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DVD Rental Reality: Movies & Math

TMCnet Feature

July 02, 2013

DVD Rental Reality: Movies & Math

By Bob Wallace
VP of Content

Reports of the demise of movie DVD rentals are more than greatly exaggerated - they’re overdramatized.

Drive by a Redbox kiosk after 5pm or check the number of consumers that still subscribe to Netflix’ DVD by mail service and you have strong proof that the practice of renting movies has neither died nor has it faded away.

In fact, in the wake of the Blockbuster brick-and-mortar store rental business model, and the mom and pop rental stores it destroyed, a very strong argument can be made for resurgence in the physical rental of DVDs.

Dollars & Sense

While technology set the stage for an array of streaming movie services and options, basic business sense 101 is what’s keeping the rental movie market moving forward, and collecting fans.

The beauty of kiosk rentals like Redbox and original Netflix is that they can affordably augment or replace more expensive options such as over-the-air TV, basic pay-TV subscriptions and even the more high-end (expensive) service provider packages for those who want to see newish movies before they become relics. Redbox even teamed with Verizon (News - Alert) to launch a streaming movie service this year.

Two Tickets to Paradise?

After shelling out $27 (tickets only) for me and my nephew to watch Iron Man 3 in 3D at what used to be matinee time (1:30 pm), two realities were reinforced. First, parents and younger demographics aren’t paying a premium for movies when they can see them a bit later for a small fraction of this cost. Secondly, parents with kids, teenagers and twenty-somethings are drawn to kiosks like bees to honey because they are what makes up the ‘cord-nevers’ – those that will never sign up for a pay-TV subscription services from a cableco, telco or satellite provider.

These operators are pedal to the metal focused on customer retention as customers are cutting-the-cord for alternatives in ever larger numbers. They’re betting TV Everywhere (TVE) strategies will keep customers in place but need to think hard about those that will likely never sign up for their services to begin with as it’s a far larger crowd.

Alive and Well

Rental is anything but dead, according to recent research by the NPD Group (News - Alert), which claims that 21 percent of consumers watched movies rented from a kiosk in the first three months of this year. This is solid steel proof that the format lives on and is in the overall movie watching mix for consumers. See chart below.

“Despite the well-deserved hoopla over Netflix, many more people are watching their movies from their collection of DVDs and Blu-ray discs, and as many folks watch movies on discs that they rent from kiosks as watch on a subscription VOD service,” said Russ Crupnick, senior vice president of industry analysis at NPD.  Netflix streaming, Amazon Prime and Hulu (News - Alert) Plus, are all examples of subscription VOD services. “It’s little surprise that Netflix is a prime movie rental driver here.” “Pretty soon one in three Americans will have a Netflix subscription.”

What the chart doesn’t tell us, however, is the frequency of viewing for these options. For example, in a theater viewing is 44 percent. It’s safe to assume that option isn’t frequently used by the average consumer, while other options, such as a kiosk at $1.20 plus tax (Redbox), are likely used more frequently.

This chart reinforces my belief that cost-conscious consumers in a struggling economy would rather pay that Redbox buck-and-change than buy a movie from a cableco, satellite operator or telco. In my market, most paid VOD from the cableco (the newest titles) is typically $4.99 a pop for SD and $5.99 for HD. This isn’t advanced algebra. Multiple demographics have done the math.

The Bottom Line

It’s unlikely a significant number of movie viewing consumers use any of the above options exclusively. It’s far more likely that they use a combination of options, depending on available options and high-speed Internet access.

Look for this lineup to change moving forward. It already has for those that remember drive-ins, Blockbuster stores and early movie formats. And, Netflix is first-focused on streaming.

But, for now and for the foreseeable future, DVD movie rental is alive and well and living in a plaza or mailbox near you.

Edited by Stefania Viscusi

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