Expiring DVD Draws Skeptics23 May, 2003 By: Holly J. Wagner
Skeptics abound in the wake of Buena Vista Home Entertainment's announcement that it will test expiring DVDs from Flexplay in several markets this August.
Though Buena Vista president Robert Chapek said the 48-hour EZ-D discs are intended to open a new revenue stream without detracting from existing models, not all retailers see the discs as an opportunity and consumer comments from a variety of online discussion boards are mixed.
“The technology is not new. We think the reason the content providers have not done anything with them is because the economics aren't there. We think it's a bad idea for the film industry and for consumers,” said Blockbuster Video spokewoman Karen Raskopf, who added studio representatives talked to Blockbuster executives about the move.
With home video accounting for 60 percent of the revenue most movies generate, “We can't understand why Disney would want to jeopardize the most profitable area of their business,” Raskopf said. “The studios charge an average of $15 per DVD they sell, whether it's for sale or rental. Let's say they sell [EZ-D] to retailers for $5. They would have sell three of them to add up to that.” (Raskopf stressed that the $5 is just an example and refused to disclose the actual wholesale pricing the two companies' executives discussed.)
Anecdotally, in a series of intercepts Video Store Magazine conducted across the country over the weekend, 10 percent of respondents said they were likely to pay $7 for an expiring disc, 37 percent might buy at $5, and 59 percent said they might try it for the same price as a traditional rental.
“Consumers will determine whether this is a viable alternative. It doesn't appeal to me as a consumer, and for many it won't,” said Video Software Dealers Association (VSDA) president Bo Andersen. “The test will be the extent to which it cannibalizes retail sales.”
“We are very interested in minimizing the cannibalization of the current sellthrough and the current rental business. Therefore the six-week [release delay] window provides adequate protection before we try to exploit this on another format,” Chapek said. “At about this time, rentailers are also putting out previously viewed discs. To us, the product is already available to the consumer, whether they want to rent it or whether they want to buy it, by the time the pay-per-view window comes in.”
Ted Sarandos, VP of content acquisition for Netflix, said the move confirms the importance of the subscription model. “It reconfirms our rental model and what we have said all along, which is the traditional rental model is broken,” Sarandos said. “There is a need to address the consumer desire to not have late fees and return dates. We are always testing new consumer technologies, but this one doesn't go far enough. It's a half-step. The clock is ticking just like it does at a video store, just in a different way. I think it's riddled with customer service issues.”
But, assuming Disney has no problems getting the new software into the retail stream, Tom Adams of Adams Media Research foresees a smooth ride. He anticipates consumers will quickly learn to differentiate the self-destructing discs by their no-frills packaging that would not be confused with the high-end boxes of sellthrough DVDs. Plus, the limited-play idea resolves consumers' two top frustrations with the video rental process: “The return trip and late fees are something nobody likes,” he said. “So in that sense, it addresses a real consumer need.”
Geoffrey Kleinman, founder of Web site DVD Talk, doubts that Flexplay will strike a nerve outside of large metropolitan centers, where there are likely to be more pedestrians apt to pick up something in a vending machine. Besides, he said, consumers are likelier to go with pay-per-view (PPV) than with the disposable discs.
Ron Epstein, moderator of the Web site Home Theater Forum, said, “I am suspicious of any studio that introduces and markets this as something that will better our lives, when in fact, it's only an effort to corner the market with a new money-making technology. Is a 48-hour disposable DVD really needed when we already have low-cost conveniences like PPV and Netflix/GreenCine mail-order rentals that enable us to watch films without ever having to worry about late fees or even leaving the confines of our home?”
He also questioned the effect on rentailers.
“Yes, it is somewhat likely to cannibalize rental, but perhaps no more than retail. It is a threat to the independents. That's an expected concern. It's also a threat to other outlets,” VSDA's Andersen said.
A number of independent dealers posting here and to the VSDA's discussion board greeted the test with dismay.
“It is interesting how the studios talk about the rental business being ‘flat.' They refuse to understand that the robust sellthough market is cutting into rental. They refuse to understand that shortened PPV windows cut into rentals. The refuse to understand that putting their movies on satellite TV where it can be easily stolen cuts into rentals. Or maybe they do understand and are doing these things because they have never liked the concept of renting,” wrote Tom Hannah, owner of Video Quest in Joliet, Ill.
Rental dealers are concerned the disposable format will hurt business in ways that extend beyond lost rentals.
“While it is being touted as designed to entice lapsed renters, the fact that it has no back end means that it is also designed to reduce the demand for used product by removing rental units that would potentially be backended as previously viewed,” wrote Adrian Hickman, manager of TLA Video in Philadelphia. In the Video Store Magazine intercept survey, 34 percent of respondents said they have purchased at least one used disc in the past.
Others think the format's own limitations consign it to failure.
“Hope the vacuum seal doesn't break. It would be a real pain to open the package and already have a dark gray useless disk,” wrote Ross Flint, owner of Video Station Superstore in Taylor, Texas. “Knowing how most kids behave in stores will most likely put the format under, as most of these will be placed in checkout lines where kids will want to play with them or open them just for fun.”
Enrique Rivero and Joan Villa also contributed to this story.