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October 25, 2005
The Usual Suspects
Via Tyler Cowen comes this Slate article on why we don't have full HD, on-demand, new release movie services. Put another way, why does the DVD, in an era when it's clearly inefficient and costly, survive? The answer, apparently, is Wal-mart:
If the studios did not give DVDs a 45-day head start and a large number of DVD renters switched to pay-per-view to get the same movies, the studios would make much more money. Electronic delivery not only would eliminate the manufacturing, warehousing, distribution, sales, and return cost of DVDs—which averaged about $6 per title in 2004—but it would cut out the video stores, which at present get about 40 percent of the rental money. It might also greatly expand the audience for renting movies so that, depending on how electronic delivery is priced, the lost sales of purchased DVDs would be offset.
What has prevented the studios from closing the video window is simple: Wal-Mart. The company, which is the single biggest seller of DVDs, has made it clear that it does not want to compete with home delivery. Wal-Mart executives told Viacom's home entertainment division in no uncertain terms that if any studio does away with the 45-day video window for a single title, they would risk losing access to Wal-Mart's shelf space for all of its titles. Wal-Mart provided studios with more than one-third of their U.S. DVD revenue in 2004. In the face of Wal-Mart's retail power, the studios have not dared (yet) to do away with the protective video window.
Once again showing the dark side of Always Low Prices, Always.
October 25, 2005 | Permalink
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Comments
Um...last year, Only 29 percent of North American households connected to the Net via broadband. However, almost ALL have access to video stores.
Naaa......let's just beat up on Wal-Mart. It's more fun!
Posted by: Fred Jones | Oct 25, 2005 2:12:08 PM
We liberals don't like collective bargaining power when its profits go toward private companies. At least thats what I'm hearing, Ezra.
Of course, Fred, but does that mean content shouldn't be available on broadband without a 45 day wait? As it is, I'm getting shortchanged.
On a side note, can any explain to me why PPV costs a buck more than my DVD rental store? Its been like this for as long as I can remember.
Posted by: Adrock | Oct 25, 2005 3:36:37 PM
We liberals don't like collective bargaining power when its profits go toward private companies.
A very good point. It seems not to bother anyone if unions try to muscle the marketplace with their clout. It seems that the modern liberal has less of a political philosophy and more of results-driven short term agenda.
Posted by: Fred Jones | Oct 25, 2005 4:01:52 PM
Fred, this has nothing to do with broadband internet. All you need is regular cable television, which is in over 2/3 of households. This is purely a case of Wal-Mart trying to squeeze out possible competition.
Posted by: Matt F | Oct 25, 2005 4:14:30 PM
We liberals don't like collective bargaining power when its profits go toward private companies.
Walmart is not a collective. It's just one corporation -- a unitary actor. This should be a lesson in the dangers of monopsony, the power of corporations, and the need for collective response by individuals -- exactly what Republicans hate.
A very good point. It seems not to bother anyone if unions try to muscle the marketplace with their clout. It seems that the modern liberal has less of a political philosophy and more of results-driven short term agenda.
Actually, one could more easily say that modern conservatives don't like it when collective bargaining can put money in the pockets of working people. I'm having a hard time understanding why one corporation's profit is more important than lower prices for entertainment for working people. To the extent I have an objection to "straight to on-demand" is that to the extent it becomes the preferred model for movie distribution, it further drives the "you're just renting this content, you can't own it" corporation-control model. Of course, simultaneous release to on-demand and DVD would not cause that problem.
Fred seems to have adapted the "libruls don't stand fer anything" talking point today. I think it's a reaction to the most recent obvious Republican abdication of principle in both the Miers nomination and Plame investigation. Tough to be a Republican rank-and-filer when your leaders keep moving the talking points on you. All you really have left is hatred of libruls and "tu quoque".
Posted by: paperwight | Oct 25, 2005 4:24:08 PM
why does the DVD, in an era when it's clearly inefficient and costly, survive
Why does your argument assume that DVDs are purely a rental phenomenon? People buy them, people buy box sets of TV shows, movies and so forth. In large numbers. People ALSO rent them, but that's not the only purpose. Some consumers actually like owning something with some permanence instead of renting or watching video-on-demand.
I'm really no fan of wal-mart, but convergence upon a purely rental society, in media or otherwise, does not seem like something to universally defend. Nor do DVDs seem to be the crusty dinosaurs you imply. Hell, how long did we use the archaic CDs again?
It's worth considering that maybe Cuban is just going for the big, big money here, rather than doing anything that should make him a great peoples' hero. Getting a cut every time anyone watches a film has been a sort of holy grail for corporate media types for a while. Layers inbetween (I've seen theaters called obsolete) such as retailers could get in the way of this goal, or at least take their own cut. I'm not sure I like the idea of media viewership moving in the direction of a rental-centric model.
Posted by: lb | Oct 25, 2005 4:24:31 PM
This isn't about rentals alone, no one is saying "eliminate DVD sales". It's about making it easier for consumers to have the choice. Movies would be sold and be distributed on-demand. This seems like one of those situations in which more choices are probably better.
Posted by: Matt F | Oct 25, 2005 4:31:11 PM
Uhmmm...I LIKE to own DVDs of certain movies. I LIKE having them right there to be viewed on MY schedule, anytime and free. I am adamantly opposed to paying rent for everything. I want to OWN these things. Hell, I've got shitty DirectTV. It is rare that they actually put on movies that I want to actually pay for. The only thing that could be worse is depending on them to pick what movies I get to see when.
If you eliminate DVDs it won't be because people don't want them and prefer to rent. It will be because there is a better means of packaging media for people to OWN and CONTROL.
Posted by: Praedor Atrebates | Oct 25, 2005 4:33:13 PM
Suppy and demand thing, too. People go to Walmart to buy DVDs. Many might not go there if Walmart didn't have them. So, the studios could all get together and give Walmart the big FU. Not sure that's legal (collusion), but it could work.
Posted by: Roxanne | Oct 25, 2005 4:56:06 PM
As Matt F pointed out, many people here are missing the point. Ezra isn't trying to eliminate DVDs, he's asking why the movie market is allowed to introduce these temporary scarcities. The answer is that entrenched players have arranged it that way to protect their revenue streams. That's not a good enough reason.
Region coding is a related phenomenon. Fortunately at least one of the competing high density disc formats is ditching that idea.
Posted by: tom | Oct 25, 2005 5:07:04 PM
I hate Walmart as much as anyone, however no manufacturer is required to sell their products at Walmart.
I work for a large importer and there are a number of products that we don't sell to Walmart due to their crappy price policies.
Posted by: CParis | Oct 25, 2005 5:08:06 PM
There are non-trivial technical difficulties associated with moving to an on-demand or quasi-on-demand system. You could do it for cable, sort of, but with a very limited selection of movies ... maybe 1/10th of what Netflix has in stock, and it'd still take a few hours to get all the data. Not as much instant gratification as driving down to blockbuster.
Posted by: Nicholas Beaudrot | Oct 25, 2005 5:54:12 PM
Moving to an online/electronic only form of delivery is designed to eliminate reaching the masses, and that's a class issue - something young well off liberals tend to be especially tone deaf about, particularly as it relates to new technologies (iPods, laptops and broadband for everyone! Um, well, no). It's not just the limited penetration of broadband, it's the necessity for a system of credit to make payments, meaning the best lower income workers would get is some sort of paygo system. There's also the issue of tangibility - pay for a DVD, you get something to point to. Order a PPV movie and you get... a bill (and a limited time frame in which to view it). I'm sure we'll get to a critical mass point on broadband/electronic distribution for many types of entertainment. I'll withold judgement on whether that's an improvement until we're there; but from here, it's sure not looking so hot... except, well, for a fairly well off weboy like me... and that's the important thing, right? :)
Posted by: weboy | Oct 25, 2005 6:42:14 PM
Why does your argument assume that DVDs are purely a rental phenomenon? People buy them, people buy box sets of TV shows, movies and so forth. In large numbers. People ALSO rent them, but that's not the only purpose. Some consumers actually like owning something with some permanence instead of renting or watching video-on-demand.
My reaction exactly. It's also worth considering that the DVD sales market tends to favor interesting, intelligent, thoughtful, well-made, or otherwise worthy movies (while box-office and rentals skew in favor of brain-dead Hollywood blockbusters). Phasing out DVDs would eliminate an essential outlet for good movies.
Posted by: Tom Hilton | Oct 25, 2005 7:19:37 PM
"It's also worth considering that the DVD sales market tends to favor interesting, intelligent, thoughtful, well-made, or otherwise worthy movies (while box-office and rentals skew in favor of brain-dead Hollywood blockbusters)."
This is not consistent with anything I've heard. DVD sales tend to skew toward younger males and the dumber sort of action movies. The last article I read on it had an executive using Gosford Park as an example, basically saying that even though a movie like that was cheaper than a big budget action movie, it was in some ways riskier because if it did poorly at the box office, it was much less likely to make up for it with DVD sales.
Posted by: MattT | Oct 25, 2005 7:30:13 PM
"why we don't have full HD, on-demand, new release movie services. Put another way, why does the DVD, in an era when it's clearly inefficient and costly, survive?"
"On a side note, can any explain to me why PPV costs a buck more than my DVD rental store? Its been like this for as long as I can remember."
If you are already shelling out $80 a month for a full cable package and watch many movies a month the former statement makes sense. If you refuse to pay those extortionate rates and do much of your DVD viewing on your home PC or laptop and in the back set of your minivan then the reason for the survival of the DVD becomes a little more obvious.
Not everyone in the world is a twenty something male with a comfortable couch and unlimited time to sit in front of a TV.
Exercise in tunnel vision.
Posted by: Bruce Webb | Oct 26, 2005 9:33:27 AM
Some things don't add up in the article and this thread. Walmart sells DVDs - they don't rent them. They are not in competition with Pay Per View.
Blockbuster is in competition with Pay Per View. So it could be argued that Blockbuster (and all the other video rental stores including Netflix and the mom and pops) get an unfair advantage over Pay Per View with the 45 day delay.
But - again - Walmart sells DVDs - so they are in competition with a potential business that would allow downloading movies into a permanent storage device of some kind. Along the lines of recording off-air or off Pay Per View. The superior quality of the DVD has probably squelched any competition Walmart had with tapers.
But the prospect of being able to "purchase" HD movies through some sort of downloading to the home process is what Walmart is concerned about.
I seriously doubt Walmart is the only contrary voice out there. The aforementioned Blockbuster carries a lot of economic clout with the film industry and it seems to me that Blockbuster - at present - benefits most from the 45 day delay. Heck - there was a time when video rental stores got VHS to rent before retail got the VHS movies to sell - that delay died with DVD.
The unspoken voice here is the theater business. Movie theaters have got to be dead set against "same day release" ideas that Hollywood may consider. Certainly the theater owners have some clout in Hollywood.
So you've actually got a lot of different players with various entrenched interests pressuring Hollywood to leave well enough alone. Bashing Walmart is fun but...
The biggest problem with Epstein's article is this:
"It might also greatly expand the audience for renting movies so that, depending on how electronic delivery is priced, the lost sales of purchased DVDs would be offset."
I think it unwise to make predictions about people not buying DVDs in favor of renting them. One should never underestimate the fetishistic nature of ownership - that desire to have something tangible. People like those shelves full of DVDs or CDs or books or...etc.
I'm going to withhold judgement until I know just how Epstein has his DVD player hooked up. Most folks don't have them hooked up right and never get to see just how good they look...thekeez
Posted by: Jeff Keezel | Oct 26, 2005 11:18:23 AM
For whatever it's worth on the "people rent brainy movies and buy action movies", the top 10 on Netflix are seven Oscar nominees, the somewhat heady Spanglish, and the quasi-brainy action move Collateral. Straight-up action movies seem to be a notch lower (National Treasure, Troy, etc.).
Meanwhile the Amazon top 100 DVDs skew very nerdy. Interestingly there are very few movies on their list, but lots of TV shows.
Posted by: Nicholas Beaudrot | Oct 26, 2005 1:52:26 PM
Sometimes I just wanna say "What's it to ya'??"
I mean really. You're upset that sellers of DVD's might actually listen to their largest customer.
Surprise, Surprise, Surprise!!
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