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Analyst Questions Wisdom of Major Studio 99-Cent Rentals on YouTube

25 Nov, 2011 By: Erik Gruenwedel

'Harry Potter and the Deathly Hallows — Part 2'

Google-owned social video website offering loss-leader pricing on myriad major studio titles, including Warner’s 'Harry Potter and the Deathly Hallows — Part 2' for 99 cents

With YouTube offering hundreds of major Walt Disney Studios Home Entertainment movies for transactional video-on-demand, BTIG Research analyst Richard Greenfield wonders about the impact on sellthrough and cloud-based digital storage initiative UltraViolet.

Google-owned YouTube is renting major titles from Lionsgate, Universal Studios Home Entertainment and Warner Home Video for 99 cents less than two weeks after street date, including Harry Potter and the Deathly Hallows — Part 2, which was released at retail Nov. 11. Lionsgate's Conan the Barbarian, which also is available for 99 cents, was released on DVD and Blu-ray Nov. 22.

A Disney spokesperson, however, said the studio's titles would be available for rent for no less than $1.99 per transaction — a price point that mirrors iTunes.

Against a backdrop of declining physical and electronic sellthrough, studios have embraced transactional VOD since margins are significantly higher (about $3 per transaction) than in-store rentals, subscription VOD (Netflix) and kiosks (Redbox, Blockbuster Express).

However, with YouTube offering recently released major titles for a dollar for a 24-hour window (consumers have 30 days to watch the rental), another nail has been hammered into sellthrough’s coffin and, more importantly, devaluation of home entertainment into a dollar commodity continues unabated, contends Greenfield.

“Renting failed [box office] movies at heavily discounted prices such as is one thing; however, newly released 'Harry Potter' at 99c is a whole other story,” Greenfield wrote in a Nov. 23 blog post.

Greenfield believes Disney likely is losing less than other studios on YouTube’s discounted pricing but said the 99-cent streaming offerings don’t bode well for Hollywood’s sellthrough-based UltraViolet digital locker initiative, or video store and kiosk rentals.

“How does the industry push UltraViolet cloud storage when you can rent top content within days of release for only 99 cents and access it on a wide range of devices, including your television?” Greenfield wrote. “Selling Blu-rays at $20 each or even at $10 or less on Black Friday also appears quite challenging relative to YouTube’s pricing.”



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