Who Wins When Movies Are Available Everywhere?

1Executive Summary

Seattle has a famous video store called Scarecrow Video. It wasn’t the closest video store to my house, and parking was a pain, but I would always make the trek across town — passing several other video stores along the way — because Scarecrow had the best selection.

Remembering Scarecrow video got me thinking about the future of movie rentals. In a brick and mortar world, things like convenience and selection matter; they help determine where you spend your money. With its huge library and door-to-door delivery, these same attributes made Netflix‘s DVD-by-mail a hit with consumers.

But what happens when proximity, variety and convenience are moot? We are approaching a time when you can rent almost any movie through your TV with the push of a button, and companies like Netflix, Amazon, Apple, Blockbuster and your cable operator are all diving in. But if movies basically become commodities, with every film available through every service, where and how will consumers choose to spend their money?

Consumer options abound

When customers turn to direct-to-TV providers, they’ll have several options.

Netflix has made big headlines in the past six months with its strategy of getting its streaming service on almost any device that plugs into your TV. Already its Watch Instantly service can be found on Roku, Xbox 360, Blu-ray players and, soon, directly on LG and Vizio TV sets. Netflix is also trying to differentiate itself by sticking with its all-you-can-watch subscription model; while it allows consumers to what as many titles as they want, it also limits the content Netflix can offer, because of licensing restrictions with Hollywood studios. Netflix currently offers 12,000 titles, most of which are back catalog movies and TV shows.

Amazon is following the same hardware-agnostic strategy as Netflix, but so far it’s only available on the Roku, TiVo, Sony Bravia Internet Link and, soon, Vizio TVs. Amazon acts more like a traditional video store, in that it offers rentals and purchases a la carte, meaning you rent each title individually. Because of this approach, it offers new release movies, as well as a back catalog. Amazon currently has 40,000 titles available on demand.

Blockbuster, once the king of brick-and-mortar rental chains, is struggling to stay relevant in a digital delivery world. The company last fall launched its own set-top box, which quickly went nowhere, and earlier this year it partnered with Sonic Solutions (which owns CinemaNow) to get its Blockbuster On Demand service on more video-capable devices. Like Amazon, Blockbuster offers rental and purchases a la carte, but only has 10,000 titles available for direct delivery.

Apple, after two years, still considers its Apple TV a “hobby.” But, in true Apple fashion, if you want to get video content from iTunes on your big screen TV, your only real option is to use an Apple TV. Apple has agreements with all the major studios, and it offers video only as downloads.

Not to be forgotten are the cable companies, which have their own VOD systems offering a selection of free, subscription and premium content.

Competitive challenges ahead

With so many companies basically offering the same service, what’s the best way to compete?

In the short-term, video quality may play a role with consumers opting for high definition (HD).  Apple and Netflix (in a very limited capacity) both offer it already, and Amazon is reportedly about to roll it out any day now. But consumers have shown they’ll opt for convenience over quality (see: the slow adoption of Blu-Ray) and, soon enough, all the major players will offer HD, once again leveling the playing field.

With prices already fairly consistent across providers, and so low ($1.99 – $2.99 for TV shows (depending on the video quality); $3.99 – $4.99 for movies (depending on the video quality)), there isn’t much room to undercut the competition on a cost basis.

Establishing exclusivity windows with studios for hit movies could work to attract customers, depending on which titles the service is able to control, but the cost associated with obtaining the rights to and marketing the exclusivity of these films would most likely outweigh the benefits of having them on an exclusive basis.

The key to survival in the direct delivery age is for a company to get their hooks into a consumer now. Which is why Netflix, Amazon and the cable companies have a leg up on the others. Consumers already have electronic relationships with these companies.

The winner is …

NETFLIX – has more than 10 million subscribers, and more than 1 million Xbox users activated the streaming service since its launch on that platform. Netflix is going to where consumers are by getting on as many devices as it can. The trick for Netflix will be overcoming the limitations of its subscription model and getting new release content. Plus, Netflix’s rights to particular films are constantly in flux, so titles fade in and out of availability on the streaming side.

AMAZON – again, the multi-device strategy is a smart move, and Amazon will be able to leverage its massive retail audience to cross-promote its VOD offerings. Plus, customers won’t have to go through the hassle of setting up a new account to watch movies.

CABLE COMPANIES – the cable companies are already in millions of homes (Comcast alone has 24.2 million cable subscribers) and people already use their set-top boxes. Cable companies need to work on: the user interface, which is ugly; their content selection is not very large; and movies appear and disappear from availability with no transparent reason to the consumer. Plus, cable companies aren’t exactly known for sterling customer service.

In the end, the company that has the ability to connect people to their entertainment the fastest and most consistently will win.

Chris Albrecht is the Co-Editor of NewTeeVee.

Relevant analyst in set-top boxes
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  1. I also care that there isn’t overly restrictive rights management around the movies I buy. Factors like portability to my iPod and continued access 24 hours after purchase/rental will factor into my loyalty.

    Sometimes I fall asleep while watching a movie and I just want to finish the last 20 minutes the next day…do I really have to be penalized for that?

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