Stephanie Prange is the editor in chief of Home Media Magazine. The Yale University graduate joined what was then Video Store Magazine in 1993 and was instrumental in transitioning the publication into a tabloid newsweekly. She spearheaded the publication’s reviews section, as well as aggressive coverage of the home video sales market. She also helped launch the magazine’s Web site in 1996. In her position as editor-in-chief since 2006, she has spearheaded the launch of such projects as the daily blast, transmitted via email each day to readers, and Agent DVD, a consumer publication aimed at genre enthusiasts who attend Comic-Con International in San Diego. She has freelanced for The Hollywood Reporter, The Los Angeles Times and parenting publications. She has an M.A. in journalism from the University of Southern California.
About six months ago, I wrote a column titled “Netflix Needs Some Focus.” The column asked what Netflix wants to be when it grows up: a content distributor or content creator. I really don’t think it can do both equally well, and based on recent developments, neither does Netflix management.
Every company needs a laser focus on its vision and market, and perhaps Netflix is solidifying its own. The company is concentrating on building its content creation business, funding original productions such as “Lilyhammer,” “House of Cards” and “Hemlock Grove.” And they know what their customers like. Netflix knows what you are watching, when and how. It’s how they determine what content to greenlight and license.
In the old days, the TV was on, and it was mostly somewhat educated guesswork as to what anyone was actually watching. Now, a streaming company can know exactly what you are watching. And they know the exact value of each old movie they license. That’s why Netflix is indicating it may be more choosey as to which old movies and TV shows it licenses and will no longer buy content in bulk. The company is letting its Viacom deal expire, signaling the change in direction.
“As we continue to focus on exclusive and curated content, our willingness to pay for non-exclusive, bulk content deals declines,” reads the April 22 letter to shareholders from Netflix CEO Reed Hastings and CFO David Wells. The letter was released just before Netflix announced boffo earnings, sending the stock into the stratosphere.
That must send shivers down the backs of studio executives, who saw dollar signs when they looked at Netflix and its competitors and who hoped to get bulk catalog license payments from them.
In the end, Netflix seems to have come to the realization that its status as “first mover” can only go so far in the bulk streaming business. But the quest to be the next streaming AMC or HBO is a more profitable goal. The key is exclusive content, especially original content.
Whether consumers will buy the new Netflix really remains to be seen.
In recent weeks, one characteristic I’ve observed in the younger set (meaning my 10-year-old) is a desire to go into online worlds via apps. She wants to buy stuff for her virtual creatures or play a new app with yet more virtual creatures, some of which are related to linear programming on TV or disc.
In reading our six questions in the April 8 issue with Jargon Technologies CEO and co-founder Bhanu Srikanth, I was reminded of my daughter’s interest in apps. She noted children’s “need for activity and more interactivity” on the second screen. I couldn’t agree more.
Disney has been a pioneer in this arena, via its many apps surrounding discs, as well as its exploration of the fairy world online and its acquisition of Club Penguin. Who would ever guess that obtaining a Rainbow Penguin would mean so much to a 10-year-old?
Other studios also have a growing vision of the second screen, releasing apps for top titles aimed at adults and children. And they are right to develop and hone this type of interactivity now. Interaction with entertainment will surely grow as these kids do. My 15-year-old knows more about some online stars than she does about the latest hunk on the cover of the tabloids.
The entertainment consumer of the future (today’s kids) will crave interactivity and an online connection to linear content. It’s both an added burden and an opportunity for revenue growth for studios. If content creators get it right, innovative and creative apps will add to the studios’ bottom lines. If they let other developers capture the attention of the next generation, stealing time that could be spent watching and engaging with traditional linear programming, the studios may find they capture an ever-shrinking share of consumers’ entertainment time.
Hollywood is great at creating worlds that viewers want to enter. Now content creators again need to expand those worlds beyond the hour-long TV episode or the two-hour feature. We got a good head start with disc extras such as commentaries and making-of featurettes. The next “extras” will be online. They will change with the times and will engage viewers more than ever before.
A few years ago — heck, even a year ago — not many people would tell you it was a good investment to buy a house. The market was broken. There were more shoes to drop. More foreclosures were around the corner. Likewise, the physical rental business was on the ropes. Who would want to rent a disc when digital delivery was the future?
Like the housing market, which is returning from the dead, physical rental is getting some votes of confidence and rising from the ashes — albeit in a different form. Analyst Eric Wold, of Los Angeles-based B. Riley & Co. sees a future in physical rentals at kiosks.
“We continue to believe there is a large group of consumers that prefer and will continue to prefer renting DVDs or Blu-ray Discs for a number of understandable reasons: the large cost differential between DVDs and VOD, a lack of appropriate broadband access, or a desire for the better quality and enhanced content of Blu-ray versus downloads (i.e., alternative endings, additional features, etc.),” Wold wrote in a March 25 note.
He sees kiosks, especially Redbox, as a beneficiary of consumers’ continued appetite for physical rental. As stores close and Netflix continues to de-emphasize its physical business, causing those subscribers to turn elsewhere, a Redbox kiosk, he believes, will be physical rental consumers’ destination of choice. (It also doesn’t hurt that the kiosk company has dipped its toe in the digital water with its Redbox Instant by Verizon service.)
Meanwhile, the Blockbuster U.K. chain was saved from the dead by a British private equity firm, which Wold suspects may help revive the kiosk business there. Redbox has machines in storage with the Blockbuster name already emblazoned on them by their previous owner, NCR. And Redbox would like to expand internationally.
Redbox isn’t going away, and it has smoothed over much of the rancor with studios via windows and better (non-litigious) relationships. Just last week, Redbox announced the extension of its deal with Universal.
Yes, physical rental is hanging on, at kiosks and at the remaining stores that serve a clientele who prefer to watch content on disc.
Redbox has unwrapped its new digital offering, Redbox Instant by Verizon, for public consumption, and it offers a unique subscription at a competitive price.
While most analysts have concentrated on Netflix’s first-mover status, greater content and flashy recommendation engine as its ace in the hole in the digital age, I have always contended that one of its greatest advantages was its cheap subscription price. For $8, streaming consumers can access content that satisfies them enough to wile away a few hours a month. Now Redbox has matched that price — and has offered something more.
Indeed, while the content offering at Redbox Instant isn’t as comprehensive as Netflix’s, it offers physical rentals of DVDs (or Blu-rays for $1 more) at virtually the same monthly price as mere streaming from Netflix. To rent discs from Netflix, which means waiting for them in the mail, subscribers must pay $16 — twice the streaming-only price. Ironically, the competition in the streaming realm may be swayed by the value proposition of renting physical discs.
If I want to rent a disc, the closest and most-convenient option is the local Redbox kiosk. I don’t have to wait for the mailman or bemoan the loss of Saturday delivery. Just before I wrote this column, I passed by a couple of Redbox kiosks as I walked into the grocery store to deposit a check at the ATM.
It would be foolish to underestimate the reach of Redbox. Its customers rent 62 million-plus discs each month at 42,000-plus kiosks, according to the company. That represents a lot of customers, but it may not fully represent the amount of potential customers who walk by a kiosk while buying groceries or executing other transactions.
Redbox Instant may be a late comer in the digital entertainment race, but it has many physical marketing advantages — 42,000 to be exact. Redbox has a built-in audience to which it can market a value proposition that for those who like physical rentals is a better value than Netflix. But it also has 42,000 billboards to market its digital offering to consumers who have never rented a physical disc.
UltraViolet, the studios’ answer to digital ownership, is going through some growing pains — or a sophomore slump, if you will.
Based on a spectacular idea — the ability to buy a title once and play it anywhere on any device — and boosted by a vote of confidence from the largest sellthrough retailer Walmart, UltraViolet got off to a strong start.
But the initial surge of enthusiasm is in danger of waning, as noted by Michael Lynton, CEO of Sony Pictures Entertainment.
“It’s early days and part of the issue is the interface is not as good as it could be,” Lynton said. “They already have 10 million people signed up, but they’re not using it enough. And part of the reason they’re not using it enough is that it’s not easy enough to use.”
As an ambitious idea spanning various digital platforms and formats, UltraViolet got a pass on having to be perfect in the initial rollout, but that pass won’t last forever. If UltraViolet is to be an enduring format, those behind it need to both make it easier to use and let consumers know what it’s all about.
Walmart did a fine job in the beginning of advertising the promise of UltraViolet through its Vudu service, but more needs to be done.
When I ask my neighbors what Redbox is, they know. When I ask them about Netflix, many are subscribers.
But UltraViolet? Do they know what that is?
For the most part, the answer is no.
Every format has had its hiccups. Even DVD at times looked iffy. Certainly, Blu-ray Disc had many hurdles to overcome in defeating HD DVD as the next-generation high-definition format.
There are pivotal points in each format’s evolution, points at which the studios make crucial decisions to galvanize public opinion.
This may be one of those points for UltraViolet.
Those companies and executives that think UltraViolet is the future of the business should accelerate their actions. Consumers have to be informed about the format’s advantages — and, yes, it needs to be easy to use.
Years ago, my friends and I would go to the local video store without a particular title in mind that we wanted to rent. We would peruse the aisles of both new releases and catalog fare to settle on the entertainment for the evening. It was pretty much the best entertainment choice in town without traveling to the movie theater.
That practice is, for the most part, a thing of the past. Now, consumers go to the local Redbox kiosk after they pick up the groceries for dinner and quickly pick the most-recent release they can get from the limited selection — or scroll through the offerings available on such streaming services as Netflix and Amazon. What’s available determines how they will spend their evening, and — new releases aside — the widest catalog selection is online.
Recently, my family scrolled through the Amazon offerings, which seemed even more enticing, as most of the deep catalog titles were available at no cost. Obviously, because we pay the annual shipping fee from Amazon, the titles aren’t technically free, but among the no-additional-cost titles were several my family could spend an entertaining evening viewing.
Certainly, the most recent releases can be found at the local Walmart or other chain that sells discs or at a video store such as Blockbuster, which gets the recent releases ahead of services such as Netflix. But beyond the most recent releases, the physical rental store doesn’t have much of an advantage — and probably doesn’t need as big a footprint.
“[Blockbuster] stores are just too big for video-only product,” Dish chairman Charlie Ergen said during last week’s fiscal call, acknowledging that reality.
While it’s nice to have a knowledgeable clerk to guide you to an undiscovered classic, most video consumers these days will likely find something to watch via an impersonal scroll through a list. Progress? I don’t know. But it’s the reality.
The future video store may likely rent you the latest release as a side business to offering a Dish package or phone accessories — or physical rental customers will go to the video store with an even smaller footprint — a kiosk.
Last week’s announcement that the United States Postal Service would cease Saturday mail delivery signaled yet another shift in the video rental business. Physical rental is going to kiosk leader Redbox.
The physical rental industry has undergone numerous such shifts in its more than three decades. There have been format and pricing shifts, from rental-priced VHS to sellthrough-priced discs. There have also been distribution shifts, from independent retailers dotted around the country served by distribution middle men to major chains such as Movie Gallery, Hollywood Video and Blockbuster Video that went direct with their studio partners. Then came Netflix with its by-mail physical rental service, which turned out to be a video rental chain killer. Movie Gallery and Hollywood Video went out of business after an ill-conceived merger, and Blockbuster — the last physical rental store chain standing — after bankruptcy, an acquisition by Dish and recent store closure announcements, will total about 500 stores.
With last week’s postal announcement, Netflix, too, is getting less physical. Disc renters who want a title on the weekend better have it delivered by Friday, as weekend physical disc rentals largely have been ceded to Redbox.
Netflix execs aren’t exactly unhappy about the new development, as they will likely be mailing fewer discs per month at a lower cost. Besides, Netflix execs aren’t interested in physical rentals much anymore, as they focus on digital distribution models, such as their new “House of Cards” original series and distribution of TV shows licensed from other content producers.
No, by default, Redbox is getting physical. I expect to see longer lines at the Redbox kiosks in my neighborhood on the weekends, as the last Blockbuster store closed years ago. Perhaps those same customers will notice that Redbox, too, via its joint venture with Verizon is getting more digital.
But the physical rental business is going to Rebox for the forseeable future. The video rental store is all but gone, and by-mail rental is hampered by a shrinking postal service. Yes, Redbox is getting physical.
At this month’s International Consumer Electronics Show, the industry got a clearer picture of the subscription streaming and rental marketplace.
In a market already populated by such heavyweights as Amazon and Netflix, Redbox Instant powered by Verizon is carving out a unique niche. The service will offer physical disc rentals at its kiosks with streaming of a library of mostly movies, rather than TV shows. It’s a combination that no other competitor emulates. Redbox Instant is “counter-programming,” to use a broadcast TV term, moving into discs as Netflix pulls back and concentrating on movies while Netflix focuses on TV content.
“We didn’t see that there was a lot of reason to build a compelling offering around TV that wasn’t already out there,” said Redbox Instant CEO Shawn Strickland. Strickland is the focus of our cover “6 Questions” article.
There’s a sort of Wild West feel to all of this streaming business. For some time, the biggest player was Netflix, which offered a compelling disc and digital streaming option. But the market has changed. Unlike Redbox Instant by Verizon, Netflix can’t provide same-day, instant gratification disc rentals at more than 40,000 kiosks dotted around the country. Disc consumers, who have increasingly been a lower priority at Netflix, must wait at least a day for their physical media to arrive. Also, Netflix’s mail service is under legal fire from competitor GameFly that has questioned preferential treatment of Netflix’s and Blockbuster’s by-mail discs.
I think Redbox Instant is smart to build a business on its popular kiosks, which can offer the same top hits as Netflix at your local mass merchant or grocery store, without having to depend on mail service. The more Netflix de-emphasizes its physical rental option (which costs more paired with its streaming service than does Redbox Instant’s disc-plus-streaming subscription plan), the more Redbox will be able to press its advantage.
Redbox Instant has one more advantage: It will support electronic sellthrough and the studios’ cloud-content service UltraViolet. That should make it a more favored subject in a world where content is king.
During the neighborhood New Year’s celebration, a friend said she had gotten hooked on “Pretty Little Liars” via Netflix, viewing initial episodes on its streaming service. With the new season about to start, she wanted to know how to catch up on the episodes in between. Netflix didn’t have them yet for streaming, so I suggested buying the episodes on disc or renting them piecemeal on disc.
It’s just too bad the studios can’t take advantage of this avid audience. No doubt, had my friend been able to immediately purchase the succeeding episodes on disc or via electronic sellthrough on Netflix, she would gladly have done so.
A few days later, Meredith Vieira, guesting on the “Today” show, noted she had gotten “Homeland” on disc and had become hooked. She had planned to wait for the next season to come out on disc, but decided to subscribe to Showtime instead because she just couldn’t wait.
A phenomenon that developed during the heyday of DVD — watching whole seasons of TV episodes in succession — seems now to be a habit with many viewers, whether they watch them on disc or online. And once these fans are hooked, they often crave immediate gratification with the next installment of episodes.
Studios profited handsomely from this habit when consumers could only purchase whole seasons and series on disc. Now that they can view whole seasons (albeit not the latest ones) via streaming on services such as Netflix, the marketing task is a bit harder, but no doubt could help studios squeeze more revenue from costly content.
In a fragmented content business, studios will need to cater to the consumer who discovers a series on broadcast TV, on disc or via streaming or syndication. Paying heed to this growing audience of TV junkies who are not necessarily tied to the TV schedule could pay big dividends if marketers time advertising and access to disc and digital releases wisely.
It will require more communication between studio divisions — syndication, home entertainment, etc. — and an eye to that consumer when content owners make deals with the likes of Netflix and other distributors.
Last year at this time, analysts were wondering if Netflix’s all-you-can-eat subscription model was broken. The company was reeling from an ill-advised price hike, with its stock plummeting on the subscriber backlash. But recent developments are showing the subscription model Netflix pioneered is alive and well.
Netflix this month signed an exclusive landmark deal with Disney to offer the studio’s top titles in the pay-TV window, giving the service a major boost in quality content.
Meanwhile, yet another competitor is poised to join the market that also includes Amazon’s Prime subscription streaming service (offered at no additional charge to those who subscribe to the company’s shipping service).
Redbox’s streaming service — first hinted at more than two years ago — is finally getting off the ground. Priced at $8 per month, Redbox Instant powered by Verizon plans a consumer beta test this month. The service offers unlimited streaming of movies, including coveted titles from pay-TV service Epix, with four one-night credits per month for new releases on DVD at Redbox kiosks. For $1 more, or $9 per month, customers can opt to redeem their four credits for rentals on Blu-ray Disc at the kiosks.
Unlike Netflix, Redbox Instant will throw in disc rentals for the Netflix price, as well as electronic sellthrough (EST) and transactional VOD options for new releases on street date from Lionsgate, NBC Universal, Paramount, Relativity and Sony Pictures.
This seems to be key.
Redbox, analysts say, is getting a break on content licensing costs from studios in exchange for promoting the kind of consumer consumption studios prefer to subscription streaming — transactional VOD and EST. Studios are willing to grow a subscription model if it also helps expand the revenue pie for higher-cost digital options.
Until Netflix comes to heel on higher-cost consumer options for digital, the studios seem determined to make the company pay dearly for content (Disney’s Netflix deal is estimated at as much as $300 million).
Subscription services are being squeezed for more revenue and cooperation, but the model is far from broken.