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Possible New Warner Window Could Change the Sellthrough Game

11 Oct, 2011 By: Thomas K. Arnold

I ran across an interesting statistic the other day. Netflix accounts for about 25% of total consumer spending on home entertainment — figuring rental is half the market, and Netflix is half the rental business. And yet if you talk to any studio president, you’ll hear that Netflix, at best, accounts for only 5% of the average studio’s total home entertainment sales.

That’s clear evidence of just how much money the studios left on the proverbial table when all of Hollywood was touting the rapid rise of sellthrough in the late 1990s and early 2000s while completely ignoring the rental transactional end of the business. Left on the sidelines in our collective glee over escalating buy rates and what we mistook for a dramatic change in consumer behavior, the rental business mutated and evolved with nary a notice from Hollywood, which is why a smart guy like Reed Hastings was able to come in and in a few short years virtually “own” the business, hastening Blockbuster’s demise and, years later, putting a crimp in sellthrough now that the novelty of owning movies is over and consumers are a lot more selective in what they choose to buy.

The 28-day window three, and sometimes four, studios imposed on Netflix and its fellow rental renegade, Redbox, in an attempt to spur sales, hasn’t really been working all that well, my sources tell me. Back in the gaga days of DVD, when up to 60% of inventory sold through within a week and everyone rushed out to buy the week’s hottest new releases bright and early on Tuesday morning, 28 days was a lifetime. But as the business matured, that sense of urgency gradually went away, to the point where first-week sales are way down. People don’t mind waiting a few weeks to rent a movie from Netflix or Redbox, particularly at a time when the economy is still shaky and entertainment options are at an all-time high. There’s plenty to do in those weeks before a movie hits the Netflix queue, from updating Facebook to beating your kid at Angry Birds.

But after four weeks people are going to start getting a little antsy, which is why all eyes right now are on Warner Home Video and its still-unconfirmed intent to lengthen the window from 28 to 60 days — and perhaps include all classes of rental trade, including brick-and-mortar. If Warner’s new window is, indeed, the tipping point, the right amount of time for consumers to say something along the lines of, “Screw it, I’m tired of waiting, I’ll just buy the damn movie,” you can bet your state-of-the-art 3D Blu-ray player that other studios are going to follow suit.

And while the obvious goal is to boost sales, the other is to put the brakes on the Netflix phenomenon (although Reed Hastings has been doing a pretty good job of that himself). You can’t blame the studios for that: when 25% of consumer dollars flow into a business that only gives you 5% back, you’ve got to do something, anything, to at least even the score.

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About the Author: Thomas K. Arnold

Thomas K. Arnold

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