NCR Entertainment will raise DVD rental prices at its 10,000 Blockbuster Express kiosks nationwide, following a similar move by its competitor Redbox to offset an increase operating costs.
Whereas Coinstar-owned Redbox recently raised its daily DVD rental rate by 20 percent (from $1 to $1.20), NCR will introduce what it calls â3-2-1â pricing for DVD rentals at Blockbuster Express kiosks. DVD titles within their first 28 days of release will cost $3 to rent; after 28 days, the initial rental price shifts to $2, and after 90 days, the first-day price becomes $1. Additional days for all movies will continue to cost $1 plus tax, NCR says. The price increase goes into effect Nov. 8.
While Redbox had cited higher debit-card transaction fees as a reason for its daily price hike, Blockbuster Express attributes its change to a general rise in operating costs. But the price increase tracks movie studiosâ ongoing efforts to enforce an exclusive sales window for DVD and Blu-ray titles. Some analysts argue that studios should widen the window to 90 days, from the 28 days of current windowing agreements with rental companies.
In the wake of Netflixâs recent PR debacle over its own price hike, Blockbuster Express is taking pains to sell consumers on the change. âWe are making this change based on feedback from our customers as well as to address higher operating costs currently facing the industry,â the company tells customers on a FAQ page. âWith this change we are simplifying our pricing structure and clearly defining our portfolio of movie rental options.Â We have opted to retain a $1 one night movie rental option, which our customers have told us is important to them.â
In addition, more than 70 percent of a kioskâs titles will still carry the $1-a-day price, NCR Entertainment general manager Justin Hotard told Bloomberg on Thursday.
Redbox next week will begin charging $1.20 per day for DVD rentals at most of its 27,800 locations nationwide, following tests of the higher price point this past summer.
The 20 percent price hike âis based on an increase in operating costs, including higher debit card fees that went into effect October 1,â Redbox tells customers in an announcement on its website. The amount, Redbox says, âwas selected to best offset expenses, while keeping our value commitment to customers.â
Whether Redboxâs price hike impacts customer behavior remains to be seen. As GigaOm points out, Coinstar investors had expected Redbox revenues to rise following the outcry over Netflixâs recent price changes. But with Coinstar reporting third-quarter revenue that was only slightly above analyst expectations, it is unclear whether Netflixâs subscriber losses during the third quarter translated into customer gains for Redbox. (The division continues to grow in general, having earned $1 billion in the first nine months of 2011, according to Coinstar.)
During the companyâs test of the $1.20 price point in August, one analyst predicted that few Redbox DVD renters would balk at the increase. But the hike could lead to customers renting fewer DVDs, or renting discs for fewer days, analyst Eric Wold of Merriman Capital acknowledged in his August note.
In any event, the increase is unlikely to placate studio executives such as Time Warnerâs Jeff Bewkes, who contend that Redboxâs pricing model devalues studio content.
Rentals of Blu-ray discs and video games remain at their current rates ($1.50 per day and $2 per day, respectively).
In a concurrent effort to drive traffic to its website, Redbox is launching a month-long promotion under which customers can reserve DVD rentals online for $1 for the first day. Customers pick up the reserved discs at their local kiosks.
When Netflix announced its intention to split its discs-by mail and streaming video services in the U.S. into separate subscription plans, the company estimated that 3 million of its customers would subscribe solely to the discs-by-mail service by the end of the third quarter (Sept. 30). At the time, NetflixÂ also said its newly created discs-by-mail division would help ensure that the company’s DVD business remainedÂ âas healthy as possible for as many years as possible.â
Today â two weeks after Netflixâs service changes and concomitant price increases went into effect â the company announced that it was lowering its starting subscriber expectations for its new discs-only service as well as its streaming-only plan in the U.S.
Netflix cut its end-of-quarter projection of discs-only subscribers by 26.7 percent, from 3 million to 2.2 million. The company also trimmed the number of U.S. subscribers projected to opt for its streaming-only service to 9.8 million, from an original expectation of 10 million.
Netflix still expects 12 million of its U.S. customers will subscribe to both its discs-by-mail and streaming services by the end of September. The company also left unchanged its financial guidance for the third quarter.
In a Sept. 15 note to shareholders, Netflix intimated that customer pushback on the price hikes prompted the companyâs guidance revisions. In defending its splitting of services as âthe right long-term strategic choice,â the company reiterated its four key objectives:
â(1) to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
â(2) to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
â(3) to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
â(4) to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.â
Netflix plans to share more on its third-quarter performance in October.
The Lionsgate studio has elected not to opt out of its DVD and Blu-ray licensing agreement with Redbox, reports Redbox parent company Coinstar in an Aug. 8 filing with the Securities and Exchange Commission.
Lionsgate continues to make its new DVD and Blu-ray titles available to Redbox day and date with their sell-through release. The agreement between the two companies, originally stuck in 2009, runs through August, 2014.
Commenting on the news, analyst Eric Wold of Merriman Capital noted that major studios including Paramount, Sony Pictures and Warner Bros. each have rights to opt out of their Redbox licensing agreements in the coming months (via Home Media Magazine). But Wold said he âwould be surprised if there were any changes to the existing agreements,â as Redbox has risen to a more prominent position in the marketplace for physical disc rentals.Â As of the end of the second quarter, Redbox was recording an average of 55 million rental transactions a month from 27,800 locations nationwide.
Under Netflixâs modified pricing plans, customers who want both DVDs and streaming videos will pay $15.98 a month. But unlimited DVD rentals, like streaming-only service, will be available as a $7.99-a-month subscription â in what the company says is a renewed focus on the DVDs-by-mail market.
Previously, Netflix offered a combination plan for $9.99 a month, as it touted the growth of its streaming service. âGiven the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,â says Jessie Becker, Netflixâs vice president of marketing, in a corporate blog post. âCreating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering.â
Becker adds that Netflix also is establishing a separate management team for its DVDs-by-mail business, led by Andy Rendich, the companyâs chief service and operations officer.
The price changes take effect on Sept. 1 for existing subscribers. More on Netflix’s move at the Los Angeles Times.
Through an agreement with Rentrak’s revenue-sharing program for video stores, Anderson Merchandisers will begin offering DVD and Blu-ray rental titles from film and video distributor Arc Entertainment. The Â deal coincides with Anderson adding a dedicated sales and marketing team to its new third party licensing business.
âAs Anderson Merchandisers expands into licensed content distribution, initially with Arc Entertainment, working with Rentrak to reach key retailers in the rental market was a top priority,â says Mathew Smith, Andersonâs SVP of video purchasing, who added that the program will enable the company to stock more rental DVDs and Blu-ray discs in multiple retail locations.
Last week, Rentrak announced lower-than-expected earnings for its fourth fiscal quarter (ended March 31), with weak rental titles pulling the companyâs home entertainment business down 14% year-over-year (via The Wall Street Journal).
More on the revenue-sharing agreement atÂ Home Media Magazine.
Walmart may pay as much as $40 million in store gift cards to members of a class-action lawsuit alleging the retail giant colluded with Netflix to reduce competition in the DVD business (via paidContent).
The suit was originally filed in a Washington federal court in 2009 by a Seattle-area Netflix subscriber. It is now in a federal court in Oakland, Calif., where presiding judge Phyllis J. Hamilton granted class-action certification to the plaintiffs (via the Los Angeles Times/Bloomberg).
The suit claims that Netflix and Walmart ran afoul of antitrust laws in 2005 when they agreed to steer clear of each otherâs DVD business as part of a cross-promotion deal. Netflix stopped selling previously viewed discs, while Walmart ended its own DVDs-by-mail rental service (which, according to estimates at the time, had attracted as many as 200,000 subscribers). The agreement, according to the suit, effectively eliminated downward price pressures on DVD sales and rental services, to the detriment of DVD consumers.
Interestingly, reports of the Netflix-Walmart agreement voiced no collusion concerns when the deal was announced: see, e.g., the New York Timesâ write-up from May 2005. But current market conditions â a soaring stock valuation for Netflix, as Blockbuster plods through bankruptcy â have seemingly thrown the 2005 deal into an antitrust relief for the press. The Huffington Post, for example, headlines the deal as a âconspiracy.â
Todayâs market is more nuanced than disc rentals and sales. Retailers from Walmart itself (through its Vudu subsidiary) to Sears (through a new unit called Alphaline Entertainment, via The Atlantic) aim to compete against Netflix in streaming movies and videos direct to home computers and TVs.
Netflix, for its part, reportedly plans to continue defending itself in the class-action suit despite Walmartâs settlement.Â The case is Magee v. Netflix Inc. et al., 4:09-cv-01793, U.S. District Court, Northern District of California (Oakland).
Digital distribution platforms for home entertainment (including video-on-demand) outpaced Blu-ray Disc in consumer spending during the first half of 2010, passing the $1 billion mark for the first time, according to new figures released by DEG: The Digital Entertainment Group.
Electronic sell-through increased up 37% year-over-year to $285 million between January and June, as video-on-demand (VOD) rose 19% to $865 million, for a combined growth of 23% to $1.1 billion.
Sales and rentals of Blu-ray discs, reached a combined total of $982 million for the six-month period. Blu-ray sell-through increased 84% year-over-year to $733 million during the half.
Blu-ray disc shipments topped 77 million units in the first half of 2010, nearly double the number of the comparable period in 2009, according to figures compiled by Swicker & Associates on behalf of the DEG. Household penetration of all Blu-ray compatible devices, including set-top players, PC drives and PlayStation 3 consoles, has now reached 19.4 million U.S. homes.
Overall consumer spending for the first half of 2010 in the home entertainment window for pre-recorded entertainment â which includes DVD, Blu-ray Disc and digital distribution â reached $8.8 billion, off 3% compared to the same period in 2009. Yet consumer transactions for home entertainment products were up 2% for the first half of the year, DEG says.
Packaged media sell-through, which includes DVD and Blu-ray Disc, declined 7% year-over-year during the half. But the rate of decline slowed to 3% during the second quarter.
Rental spending was down nearly 5% to about $3 billion between January and June, says DEG (citing Rentrak Corp.âs Home Video Essentials). The trade group faults Movie Gallery store closures for the decline, while noting that kiosk revenues increased 55% during the six-month period.
While it tests videogames and Blu-ray discs at kiosk locations in several markets, Redbox is elsewhere researching the potential implications of price hikes on its DVD rentals. Via The Hollywood Reporter: DVD price-point tests are underway at Redbox kiosks Albuquerque, NM ($1.50 a night), Modesto, CA ($1.25), San Diego ($1.25), Spokane, WA ($1.15), and Miami/West Palm Beach, FL ($1.15).
Thousands of Facebook members were signing up today for a free Monday-night movie rental from Redbox, as the video renterâs profile on the social network topped 1 million followers. Home Media Magazine has the details of the free-rental offer, which runs for Â June 21 only. Redboxâs Facebook page also offers a code for another free nightâs rental when users rent two movies simultaneously.
DVD kiosk start-up EntertainmentXpress says it has begun to roll out its first machines in Pennsylvania and Florida Pizza Hut locations operated by franchisee Aurora Huts LLC. The deal, first announced in March, is one of several that EntertainmentXpress has with regional fast-food restaurants. Via MarketWatch
Speaking at an investor conference in New York yesterday, Walt Disney CEO Robert Iger said that the discounts rival home entertainment companies give to Redbox (in exchange for 28-day windows on new releases) would be unacceptable to his studio. âSelling [Redbox] units at a 50 percent reduction in cost, or whatever the proposition, even for the 28-day window was not an equation that made sense to us,â Iger said. Disney, whose “Alice in Wonderland” is the top-grossing film of 2010 to date, surprised analysts by not striking a windowing deal with Redbox ahead of the DVD’s June 1 release. By Bloomberg (via Business Week)
GigaOMâs NewTeeVee yesterday posted slides from a Netflix corporate deck that project the renterâs DVD-by-mail shipments will peak in 2013. The real news here is that the streaming market seems to be proceeding exactly according to Netflixâs plans. The companyâs DVD-peak projection remains the same as it was in May 2008, when the Roku streaming set-top box was brand new. By NewTeeVee
Shoppers at Kroger supermarkets receive a free one-night DVD rental from a Redbox kiosk when they purchase three Pepsi or Frito-Lay products, in a 52-week cross-promotion between the three companies.
The âMake It A Move Nightâ promotion is similar to campaigns that Redbox has run with other supermarket chains, as it seeks to introduce the kiosk-rental concept to more consumers. But as the Redbox tells MediaPost, the PepsiCo-Kroger program sets a new bar in scale and duration. Kroger operates some 2,400 stores under various banners in 31 states. By MediaPost
We misquoted the Home Media Magazine article on Coinstarâs Redbox kiosk ROI in our Wednesday edition. Coinstar CEO Paul Davis said earlier this week that a typical Redbox kiosk is pulling in $50,000 by its third year in operation, not the third month as we reported. Full article here.
Redbox marks the production of its 25,000th kiosk today at the Creedmoor, NC facility of Flextronics, its kiosk manufacturer. âFlextronics is an important partner and their flexibility and responsiveness have greatly contributed to our ability to meet aggressive installation goals as demand for our low-cost DVD rental service has grown,â says Redbox president Mitch Lowe. The rental service currently has a presence in 21,600 locations throughout the U.S. Via PR Newswire
Wall Street is loving Coinstar following news that revenues at the companyâs Redbox kiosk business increased 70% during the first quarter. Coinstar also upped its full-year guidance on the prospects of robust rental business. By TheStreet.com
âIt is clear that our performance, and the overall appeal of the Netflix service, is being driven by subscribers watching instantly,â said Netflixâs Reed Hastings in delivering the companyâs first-quarter earnings April 21. Netflix says that 55 percent of its subscribers have streamed a movie or TV show via the DVD renterâs âWatch Instantlyâ service.
In response to an analyst question during the companyâs earnings call (transcript via Seeking Alpha), Hastings said Netflix was âseeing some substitution of DVD rental for streamingâ among subscribers.
Netflix ended the quarter of 2010 with nearly 14 million subscribers, a 35 percent year-over-year increase, and a 14 percent increase from the fourth quarter.
On whether Netflix has seen any indication of subscriber response to its new 28-day windows for some new releases, Hastings said, âOur indication is our record low churn [of 3.8 percent].â
As to quantifying subscriber behavior regarding delayed availability of âThe Blind Sideâ â the first major title subject to Netflixâs window agreement with Warner Bros. â Hastings mused that some subscribers purchased the DVD at retail or watched the film via pay-per-view services during the 28-day period. But he acknowledged a âpent-up demandâ from subscribers to rent the film.
Hastings said there “is a little bit of guesswork” in determining how many DVDs will satisfy demand for windowed films. “We are still learning together with Warner Brothers how to predict that.â Via Seeking Alpha
The first âMovie>Qâ outlet in Westminster, CA rents DVDs for $1 per day from 55-foot long âautomated inventory managementâ systems that hold up to 15,000 discs and are accessible via eight terminals. Home Media Magazine reports that Point.360, the company behind the Movie>Q concept, plans to additional outlets in Costa Mesa and La Mirada, CA. By Home Media Magazine
NCR will expand beyond film rentals with its Blockbuster-branded kiosks in July, stepping up competition with Coinstar’s Redbox by selling newly released DVDs, reports Bloomberg.Â The company also is in talks with film studios to offer $2-a-day rentals on new releases through the dispensers, double the current $1 rate. By Bloomberg (via Business Week)
The DVD kiosk company announces an agreement with regional convenience store chain Kum & Go to install movie rental machines in 281 outlets this year. Redbox kiosks are currently installed at 26 Kum & Go stores in Iowa, Arkansas, Colorado, Missouri, Nebraska and Oklahoma. Via PR Newswire
Continuing its efforts to avoid bankruptcy, Blockbuster has secured new payment terms from Sony Pictures Home Entertainment, Twentieth Century Fox Home Entertainment, and Warner Home Video. In exchange, the studios receive a first lien on assets of the chainâs Canada subsidiary. As with Blockbusterâs previously announced rental deal with Warner, Fox and Sony also provide new-release movies for rental via the chainâs stores and by-mail channel day-and-date with the moviesâ availability for purchase. Via PR Newswire
In its analysis of why MGM has a slim chance of netting $2 billion for its 4,000-title library, TheWrap relates a fresh data point from the continually evolving home entertainment business. At ShoWest March 16, Sony Pictures Chairman/CEO Michael Lynton stated that DVD revenues have shifted to a 75 percent rental/25 percent purchase model, from a 60/40 split a few years ago. By TheWrap
For the second time in a year, Blockbuster is warning that it may have to file for bankruptcy protection under mounting debt and ever-increasing market pressure from competitors. The Wall Street Journal has a write-up of the details.
In the same round of March 16 regulatory filings as its bankruptcy mention, Blockbuster stated that it is looking to outsource operations at its largest distribution center in McKinney, TX, which employs 910 people and primarily stocks company-owned stores. Details at Home Media Magazine.
Sheetz, a closely held, Altoona, PA-based chain that has marched southward as it expands, is adding the movie-rental kiosks at nearly all 365 locations. The rollout is one of the biggest so far in NCRâs efforts to have some 10,000 kiosks operating by year end through its partnership with Blockbuster. The current number is about 4,000. By The Wall Street Journal
NCR Corp. March 11 said it has upgraded the Blockbuster Express Web site so consumers can now rent online up to three DVD movies at a time and pick up at the nearest kiosk â a first among self-serve vendors. NCR is manufacturing and installing 10,000 Blockbuster Express DVD rental kiosks in the U.S. this year through a license agreement with Blockbuster. By Home Media Magazine
Earlier this week, reports had surfaced that video store owners had convinced a county prosecutor in Indiana to send warning letters to retailers who gave space to Redboxes and other DVD kiosks. The letters reportedly stated that the kiosksâ offering of PG-13 and R rated movies could put the retailers in violation of criminal statutes as the kiosks gave minors easy access to harmful material.
The prosecutor, Stan Levco, had been weighing whether to file suit. But as Evansville, IN-based newscaster WFIE reports, Levco now says that a trial against kiosk companies âwould be a waste of his resources and that a non-guilty verdict would be returned.â By WFIE
Some analysts didn’t know what to do with themselves on March 2 when the share price of the Webâs top movie rental service shot past their performance expectations. Sure, Netflix continues to return boffo earnings, but after the company’s share price hit $70, some brokers took a hard look at Netflixâs prospects for the future, according to a MarketWatch story. By CNET
Despite the hyped migration toward digital distribution, Netflix expects DVD rental shipments this year to increase 18%. Speaking at separate investor events Feb. 25 and March 1 in San Francisco, CFO Barry McCarthy said packaged-media rentals grew double digits in 2009, while there was 127% year-over-year growth in streaming of at least 15 minutes per month. By Home Media Magazine
NCR Corp., the company that owns Blockbusterâs movie-rental vending machines, will consider acquisitions to expand into digital and mail-in movie rentals, CEO Bill Nuti told Bloomberg Feb. 23. NCR says its entertainment business will reach as much as $150 million in sales this year. Via BusinessWeek
Ahead of Blockbusterâs release of fourth-quarter financials Feb. 24, The Wall Street Journal reported that the chain has brought on law firm Weil, Gotshal & Manges and investment bank Rothschild Inc. to look at ways to reduce its roughly $1 billion debt load and explore other strategies, such as acquisitions or partnerships. By The Wall Street Journal
In its latest court filings in its litigation with Redbox, 20th Century Fox Home Entertainment asserts that the kiosk operator has yet to prove the studio violated antitrust laws when it called for distributors to keep new release DVDs away from Redbox for 28 days after street date. The studio asked Feb. 8 for oral arguments regarding its motion to dismiss the case. By Home Media Magazine
Despite the growing amount of video available online, less than 8 percent of U.S. broadband households are considering canceling their pay-TV services in favor of online video, according to research firm Parks Associates.
The firmâs âAll Eyes on Videoâ report is in line with previous Parks Associates studies, which do not show an appreciable likelihood of subscriber churn in favor of online video services. A 2008 study reported 11 percent of U.S. broadband households were considering canceling pay-TV services, and in an earlier 2009 survey, the number was 10 percent.
Approximately 5.5 million homes would be open to canceling pay TV due in part to the availability of online video, according to the new report. At the same time, one-half of these households are also considering a switch to a new pay-TV provider, indicating the primary threats to companies such as Verizon, Comcast, DirecTV, and Cablevision are still their traditional competitors.
The households likely to switch or cancel their services watch a 10 hours of online video each week, much higher than typical video consumers. They express strong interest in having online access to pay-TV channels (e.g., TV Everywhere), which highlights an opportunity for traditional pay-TV providers to solidify their base through the deployment of such features. Offline video consumption is also higher. Their median number of DVD rentals from the last six months is 18, compared to two rentals among other households.
âThe threat of cannibalization is real but misunderstood,â says John Barrett, Director of Research, Parks Associates. âNobody is going to rely on online video alone â households likely to cancel their TV services are going to use a mixture of online video, free-to-air broadcasts, and DVDs, including rental services such as Netflix and redbox.â By Parks Associates
New quantity limits imposed by Wal-Mart and Target on the purchase of new release DVD movies affect 40% of rental kiosk offerings, including market leader Redbox, according to an analyst. Wal-Mart spokesperson Melissa O’Brien Jan. 27 confirmed the world’s largest retailer had imposed single purchase limits on new release DVD movies to five copies for the first 28 days of the title’s release. By Home Media Magazine
The $1 DVD rental kiosk operator, which sued Warner, Fox and Universal after they imposed nearly month-long embargoes on new releases to kiosks, had vowed to stock the studiosâ titles by acquiring them via third-party retailers such as Wal-Mart. But the extra legwork and cost involved in getting movies from studios with which Redbox does not have distribution agreements has apparently become a prohibitive strategy, says Merriman Curhan Ford analyst Eric Wold. By Home Media Magazine
âPretty soon, weâre going to be a streaming business that rents some DVDs,â said Netflix chief Reed Hastings in a CES keynote interview with All Things Digital. But Hastings gives the DVD another 20 years, projecting it will take that long for Netflix to get out of the disc-shipping business altogether. By All Things Digital
U.S. consumer spending on DVD and Blu-ray rentals rose 4.1% to $6.5 billion in 2009, according to Rentrak’s Home Video Essentials, which collects point-of-sale data. During the year, kiosk revenue grew 94%, with the Redbox-dominated channel approaching $1 billion in revenue. Kiosk rentals were more than enough to offset a 3.2% decline in rentals from brick-and-mortar outlets such as Blockbuster and online sectors. By Variety