Rental retailers question VOD/DVD release test results
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By Jennifer Netherby -- Video Business, 6/7/2007
JUNE 7 | DVD rental retailers are closely watching the next moves of Warner Bros. and other studios in the video-on-demand arena after Warner execs said erasing the VOD window boosted sales in a test with Comcast.
Retailers are being advised to price rentals of The Astronaut Farmer lower than VOD to combat the new competition.
Warner said on Monday that initial results from a six-month test in Denver and Pittsburgh showed that simultaneously debuting films on VOD and DVD boosted buy rates of both, while cutting into rentals slightly.
Some rental retailers questioned the results and speculated that studios would be careful to not threaten the DVD business.
Blockbuster spokesman Randy Hargrove reiterated the company’s stance on the issue, noting that home video “is the largest revenue stream for the studios, and we believe they will be cautious before moving to something less profitable that could be cannibalistic.”
Netflix spokesman Steve Swasey said the DVD rental business continues to grow online and isn’t threatened by VOD getting day-and-date releases.
If anything, the move could benefit Netflix by making more content available online for Netflix’s Watch Now movie streaming service, he said. “Anything that makes content available for electronic viewing is good for Netflix,” Swasey said.
Netflix has complained about the lack of films and TV shows available for digital distribution because of licensing deals and release windows that can keep films locked up for a decade or more.
If the VOD (also known as the pay-per-view) window goes away, movies would be available for rent through movie download services the same day as they are released on DVD.
A Movie Gallery spokesman declined to comment.
In the test with Comcast, Warner found that VOD buy rates were up 50% among all six studios that took part in the test, while DVD buy rates were up 10%. But rentals were off 2%.
Warner said it is continuing to test day-and-date releasing, putting out The Astronaut Farmer in July nationwide on VOD the same day it debuts on DVD.
Other studios declined to talk about results from the study, beyond comments made in earnings conference calls. Executives from The Walt Disney Co., Lionsgate and Viacom have all said initial results were promising.
Video Buyers Group president Ted Engen questioned the findings. Denver-area VBG stores saw DVD sales down by as much as 50% on movies that went day-and-date in the study, Engen said.
However, the group’s stores lowered their rental price and were able to effectively compete on that side of the business. For Warner’s The Astronaut Farmer, Engen said VBG is advising rental retailers to discount the rental price well below VOD to beat the new competition.
Engen doubted studios would do anything to hurt the DVD business.
“The sell-though side of the business is the animal running the whole machine here,” he said. “They’re not going to do anything that jeopardizes sell-through.”
Beyond the size of DVD, studios have other reasons to favor the disc business, Blockbuster’s Hargrove said. Studios make more money selling a DVD to a rental or sell-through retailer than they do on VOD, and cable companies sell a more limited selection of films on VOD than retailers do in stores, he said.
One retailer questioned whether Warner was pushing for day-and-date on VOD because the studio owns a cable company.
Even with the new focus on VOD, rental retailers have heard predictions of VOD killing their business for the last 20 years and don’t necessarily view it as more of a threat now.
“The consumer is still the ultimate boss,” Engen said. “They’ve already said loud and clear for many years that video-on-demand is not their choice.”
Cindy Spielvogel contributed
