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The Commoditization of Packaged Home Entertainment

30 May, 2004 By: Kurt Indvik

Customer loyalty and convenience. These are watch words that are being applied in the retailing of home video product across as diverse a spectrum of locales as one can imagine these days, as is evident by several recent announcements.

First, and certainly not least, is Blockbuster's subscription-model response to Netflix, which rolled out nationwide in the United States last week — as the chain has been promising for some time — after an 18-month-long test in more than 1,000 stores. A company spokesperson said the test showed the chain's customers have responded well to the idea of a rental transaction that is not time-sensitive, that is, it does not expose them to the potential for “extended viewing fees” if they choose to hold on to the video and return it at their leisure. That's a convenience they are willing to pay up-front for.

Apparently, Blockbuster has not seen enough potential negative financial impact from the possible conversion of high-volume rental customers to a subscription model to make the program unpalatable.

And, importantly, this sort of customer-loyalty deal typically will preclude subscription customers from using the services of another video store chain, and thus, market share can be gained at the expense of competitors.

Meanwhile, a different sort of chain, McDonald's, announced last week it is getting more serious about its own home video customer-loyalty program, placing DVD vending machines in all 105 Denver restaurants this summer, with the promise that if the program goes well, the chain will consider a national rollout later in the year. The machines, capable of holding hundreds of DVDs, will offer about 30 new releases at a $1-per- night rental. Customers can return the video the next day at any Denver restaurant.

That's a fairly convenient new option for Denver home video customers and one that creates plenty of profit opportunity for McDonald's in what it does best — selling you something to eat or drink anytime you come by.

Even multilevel marketers are increasingly getting into the act, as it seems from a variety of recent examples I have seen. Again, the idea is to appeal to people's desire for convenience. That has always been the point of multilevel marketers. But while credit cards, phone services and other consumer items can have product differentiations that can make one pause before buying from your neighbor, a movie is a movie, and one would think the threshhold for buying (and getting involved as a “distributor”) might not be so difficult to overcome. Time will tell if every neighborhood has its own local video distributor.

Hit movies, thanks to the deep marketing pockets of Hollywood, are a shared national awareness that makes the packaging and retailing of them, unlike other forms of media such as music and books, increasingly a commodity business where convenience and customer loyalty will reign.

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