I was interested to see that some were confused/irritated by WB’s choice to do a deal with Blockbuster inside of the 28-day window they have now imposed on NetFlix and Redbox.
Of course, it has nothing to do with the studio’s long relationship with Blockbuster. And it has nothing to do with dealing like it’s 1999.
What is left out of the press release is the obvious… WB has gotten Blockbuster to do what NetFlix and Redbox would not do… pay a rate per rental and not just negotiate a deal to buy product for whatever price.
It’s not the innovation of NetFlix or Redbox they are fighting… it’s Price Point.
Essentially, WB is continuing the work of creating windows for Home Entertainment… however under attack windows for theatrical release may be.
What WB is signaling – and other studios will follow – is that after 28 days in post-theatrical, everything is the long tail… negligible revenues (aside from the wholesale DVD sales needed to fill the pipeline). But the heat of demand is over. That is the point at which they are fine with everyone buying discs at wholesale prices and distributing them as widely as they like with no additional revenue for the studio.
Until titles hit that that 28 day window, buy it or pay the studio a per-rental price.
Presumably, the long view of this is a second tier of by-the-month rental or VOD that costs a few dollars more in order to have the benefit of immediate access to new post-theatrical materials, passing the cost of paying the studios on to the consumer.
The next turn is getting Redbox to do $2.50 rentals in the first 28 days of release and $1 after, the extra $1.50 per rental (or at least $1) going to the studios.
As usual, the media is so busy thinking about technology and The Future that the basic economic component is simply ignored.
In this case, Blockbuster is a business under enough pressure to eat some profits in order to have a competitive advantage against their biggest competitors.
This deal will probably be on the table for any major dvd distributor that wants it… just as the Redbox deal has been repeated with NetFlix. But it is also possible that the studios see an advantage – and they would be right to see it this way – in narrowing the number of companies offering premium/early access to their product. In my opinion, we continue to move towards a post-theatrical world in which you pay flat rates to each studio for various levels of access. So as soon as technology allows VOD to be the standard, studios will flip to it as quickly as possible… without any of the retailers… or with much more studio-positive deals than we have seen in the past. It really depends how much more hard-DVD retails slips in the next years.
But I digress a bit…
With Wal-Mart, expect it to go something like this: Studios prime the retail pump by offering lower prices for new DVD titles. Even though Wal-Mart is wanting to get rid of the retail space for these DVDs, this keeps new titles in the stores. This is followed by a set discount 28 days after DVD release… say, from $15 to $9.99… Only At Wal-Mart. On the first day of release, like Blockbuster, Wal-Mart starts streaming the films on Vudu… or whatever it will be called… Wal-Du. But there will be some kind of per-stream amount coming back to the studios, not as much as Blockbuster will pay because f Wal-Mart’s increased value as a retailer.
Meanwhile, I wouldn’t expect the studios to allow either Redbox – which will have to go there – or NetFlix to stream these titles until an even later window… maybe 90 days… maybe 9 months, not wanting to interfere with the pay cable windows.
I’m not sure that adding more windows to Home Entertainment is really going to work. But as long as the studios don’t get too greedy, they can control the marketplace’s evolution. Essentially, we are going back to a hybrid of the old VHS days, pushing away from the idea of it being a sell-thru market, but still hoping there will be significant sell-thru and supporting that notion (and the businesses that support it) in any way possible.
People forget that VOD is price-positive for the studios… relatively insignificant delivery costs and the very real likelihood of all but eliminating the retailing middle men who have been taking their cut since VHS started rolling out. The problem with VOD is pricing… especially when balanced against flat rate monthly rental businesses and $1 rentals.
VOD is not the challenge. The challenge is finding price levels that will inspire spending and will not inspire piracy, which is beyond being stoppable for those who are motivated to engage in it.
So this is just a windows play. And sadly, it makes some sense for post-theatrical. What’s scary is the notion that the next step – already happening – is that this kind of windowing will push closer and closer to the theatrical window with the notion that, as with the 28 day DVD window, demand for a 56 day theatrical window is some firm a market that the DVD window encroachment will not matter. But that is – and has been – a different entry…

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