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The Great Divide

30 Jun, 2009 By: Thomas K. Arnold

Smart move by E1's Dan Gurlitz to make his company's upcoming season one release of the Sci-Fi Channel series "Sanctuary" more rental friendly by including an extra copy of the first disc. That gives each store that buys a copy two chances to snag viewers, not just one, and then hopefully get them hooked enough that they'll want to rent the three additional discs, each packaged individually, as well (see Chris Tribbey's story here).
It's nice to see a supplier reaching out to the much-maligned rental dealers, who certainly haven't been getting the respect they deserve for years, at least not from the major studios. From the day a cadre of pioneering rental dealers birthed the entire home video industry back in the late 1970s, studios have been doing what they can to stamp out rental, or at least share in the spoils. When the revenue-sharing deals that at last gave them part of the action expired, chiefly because the business shifted from $100 videocassettes to $20 DVDs, the studios renewed their unspoken campaign against rental, a campaign we now see intensifying because of the success of Netflix and Redbox.
The fact that Netflix uses a subscription model irritates the studios to no end, since it's no longer neat and easy from an accounting standpoint. Revenue-sharing monies would be hard to track and even harder to predict — assuming revenue-sharing deals are still in place. Redbox, with its ubiquitous kiosks, is a whole other beast; if the studios can't stand Reed Hastings, chairman and founder of Netflix, then the executive team at Redbox is collectively branded as Public Enemy No. 1. Not only does Redbox not share any revenue at all with any studio, but the company also rents DVDs for a buck, which studios say devalues their product. Adding insult to injury, kiosks are popping up all over like mushrooms after a rain, including in Wal-Mart stores, where they provide would-be DVD buyers with a much cheaper and more convenient way to watch movies, particularly in this economy.
Publicly, studio executives will issue platitudes like "Rental continues to be an important part of our business." But privately, they are dissing rental with uncharacteristic rage, their anger fueled in part by the fact that DVD sales are down while rentals, by most accounts, are up.
When a certain trade publication wanted to do a tribute to Reed Hastings, not a single studio bought a congratulatory ad. And Blockbuster, the traditional queen bee of the rental business, also is in the crosshairs, in the Paybacks-are-a-Bitch Department.
In the late 1990s, before DVD and sellthrough forever changed the equation, Blockbuster was the top video retailer in the world, and the chain promptly used its clout to bring the studios to their knees, squeezing favorable terms out of them to allow it to bring in significantly more copies of hits on the cheap.
Ultimately, Blockbuster was outsmarted by the studios, who turned this ploy around and ended up with lucrative revenue-sharing arrangements. But the studios never forgot Blockbuster's arrogance, and when the chain fell on hard times — due to the rise of sellthrough on one side and the emergence of new business models, like Netflix and Redbox, on the other — there's not even the slightest trace of sympathy in Hollywood. Indeed, rumors are wide that studios are cracking down on credit, squeezing Blockbuster at a time when the chain can least afford it.
Blockbuster continues to fight back, however, most recently by rolling out its own fleet of kiosks (I can just imagine studio executives frothing at the mouth over this) and now by announcing new releases will rent for just $1 a night, the same as Redbox (see our story here).
Studios, it's your move. I can hardly wait to see what comes next.


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