the best value with DVDs priced close to the $4 it would take to rent it at the local Blockbuster. But as the recession has cut into consumers’ budgets, increasingly kiosks such as Redbox, with its $1 rentals, and Netflix, with its unlimited streaming plus disc rentals for $9 a month, are looking good by comparison.

Cable VOD, with prices around $4, also is struggling. Both Time Warner Cable and Comcast, the top cable operators in the country, each reported quarterly declines of about 200,000 subscribers for premium channels, including VOD.

“I have to imagine that the continued proliferation of Redbox kiosks and Netflix offerings is drawing consumers looking for cheaper alternatives that are just about as convenient as VOD,” Eric Wold, director of equity research with Merriman Curhan Ford in New York, told Home Media Magazine. He commented on a survey from research firm Light Reading that said 30% of respondents had switched providers due to video service price issues.

While analysts may wax poetic about Netflix’s technological advantage, I contend one of the primary drivers behind its growth during this recession is price for the amount of service. I know people who have dropped cable altogether in favor of Netflix. Subscribers have access to a slew of TV shows and older movies, as well as the traditional by-mail rental of the latest hits for a price that is much less than the typical cable bill.

As for Redbox and other kiosks, no retailer I know of can beat a $1 rental. That’s likely one of the reasons Wal-Mart is refusing to sell a buyer more than five copies of new releases (a move obviously aimed at Redbox, which has kiosks in its store) and has kicked out rent-sell-buy kiosk company e-Play. The low-price leader doesn’t like the lower-priced competition. I wouldn’t be surprised if the retail goliath gets into the kiosk business itself. That would make them a low-priced leader in the rental business as well.

Redbox and Netflix may have innovative business models, but it’s really price that is growing their businesses. To quote a political maxim, it’s the economy, stupid.

February 03, 2010
Putting Kiosks in a Box

Recent moves by retailers Wal-Mart, Target and Best Buy to variously limit the number of copies customers can buy and eject rent-buy-trade kiosk e-Play from stores are putting the kiosks in a business-model box.

It’s a box in which they can only offer their $1 rentals (and not trades or sellthrough) a month or so after titles hit retail shelves.

Now kiosk company Redbox in its various lawsuits claims a conspiracy between retailers, distributors and studios, and they will have to prove that in court if they want to get out of the box. They may be able to work around the margins by getting copies from retailers that are not cutting buys, but that is a lot harder than walking from the Wal-mart counter to the kiosk to load new release discs.

Again, whether or not this is some sort of conspiracy will need to be proven in court, but it may be that retailers have a legitimate business reason for limiting kiosks such as Redbox and e-Play (which this week suspended operations and pulled tests at Wal-Mart and Best Buy).

The kiosk relationship may not be as beneficial to Wal-Mart as it has been in the past, noted Pali Equity Research analyst Richard Greenfield in discussing the buy-limit policy.

“We believe Wal-Mart has facilitated Redbox’s workaround efforts over the past year mainly due to the return store traffic,” Greenfield said. “Initially, those benefits to Wal-Mart far outweighed the cannibalization Redbox was having on Wal-Mart’s retail DVD sales at the back of the store. However, as Redbox grew exponentially as a consumer brand and with consumers learning that they could rent from one Redbox in a Wal-Mart but return to another location (where they do not even need to go into a store, such as a 7-Eleven with the Redbox sitting outside), cannibalization has grown and the return-trip benefit is slowing.”

After the e-Play withdrawal, I couldn’t help but think Wal-Mart was once again acting in its own best interest. Perhaps a kiosk capable of selling and trading used discs wouldn’t be such a good idea in a store trying to sell new ones. Selling affordable new release entertainment via disc has been a Wal-Mart staple for some time, and those discs don’t look nearly as affordable when they are available used or as a rental for $1.

And maybe that’s why Wal-Mart and other retailers — including Blockbuster, which while rolling out its own kiosks is delighted with a kiosk window because it protects its high-priced rental business — are putting kiosks in a box. They don’t like the competition.