It seems that Hollywood studios are considering rewriting the rules of the DVD rental business. They have been fighting a battle with Redbox for a while forcing the firm to stock their kiosks with current releases by sending employees to local retailers with company credit cards. (See our past post on Redbox.) Now it seems that the studios want to delay all rentals for a few weeks in order to bolster DVD sales (Movie fans might have to wait to rent new DVD releases, LA Times, Oct 23, 2009). DVD sales have fallen 13.5% in the first six months of this year while rental revenues are up 9%. Almost all of that growth has come from Redbox and Netflix.
The question then is how will this impact the rental firms. It may not be all bad.
Depending on the details, however, a sales-only window might not hurt the bottom line of major rental companies. To get them on board, studios probably would have to offer them a lower wholesale price than that paid by retailers, currently $18 for most standard DVDs and $25 for high-definition Blu-ray discs.
“If we can agree on low-enough pricing,” observed [Netflix CEO Reed] Hastings, “delayed rental could potentially increase profits for everyone.”
I think that Netflix might actually get behind this program because it will create greater differentiation between their model and Redbox’s. The studios really care about blockbusters that sell in high volume. That’s what Redbox needs to stuff their machines with. Netflix, however, is in a position to offer a wider selection. If delaying DVD rentals shifts competition from the “freshness” of the selection to the breadth of the selection, Netflix should benefit.