Disney's DVD Disappointment

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Although entertainment giant Disney (NYSE: DIS) has not released sales for its controversial disposable DVD-movie product, the news might not be good. Wired News surveyed the test markets and reports disappointing first-month sales in some locations. Will disposable movies exit, stage left?

Manufactured by privately owned Flexplay, the disposable DVD is viewable for a maximum of 48-hours once the packaging is opened.

The six movies available may be part of the problem. For example, the standard Sweet Home Alabama DVD was released in February -- six months before the disposable. The movie is already a five-day rental -- or longer -- at Blockbuster (NYSE: BBI) and Hollywood Entertainment (Nasdaq: HLYW). Why pay $6.95 for a two-day disposable when rentals are $4 or less?

By-mail delivery services are tough competition too. For $20 a month, a consumer need not drive anywhere. Rapidly growing Netflix (Nasdaq: NFLX) delivers movies straight to your mailbox -- and there are no late fees. When you can have three movies out at a time and watch a dozen or more a month, why deal with a high-priced disposable?

Disney's own MovieBeam may ultimately kill the disposable and rattle the brick-and-mortar rental companies in the process. The box uses a receiver from Korean electronics giant Samsung to store 100 movies on a hard disk in the consumer's home. The over-the-air broadcast receiver costs $6.99 a month, while a 24-hour movie rental is $3.99 for a new release or $2.49 for a popular favorite. The catalogue is kept relatively fresh by automatically swapping 10 movies weekly.

Like Netflix, MovieBeam is all about convenience. There is no trip to the store or even the mailbox.

In June, before the disposable test started, Rick Munarriz reported that Disney CEO Michael Eisner thought the concept probably wouldn't work. Early sales seem to confirm that prediction. Still, you may want to buy a couple: After all, if the experiment fails, they could be worth something on eBay (Nasdaq: EBAY).

Netflix is a David Gardner top pick in Motley Fool Stock Advsior , and he couldn't be happier with the returns -- or the movies. W.D. Crotty owns stock in Disney, and can be reached at HawaiiFool@hawaii.com . A frequent renter, he would check out MovieBeam if offered in his area.

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