Ted Sarandos

By : Erik Gruenwedel | Posted: 10 Nov 2009
egruenwedel@questex.com

The $1 rental kiosk business spearheaded by Redbox continues to take flak from the home entertainment industry with Netflix executive Ted Sarandos saying the business model “unquestionably devalues” the content eco-system.

Speaking Nov. 10 at an investor-hosted digital media panel in Menlo Park, Calif., Sarandos characterized kiosks as a low-margin business predicated on new releases — an emphasis the Netflix chief content officer said does not apply to the online DVD rental pioneer.

Nearly 80% of Netflix monthly subscribers primarily rent catalog titles, according to Sarandos.

“The more we are not a new-release business, the happier [our] margins can be,” he said. “[$1 rental] does, however, cause consumers to second-guess the $10 movie ticket, $15 DVD purchase and $200 cable bill.”

With much of the panel’s attention focused on the migration of entertainment from packaged media to the Internet, Sarandos said Netflix streaming technology would be included in eight Blu-ray Disc players through the holidays.

The CTO said household Blu-ray player penetration has been stymied, he felt, by consumers not buying into the need for “shinier movies” in high definition.

Instead, Sarandos envisions Blu-ray players as conduits to streaming content from the Internet to the TV.

“The killer app with Blu-ray players is streaming,” he said. “We might actually build a bridge back to the Blu-ray Disc through streaming. If someone is going to buy a box to stream to the TV and [at the same time has] the ability to watch Blu-ray movies, they will start buying Blu-ray players.”

David Habiger, president and CEO with Sonic Solutions, agreed, saying that when the Blu-ray player was initially launched, it was designed to be a gateway for electronic sellthrough via the player’s Ethernet connection.

“It’s morphed a little bit since,” Habiger said.

Alan Bell, former chief technology officer with Paramount Pictures, said studios appear to have a handle on digital migration by organizing home video divisions under the same management as the digital divisions.

Bell said the studios are attempting to seamlessly transition a $20 billion packaged media business over “some really unknown period of time” to electronic. He said DVD and physical retail still represent nearly 50% of the studios’ total revenue.

“So when you read that disc sales are down 10%, it is 5% of the whole studio pie, which is pretty significant,” Bell said. “I’m not one of those who subscribe to the notion: Why bother with Blu-ray?”

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