Wednesday, December 9, 2009

How Much Is A Video Rental Worth

When DVDs hit the market, purchase price was nearly $20. The rental market seemed an ideal opportunity to watch the movies you like at a reasonable cost. Blockbuster zoomed in at one price point and Netflix came later with a more convenient distribution strategy, straight to the mailbox and no late fees. Yet the price point stayed strong despite competition. Until now. Redbox has turned the model upside down and in turn has caused problems, both for its competitors and for the Hollywood studios themselves. Rentals for a buck.

And it has financially hurt the movie industry. "A regional economic group estimates that dollar DVD rentals from Redbox and others has cost the entertainment industry $1 billion and that the "ripple effect" will cost hundreds of millions more." Hollywood is fighting back and studios are suing to prevent Redbox from renting at this low price. In return, Redbox is suing the studios for antitrust. A long battle will ensue.

Of course low prices mean that the consumer wins. Business competition ultimately leads to better pricing and service for the customer. Can movies still be made when revenues are cut. Perhaps the cost of movie-making is what is really at stake. Does it need to cost that much money to make them. Independent filmmaking has shown the low cost, high quality movies can still be made. And so the solution for studios, cut your production costs.

As the DVD rental business faces pricing issues, what will it mean for VOD. At prices nearly 5 times higher, will consumers switch from VOD consumption to Redbox as well? Should cable be worried and do they need to re-evaluate their pricing model and their marketing message?

Redbox is a game changer in the industry and the result of the upcoming legal battle could have broader implications. $1 to rent verse $5 to watch VOD; in today's economy, the answer is pretty obvious.

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