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Disney’s ‘Toy Story 3’ Release Strategy Baffles Analyst

3 Nov, 2010 By: Erik Gruenwedel

Walt Disney Studios Home Entertainment’s maverick status regarding windows and distribution channels, including the Nov. 2 release of Toy Story 3, continues to befuddle conventional wisdom, an analyst said.

The top-grossing animated film in history, No. 1 box office hit of 2010 and Disney’s second billion-dollar release of the year following Alice in Wonderland, Toy Story 3 should prove to be a veritable gold mine through the fourth-quarter retail season.

That's why the studio’s decision not to release the film on transactional video-on-demand (VOD), while offering it to iTunes (purchase only), discount rental kiosks (Redbox, Blockbuster Express, etc.), Netflix (no streaming) and traditional video stores leaves Richard Greenfield, analyst with BTIG Research in New York, scratching his head.

“While we believe it could make sense to delay all rental options on day one for blockbuster titles like Toy Story 3, if we were going to enable rental, we would make sure we were maximizing the gross margin dollars of rental,” Greenfield wrote in a post.

Indeed, iTunes offered the film for $9.99 for the first day, which quickly ranked it the week’s top seller. With standard-definition new-release VOD titles typically renting for $4.99 (and $5.99 for high-definition), and iTunes rentals costing about $3.99, Greenfield wondered why Disney then made Toy Story 3 available to lower-margin $1-per-day kiosks.

“It is hard to fathom why Disney allows you to rent via Netflix and Redbox on day one of a DVD’s release, but prevents higher gross margin dollar rental services such as iTunes and cable/satellite VOD,” he wrote.

Interestingly, Walmart, which is a top seller of Disney packaged media, offered a free digital copy of Toy Story 3 to disc customers through its Vudu download service. By comparison, Amazon did not offer a digital copy of the film with its Disc+ On Demand service.

In previous analyst calls, Disney CEO Bob Iger has defended the unusual practice, saying the studio’s signature titles typically blossom in sellthrough channels regardless of lower-cost alternative options. He said heretofore the studio has seen no measurable impact to retail sales when releasing titles through kiosks and subscription-based Netflix.

Indeed, the studio made waves earlier this year when it scaled back by four weeks the theatrical window for Alice in Wonderland, saying it wanted to jumpstart the title's retail opportunities.

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