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Closing One Window May Open a Window of Opportunity

16 Jun, 2005 By: Jessica Wolf

Listening to NPR yesterday afternoon, I was intrigued to hear a Slate Magazine contributor talking about his take on the video rental market.

Apparently, at least according to Edward J. Epstein, the end of the video rental business is in sight.

What a shocker.

Home Media Retailing and other entertainment trades have been closely watching and reporting a fairly consistent downturn in rentals over the past few years, and we mostly point to the booming sellthrough business as the main cause.

But this analyst/reporter/expert is pointing to digital on demand and satellite delivery of movies as the final nail in the rental coffin. He even took it a step further, predicting that even sellthrough DVD will be on life support if mogul Rupert Murdoch has his way and can deliver a critical mass of in-home digital video recorders to the market. Epstein predicted the demise of Blockbuster and even Netflix, although he did suggest the online rentailer would retain a bit of an edge because of the depth and breadth of its catalog offering.

There's really only one thing keeping the whole business intact, according to Epstein, and that is the 600-pound retail gorilla Wal-Mart. According to Epstein, the retail behemoth has told studios, in no uncertain terms, that there will be trouble should a studio choose to release a title to the video and cable/VOD/satellite market at the same time. According to Epstein, Wal-Mart actually threatened one supplier that the chain would cease carrying all its product should that window disappear.

Epstein seemed to suggest that the only thing keeping rental as well as physical media sales alive is this window the industry has always expected and enjoyed.

Now, I don't disagree that should a title be released directly to DVD and available via cable or satellite, there wouldn't be much leftover for the rental-specific retailer. But I disagree that such a release strategy would kill DVD sales as well.

There is that much vaunted “collectibility factor” with DVD, which we can never completely discount. Sure, digital delivery will snatch some sales away from some titles. But I view this as more of revenue shift, not a theft. It's just a different way of delivering product. It creates an additional choice for the consumer. Having that other choice, in my mind, does not necessarily mean the same consumer won't also choose the physical option sometimes.

For example, can you think of any self-respecting film lover who would be happy with only a digital copy of any of the Lord of the Rings Extended Edition?

The music market is another good example. Sure CD sales are down, but legal downloads are on the rise. If the record industry had gotten on the ball earlier, perhaps they'd have been able to reap the benefits of this consumer-habit shift more quickly and effectively. Personally, I have chosen to buy a CD and purchase an album download at pretty much equal levels, though mostly I prefer the physical option.

To me, for movies it would be the opposite. I would probably love to digitally order many of the movies I want to see. Still there will always be certain products of which I will want to own a physical copy. That is the ultimate video-on-demand — having a product immediately accessible in your home. And, for some people, I think hard-drive space is more precious than shelf-space in the home right now.

Epstein does make a good point. The business is poised for a shift. But I personally believe that shift simply will carve out the video pie differently, rather than changing the dessert altogether.

Will this shift put out of business any and all traditional rental retailers? That remains to be seen, but I think it's easy for most people to sense the direction of the wind is changing, and they are looking for ways to survive and thrive in it. Just take a look at all the different schemes Blockbuster has unleashed over the past six months.

You can listen to the NPR story I've referenced here at www.npr.org. The report aired June 15 on the “Day to Day” program. The segment is titled “Slate's Summer Movies: The End of Movie Rentals.” There's also a companion article on the Slate Web site posted that day.

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