Ben Fritz, a writer for the LA Times, reported the other day that the major studios are considering spreading out the time between when consumers can buy DVDs and when they can rent them. As it is right now (and has been for years), movies are available to rent the same day that they can also be purchased. According to Reed Hastings, chief executive of Netflix, he has recently met with several of Netflix’s biggest suppliers (read: studios and distributors) to discuss a “delayed-rental proposal.”

The current DVD release system has DVDs available for purchase and rental on the same day from companies such as NetFlix, Blockbuster and RedBox. Under the new DVD release system, those dates would be separated by a few weeks. What is the reasoning behind this move? Studios cite a sharp decline in DVD sales. Said Hastings:

“The studios are wrestling with declines in DVD sales while the DVD rental market has been modestly growing. One of the mitigating steps some are considering is introducing a DVD retail sales-only window for a few weeks.”

The faltering economy has families and individuals looking for ways to save money, not spend it. One of those ways is to rent DVDs and not purchase them; a theory that is backed up by NetFlix’s recent quarter numbers of 24% growth! That is a truly impressive financial achievement in this harsh recession; an achievement that surely has investors smiling, but not as impressive as rental company RedBox’s growth. RedBox saw a staggering 113% growth in the first six months of this year!

Those sorts of numbers where the reason that studios 20th Century Fox, Universal Pictures and Warner Bros. all attempted to keep RedBox from having access to their DVDs until well after the initial release.  The popular rental giant only charges $1 per night, per rental, and the studios felt RedBox wasn’t charging enough for people to rent their movies. Of course, RedBox responded with a lawsuit to keep that from the studios off its back and the suit is still in court…although the point may soon become moot.

The new release system could go into effect as soon as next year and if that happens, every rental company will be affected, not just RedBox, and I would suspect the suit would be dropped by all parties involved. Said a RedBox corporate spokeperson:

“We must have a level playing field and the right to buy movies at the same time as any of our competitors.”

Ben Fritz makes the following statement in his report:

“Hollywood studios prefer that consumers buy DVDs because that generates significantly higher profits than rentals.”

And Wade Holden, an analyst for SNL Kagan, gives this insight:

“The studios might try to implement something like this to increase demand for sales because they need to protect that revenue stream the best they can.”

Does that statement strike anyone else as extremely greedy? I understand movie studios are a business aiming to make money for both themselves and investors; I’m not arguing that point at all. What seems ridiculous to me is their business model and the idea that pushing back rental dates will make consumers buy a movie because they don’t want to wait another three or four weeks to rent it.

(Are studios getting greedy or getting their due? Keep reading…)

It bothers me that it’s always someone else’s fault when DVD sales are down. Piracy, rental companies, and recession – studios blame everyone and everything except the movie itself. They can ignore the fact that many movies are just not worth owning but eventually they will be forced to understand that if you deliver a poor product then no one is going to want to buy it – Economics 101.

I don’t think this new plan will work in the long run to increase sales. Land of the Lost, Aliens in the Attic and The Invention of Lying are rentals – period! Not making them available to rent for another 4 weeks isn’t going to affect their sales numbers one little bit. People aren’t going to think, “Well heck, I can’t rent it; might as well waste spend $20 and buy it now.” I think what studios need to focus on is spending and investing their money more wisely.

Let me give you an investment scenario – I want you to give me $10 and in 6 months to 1 year I might give you back $11 or you could only get $5 back. Would you make an investment like that? Of course not, but that’s what studios do on a consistent basis. They spend stupid amounts of money to make, produce and promote a film just too barely break even, make a 5% profit or, even worse, lose 50% or more at the box office. Too many times they rely heavily on the DVD sales of a film that fails horribly at the box office to help make up for the loss.

Now let me give you another investment scenario – I want you to give me $5 and in 6 months to 1 year I might give you $6 dollars or you could only get $2.50 back. This is a better investment scenario because you are risking little to make a profit and the monetary loss is limited. Both scenarios offer a minor return with a chance for loss, so why wouldn’t you go with the one that offers you the lowest financial risk? There is no “sure thing” in Hollywood right now and to gamble large sums of money in this current economy is ludicrous to me.

Too often audiences go to see films that are over-produced, over-funded and over-hyped just to walk out feeling ripped-off asking the question “Where did they spend that money?” Paranormal Activity, The Blair Witch Project and District 9 are good examples of a low investment yielding high returns; say what you want about whether each of those films was actually good, my point is, the initial investment was so low that the movies were bound to make money.

Now, let’s compare that to the “big budget” films, Land of the Lost and X-Men 3. LotL was a financial disaster; it was made on a budget of $100 million and, to date, has only brought in $49 million domestically. X-Men 3 may have fared better at the box office with a $234 million domestic take,but it took an investment of $210 million to get there.

Can you see my point here? Why must it be the consumer’s fault for declining DVD sales? Have the studios ever thought that there are some films people just don’t want to buy? Nah! It’s still our fault that we don’t fall for the ads and tagline promises and buy their crappy movies.

What do you think about the plan to delay DVD rental releases until after the release for purchase date? Do you consider the move to be a slap in the face by studios?

Source: LA Times