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VOD Not Necessarily the Enemy

3 Jun, 2009 By: Thomas K. Arnold

Remember the old days when talk of shortening pay-per-view windows to within 30 days of a film's home video release sent video retailers into a fit of anger? Fearing cannibalization, they threatened boycotts and complained loudly and vociferously to anyone who would listen.

But then some retailers noticed that a TV showing could actually help their business, almost like a commercial. Even a PPV debut wasn't the rental killer they had feared; lots of consumers simply preferred the flexibility of being able to rent a movie and watch it at home at their leisure, being able to stop, pause, and rewind as often as they liked — something PPV, at the time, couldn't match.
The advent of video-on-demand has certainly raised the bar on electronic delivery, but the big news today that Comcast is extending the VOD window from one to two days for movies from Warner Bros. and Lionsgate certainly is no cause for alarm to those retailers who rely on packaged media for their livelihood. All right, maybe rental dealers have a legitimate complaint, although the case could be made that easier access to VOD is no more of a threat than Netflix and the proliferation of Redbox kiosks.
But our business these days primarily revolves around sellthrough, and I contend that extended VOD windows can only help DVD and Blu-ray Disc sales by increasing awareness and making it easier than ever for consumers to try before they buy. Consumers fall into two categories, and those who like to collect movies certainly won't be deterred by VOD. Those who prefer a transitory experience — the rental crowd, if you will — may be swayed to "rent" electronically, but from a studio standpoint, that's a far better deal than watching Redbox rent their movies for a buck a night, not give one dime back, and cannibalize sales to boot because that Redbox kiosk happens to be located right inside a Wal-Mart store.
The studios have never liked the traditional rental model, from day one. Revenue-sharing made rental tolerable, but the studios have always derived far more money from sellthrough. The advent of Netflix, with its subscription model, and Redbox, with its dollar rentals, has put a serious ding in revenue-sharing, particularly in the case of Redbox, which from what I told does not have a single revenue-sharing deal in place. So not only are studios no longer getting much of a cut of the rental action, but they also have to contend with the troubled economy, which has led to a slump in DVD sales but a surge in DVD rentals. "The fact is, the rental business is up while the sellthrough business is down, and if a consumer walks into a Wal-Mart store and sees a Redbox kiosk he just might rent a movie for a buck instead of walking all the way to the back to buy the movie for $20, unless it's something he really, really wants to own," one studio executive told me.
So is it any wonder the studios are becoming more and more accommodating with VOD providers such as Comcast? Like physical video rental, it's a transitory experience, but unlike physical rental the studios get better margins and the chance to help rather than hinder sales.
Warren Lieberfarb's vision at last is coming true: Consumers who collect movies buy DVD or Blu-ray Disc, while those who prefer to rent movies do so electronically, where studios and not retailers are in control.
Video rental dealers may not like it, but hey, that's Hollywood.


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