Lost DVDs?

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Consumers often reminisce about the days when two people could see a movie for less than $10. They long for $1 rentals of new movies and DVDs they can buy for $5. The people want what the people want. They know there are hundreds of names on the cast and crew list. They know that actors like Mel Gibson and Tom Cruise don’t come cheap. They know that special effects, extra features, costumes and filmmaking don’t come cheap. Even so, they’re also cognizant of the fact that a “bad year” is one in which the net profits are “only” $13 billion. No one is crying for the victims of movie piracy. Interestingly enough, instead of caving in to the demands of consumers, the motion picture companies have decided to fight against “undermining forces” like Netflix and Redbox instead, trying to buy themselves just a little extra time to capitalize… before their business models crumble and fall completely.

Late last year, Universal Pictures ordered its distributors not to sell its DVDs to Redbox until the new movies had been on sale for 45 days. Fox and Time Warner also decided that their top movies should be out for at least 30 days before being available for $1 through the Redbox kiosks. This decision is being contested in court by Redbox and Netflix, who are also being affected by these new regulations. According to Time Warner CEO Jeff Bewkes, the $1 rentals should be treated like the “cheap show” movie theaters with an appropriate window of time for the entertainment industry to make the big bucks off consumers. Yet, Mitch Lowe from Redbox argues that they can afford to pay the studios more because they’ve “significantly reduced the cost of delivering movies to consumers” and they garner more repeat business. Motion picture giants are primarily worried that the undercutting of prices is what will jeopardize their whole business model.

Blockbuster, meanwhile, is crying the blues about their $1.02 billion profit this quarter. Their sales of DVDs are down 22% and their shares have declined 16%, they complain. Part of this, they say, is due to their reduced inventory as they try to gain access to more cash. “We were also facing new and very aggressive competition that are better capitalized and would likely take share from us as we pulled back,” whines CEO Jim Keyes. The landscape is complex and challenging, given the current recession, Keyes added. Yet, competitors are seeing giant leaps in profitability by meeting consumer demands, despite distributor moves to block their access to new movies. Redbox revenue grew 110% last quarter and Netflix saw modest revenue gains of 20%.

“Having our [movies] rented at $1 in the rental window is grossly undervaluing our products,” complained Chase Carey, president of Fox’s parent company, News Corp. Naturally, the Redbox people want to appease consumers by keeping prices of their DVDs as low as possible. However, they also can’t afford to lose motion picture support either. Though they have other channels and ways of getting new movies, despite arbitrary distributor restrictions, these agreements cut into their profit margins too. So Redbox CEO Mitch Lowe is taking another look at his price model and is considering experimenting with other prices. For instance, he may offer video games or special feature laden DVDs for slightly higher prices.

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Posted in Games