Monday, January 9, 2012

The Rental Delay Gamble

Warner Brothers made waves last week when it came out that it had decided to impose a 56-day delay on its DVDs being available for rental, from the date the DVDs go on sale in retail stores, an increase from the existing 28-day delay. Netflix has agreed to these terms, while Redbox and Blockbuster are sticking to the 28-day delay, which means they'll have to buy discs at retail prices. No word yet on whether this means they'll be getting the full retail versions of the discs with all the extras, instead of the typically stripped down versions that the rental chains get now at a discount.

The most obvious reason for the extended wait period is that Warners is trying to save its once-lucrative and now steadily shrinking DVD business. The logic is, if the public is forced to wait an additional month before being able to rent a new film, they'll be more likely to buy a retail copy, or buy a video-on-demand (VOD) rental, which may be emerging as a more lucrative revenue stream. Banking on VOD seems a little premature to me, especially as the pricing model is still being hammered out and so far the numbers are inconclusive as to how profitable VOD really is. However, extending rental delays to try and stem the decline of DVD sales looks pretty futile.

Renting and buying movies are two totally different activities, driven by different impulses. Buyers generally buy movies because they've already seen them and liked them enough to want to own them. DVD purchases have dropped off in recent years as people realize they don't get much replay out of their existing DVD collections. Blind-buying, where you purchase a DVD without already having seen the film, has also grown much rarer outside of children's titles and high end collecting. Economically, it doesn't make any sense - buy a movie you don't like and you run the risk of losing more money than you would with a wasted rental fee and being permanently stuck with the disc taking up space on the shelf. And as the price of rentals has dropped sharply with the cheaper streaming and kiosk options, buying a film at $20 instead of renting it for $2 just isn't a comparable option for most consumers. The few times I've blind-bought DVDs were when they were deeply discounted, months after the initial gap between DVD availability and rental availability had already passed.

Warners seems to be targeting those viewers who like a film enough to rent it for a second watch, but not enough to buy is when it becomes available on DVD. I'm pretty sure the decisionmaking has a lot more to do with price than convenience in those cases, so I doubt extended rental delays are really going to have much impact there. Think of renters as the folks who were iffy about paying to see a film in theaters are likely going to be even iffy-er about picking up a DVD from the local Wal-mart. Renters really don't react much to delays, except to watch whatever else is available in their online rental queues or that matches the price point they want in the local grocery store kiosk. Netflix may be getting hammered lately between the Warners delay and HBO pulling their discounted discs, but the thing the media companies don't seem to grasp is that people are paying for the Netflix service, not the individual titles. As long as there's always something else desirable to watch on Netflix, most consumers really aren't that impatient.

Warners is likely also trying to reverse the shrinking theatrical window, where almost all mainstream films reach DVD within six months of their theatrical release dates. In the past it used to be much longer. When a film disappeared from theaters in the VHS age, there was no guarantee when you'd be able to see it again. Now you can reliably predict that practically every piece of Oscar bait currently playing in a theater near you will be in a Redbox kiosk by the end of July. Warners' plans could be counterproductive for them, because consumers have grown used to this system. Smaller titles that disappear for too long could just end up forgotten, their momentum lost after fading from the public consciousness.

The other worry is that the most impatient segment of media consumers is young, web-savvy, and much more prone to piracy. Once a DVD is available to the public, pristine copies of a movie can be electronically disseminated in the blink of an eye. Warners is pushing its luck by extending the gap between DVD availability and rental availability. There have been several studies showing that low cost services like Netflix and Redbox are helping to combat piracy, while the studio-imposed delays have actually been spurring it.

It's going to be interesting to see if other studios follow suit and how much this is going to impact the rental businesses. Or not. Warners could just be preparing to shoot itself in the foot. Whatever the outcome, it looks like the studios are bound and determined to make the transition to digital a bumpy one. Makes for exciting times for a media junkie. Stay tuned.

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