Losing DVDs by Piracy
While working with Netflix, it didn't take Mitch Lowe very long to realize that this concept was keeping the industry afloat but could be done better. His idea was that he could make movies more accessible by including kiosks in grocery stores and more affordable by offering the movies for /night. This year has been miserable for distributors of DVDs, with sales down 13.5%. Yet thanks to Mitch's company, Redbox, rental revenue has increased over 8%, despite low sales. Sony and Lionsgate are big supporters of the new kiosks, although other motion picture companies like Fox, Universal and Time Warner feel Redbox undermines their business.
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.
Unlike Fox and Universal, Paramount is taking a more mature stance on the Redbox DVDs kiosk. "There has been a lot of debate in the industry about the impact Redbox is having and will have," explains Paramount Vice Chairman Rob Moore, "and we felt the best way to make a decision is by getting the information. Then we can make an informed decision based on what we will have learned over the next three months." They have, so far, agreed to continue dealing with Redbox until the end of 2009, while studying the impact Redbox has on their business. If they see the relationship as advantageous, then they will make a 5 million five-year deal with the company. If they feel the rentals are hurting the probability that people will buy movies from them, they may impose certain restrictions.
The general idea is that eventually DVDs will be rented from television sets much like pay-per-view. Consumers will not have to worry about scratched discs, mailing items back to the company, late fees, high rental prices or other restrictions. Sony is currently experimenting with something called "Bravia TV," which would let consumers see new movies just after they come out in theaters but before they come out on DVD. They tried a 24-hour screening of "Hancock" for .99 last year, but have entertained the possibility of raising the price up to . "The fact that this pay-per-view model has worked for major sporting events suggests that there may be an opportunity for a handful of films every year — event films and franchises with the same young male demo as sports would be good bets," says film analyst Tom Adams.
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