Digital Competition Gets Physical

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.

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UltraViolet Needs to Burnish Shine

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.

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Physical Rental’s Smaller Footprint

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.

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Redbox Getting Physical

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.

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Streaming Picture Focuses

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.

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TV Binge Viewing Still a Habit

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.

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Subscription Model Not So Broken

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.

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Second Screen: It’s Elementary

'The Dark Knight Rises' second-screen app

Last week I attended a demonstration of Warner Bros.’ latest app for a home entertainment release, The Dark Knight Rises.

Apps, as I have noted before in this column, are the latest embodiment of extras in the home entertainment realm. Unlike the traditional disc extras we are used to, they are non-linear. They allow consumers the option of taking off on many different tangents that interest them about a particular movie. They can complement both a theatrical release and a home entertainment release. They can offer more content for both television series and features.

For those who may consider them just a fad, contemplate this: My 10-year-old asked me what I was doing at Warner last week. I said I was looking at an app for a movie, and she volunteered, “Oh, it’s second screen.”

“Huh?” I said, honestly dumbfounded. “How do you know that?”

“TV!” she volunteered enthusiastically.

Granted my 10-year-old may know more about this stuff than your average fifth-grader, but considering she’s never used a second-screen app I found it pretty interesting that she knew what it was.

I offer this anecdote to demonstrate that technology is more easily digested by the elementary school set. They don’t see a complicated, newfangled way to access extras. They easily get the concept of a second screen.

Speakers at the Nov. 29 Variety Entertainment Apps Conference wrung their hands about how “confounding” and confusing second-screen apps were for the consumer, but I think they may not notice that the consumer of tomorrow — the elementary set — already understands the second screen and apps. Heck, many kids are using iPads and iPods in school to access textbooks and research. They are constantly on their mobile phones. I don’t think I see my 14-year-old without a phone in her hand.

Confounding or not, apps are going to be a part of the entertainment future. It’s elementary.

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Giving Back Before the Holidays

Last week the Home Media Magazine staff gathered at Dress for Success Worldwide in Hollywood to donate time and money to this worthy organization.

The nonprofit promotes economic independence for disadvantaged women and provides professional attire, support and career advice to help women succeed in the workplace.

The outing and donation coincided with the publishing of our fifth annual Women in Home Entertainment section in last week’s issue, and it seemed a fitting way to celebrate the project. The staff dug into an enormous pile of donated items and helped the organization sort and size the clothes. It was a big job made a lot easier with all our hands on deck. We were so grateful for their hospitality and were delighted we could help out.

But that wasn’t the only charity outing in the industry last week. The Entertainment AIDS Alliance Visionary Awards took place at the Beverly Hilton Nov. 14, honoring David Bishop, Sony Pictures Home Entertainment president; Chris Long, SVP of entertainment and production for DirecTV; and Amazon for their longtime commitment to fighting HIV and AIDS.

EAA (formerly known as the Video Industry AIDS Action Committee) is the home entertainment industry’s homegrown charity, and its continuing vigor and success is a testament to the talent and commitment of the many wonderful people in this business. I want to commend EAA co-president David Bowers and the rest of the EAA officers and board for putting on yet another classy and well-attended event.

In the throes of the all-important fourth-quarter season, it is gratifying to see top home entertainment executives take time off to support this cause. While we keep up on Facebook, via email, text or phone, it is always nice to meet in person at such events.

Finally, two veteran video publicists, Vicki Greenleaf and Dorrit Ragosine, announced a new firm last week devoted to helping nonprofits, Social Change Public Relations & Marketing. I’m sure many will benefit from their expertise.
Goodwill was in ample supply on the eve of the holiday season.

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Low-Cost Rental: Value Vampire

The always irreverent and often biting satire “South Park” gave the video rental business a haunting send-up before Halloween.

In the Oct. 24 episode, one of the kids’ fathers, Randy Marsh, buys a Blockbuster Video outlet for “only $10,000,” expecting to make a killing, only to find his customers are literally ghosts from the 1980s, wearing leg warmers and asking for films such as Turner and Hooch. Very quickly, Randy finds his investment evaporating like the spirits of video rental past. Still, he continues to insist that not all areas have the bandwidth for streaming content online as his son Stan streams everything he wants on an iPad while hanging out inside his dad’s Blockbuster store.

Meanwhile, the physical rental market has moved on, but not necessarily to a more profitable future. Bandits target Redbox kiosks to steal the money inside, only to find what amounts to spare change.

The “South Park” writers put their finger on the scary specter of shrinking content value that has been tormenting the studios for years. Netflix’s low-cost streaming and Redbox’s pocket-change rentals combined with tough economic times have sucked value out of content that studios pay big bucks to produce. The studios have been trying to put a stake in that vampire with windows and lawsuits ever since.

But as the saying goes, “If you can’t beat them, join them.” Most recently, Warner — which along with other studios has fought back with the cloud service UltraViolet as a way to inoculate content from low-cost streaming — decided to enlist low-cost disc rental company Redbox in promoting the studios’ preferred version of the digital future.

Whether this alliance of frenemies will help boost the video industry and promote the value of content is obviously not yet known, but it is probably a move in the right direction.

If low-cost services continue to drain the value of the very content they depend on, no one, not even the consumers who enjoy the cheap rentals, will ultimately be well satisfied.

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