Take a look around the next time you're in a movie theater. You may be walled-in, but the filmmaking industry is ultimately all about windows. Between the DVD, pay-per-view, television, and now digital runs, Hollywood is all about the release windows.
Tinseltown wants a home makeover. And it wants to start by updating those windows.
There's a problem, though: Everybody can't seem to agree on what they want. When movies should come out on different platforms is becoming more convoluted and confusing than Charlie Kaufman's Synecdoche, New York or Richard Kelly's Southland Tales.
Not now, Netflix
Studios have been trying to block Coinstar's (Nasdaq: CSTR) Redbox kiosks -- and now Netflix (Nasdaq: NFLX) -- from renting brand-new releases. Some studios are holding back on Redbox through the first four weeks of a new release, prompting the $1-a-day disc lender to sue as it stocks its dispensers with retail DVDs.
In a puzzling turn, Netflix appears open to bribes to play along.
According to Variety's Video Business trade periodical, Netflix is open to accepting new releases a month after DVDs hit the market as long as studios are willing to slash Netflix's inventory costs in half.
It's easy to see why studios and Netflix are drawn to the negotiating table. Hollywood believes that it will sell more retail DVDs if consumers have to wait an extra month for a rental. Revenue-sharing deals with Netflix beyond that are gravy.
Netflix, on the other hand, is armed with the knowledge that 70% of the discs it mails out are for older catalog titles. If it's able to dramatically shave its DVD acquisition costs, it can either pass along some of the savings to subscribers in the form of lower rates or aggressively invest in expanding its library of streaming content.
The loser, of course, is you, the consumer. It's also the studios. It's also Netflix. They just don't realize it yet.
The rise and fall of the DVD
DVD sales peaked three years ago, at a time when Blockbuster (NYSE: BBI) and Netflix were just wrapping up a brutal price war. Cheap rentals didn't seem to be a problem then, did they? Folks were still snapping up new releases and entire seasons of television shows.
The climate should have improved at that point. Blu-ray's defeat of HD-DVD should have triggered a new upgrade cycle of platform-confident couch potatoes. Wider ownership of DVD and Blu-ray players was a dinner bell.
Well? Folks just don't care for DVDs anymore. The novelty -- even the Blu-ray novelty -- has worn thin. They are also consuming more video content online, and the success of amateur and viral clips on Google's (Nasdaq: GOOG) YouTube shows that viewers are willing to settle for far less than slick Hollywood productions.
Wider release windows aren't going to change that. If I didn't pay $10 to see a movie when it came out am I really going to pay $20 to see it a few months later on DVD? There just is too much content -- and not enough hours in the day -- to invest in a disc that requires repeated viewings to justify the initial purchase. When even Comcast (Nasdaq: CMCSA) and Time Warner (NYSE: TWX) are championing the TV Everywhere initiative -- hoping to retain cable subscribers by pumping out even more on-demand content -- who would be dumb enough to pad a DVD collection beyond core essentials?
Hollywood doesn't get this. It would rather blame Redbox or piracy than realize that it helped create the glut of supply. It's oblivious to the reality that the digital revolution has diminished quality standards. It's holding pocket aces, but we're playing Crazy Eights.
What will happen when the studios get what they want out of rental discounters without the uptick in retail sales?
Netflix is also being an ignoramus here. Does it really think that 70% of its rentals are older titles by choice? Step inside my Netflix queue. I've had Orphan as "Very Long Wait" since last month's release. I've had Ghosts of Girlfriends Past -- a movie that I don't even want to see, so it's been bobbing around at the bottom of my queue -- as "Long Wait" since September.
I called Netflix CEO Reed Hastings on that back in April, when he was leaning on the metric that only a third of its shipments were for new releases.
"It's hard to know if we had unconstrained new release inventory what it would be," he responded. "It would be a little higher, but not dramatically."
Oh, I think it would be quite dramatic. There's a reason why the top DVD sales and retail rentals during any given week are for the latest releases. Will Netflix subscribers be content to see studios spend on a second marketing campaign for a DVD release (after investing in theatrical trailers months earlier) and still not have access to a flick?
Count your pennies at first, Netflix. Just watch out for the churn and dip in customer satisfaction that will quickly follow.
Cloudy with a chance of more windows
This doesn't end here.
This morning's New York Times is reporting that Sony (NYSE: SNE) will be releasing a pricier $24.95 online version of Cloudy With a Chance of Meatballs before the DVD release. Imagine that? Digital before disc?
Sony can afford to tinker with release dates because it's more than just a studio. It has Web-tethered Blu-ray players and PS3 video game consoles it can stream into.
Raining meatballs? Given the deluge that's been falling on top of a clueless Hollywood these days, I'd consider that a meaty improvement.
What will it take for DVD sales to grow again? Is it hopeless? Share your lifeboats in the comment box below.
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