Studio executives more and more have decided to push back against services such as Netflix and Redbox, which rent their expensive feature films to consumers for dirt cheap prices.
The studios have to do something. Consumer spending habits after theatrical release are changing drastically. DVD sales are dead, Blockbuster is in bankruptcy and studies show that consumers are more inclined to rent rather than buy movies. Meanwhile, Redbox and Netflix are capitalizing on the change. Redbox, which has rental kiosks in convenience and grocery stores nationwide, plans to expand to a streaming service. Netflix now has more than 20 million subscribers, a 63% increase from February, 2010.
Why is this a problem? Studios profit most from theatrical distribution because each customer pays a fixed amount (what is it — $15 for a ticket these days?!) to see an individual film. In the past, they could expect favorable profit-margins from consumers who rented individual movies from Blockbuster. But now studios get less for their product. Redbox kiosks charge only $1 for rentals. Netflix charges $7.99 a month, and for that consumers get access to an all-you-can-eat buffet of what essentially used to be a Blockbuster store.
What are the studios to do? Their predicament, specifically as it pertains to Netflix, is summed up here.
So far, the studios have resorted to increasing prices after they tried denying the product altogether to Redbox and Netflix in the past. Enough? Probably not. Netflix recently denied studios’ offer for better terms in exchange for offering consumers a ‘buy’ button.
The studios’ possible solution? To change distribution windows, putting Netflix and Redbox last in line. That way more profitable sources of distribution, such as video on-demand with Comcast and Direct TV and digital downloads (now available on Facebook), come directly after theatrical release.
What would these rentals cost? Disney recently conducted a disappointing experiment for high priced VOD rentals in Portgual. In light of this, look for studios to negotiate deals comparable to what Blockbuster rentals used to sell for, say $5 per rental.
For more, Loyola Law School Entertainment Law Review tackles the issue here.