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Two announcements in recent weeks spell big trouble in the future for DVD rentals.

Sales of movies and TV shows on DVDs have been declining steadily for the past five years, which is not good news for Hollywood. However, DVD rentals have held fast, slipping only a tad a couple of years ago, and then recovering as Redbox “buck-a-night” rental kiosks have spread all over the country’s grocery and drug stores.

The dominant player in DVD rentals is, of course, Netflix, who is implementing a multi-year strategy to wean customers away from polycarbonate discs and get them to stream movies instead over broadband connections.  By Netflix’ own reckoning, DVD rentals will peak by 2013, and then start a slow decline towards extinction by the end of the decade.

They may want to move that timetable up a bit. The U.S. Postal Service just announced a hike of 2 cents in the cost of first-class postage, to take effect early next year. According to today’s M&E Daily, “…Janney Capital media and entertainment analyst Tony Wible …estimated that a (Postal Service) rate hike could add between $18 million and $30 million to Netflix’s physical distribution expenses in 2011.” That’s a real game-changer!

In a New York Times article from July 2, Netflix’ DVD operations head Andrew Redich was quoted as saying, “Big rate increases will absolutely squash business and will absolutely slow growth for a company like Netflix.” No kidding! No wonder the company is lobbying for a five-day mail delivery schedule instead, a move which would save the Postal Service about $2B per year.

Make no mistake about it – Netflix wants to move away from physical disc distribution to streaming, which would eliminate a ton of back-office expenses and staffing problems. The Postal Service announcement will likely hasten that move, which is not good news for DVD or Blu-ray manufacturers and distributors.

The other bad news is, of course, Blockbuster’s continuing financial troubles. Here are the vital statistics: In 2009, Blockbuster recorded a net loss of $569.3 million based on annual revenue of $4.06 billion. For Q1 of 2010, it had a net loss of $65.4 million. And BB is carrying $895 million in debt on its books. Last week, the company was informed by the New York Stock Exchange that it would be delisted as its average share price had been under $1 for a 30-day period (Blockbuster was hovering around 18 – 20 cents per share at the end of last week).

As for long-term trends, Adams Media Research stated earlier this year that 2009 in-store spending on DVD movies declined to $3.3 billion, down $1 billion from 2008 and $5.2 billion from the brick-and-mortar movie store’s high water mark in 2001.  Not a pretty picture!

So – are we seeing the last days of the DVD? Probably not for a few more years. But it’s clear that consumers like the idea of streaming content instead of buying and renting physical discs. It’s a convenience thing! (We’ve had a Blockbuster By Mail copy of Julie and Julia sitting here for almost two months, still waiting to get a ’round toit’ so we can watch it. Maybe it’s a laziness thing, too.)

The Postal Service is in almost as bad a jam as Hollywood and Blockbuster. Look at all the documents and forms that can be sent via email now, instead of through snail mail. Electronic payments, e-funds deposits, PDFs, JPEGs, virtual catalogs, you name it – if it can be digitized or scanned, it can be sent over the Internet, stamps be damned. How much longer before retail stores move entirely to electronic coupons? The ‘green’ movement is pushing more retailers to adopt online catalog and brochure formats, so more and more snail mail is just junk nowadays.

Maybe Hollywood can work with the Post Office on a movie about all this (to be streamed by Netflix, of course). They could call it, The Postman Never Rings At All. Or maybe, First Class 2: This Time, It’s 46 Cents.

And maybe we should just save that copy of Julie and Julia, instead of sending it back. It could be a collector’s item before long…

Posted by Pete Putman, July 8, 2010 3:06 PM

About Pete Putman

Peter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.

Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.