In mid-October Warner stopped supplying the newly-reorganized Blockbuster's bricks-and-mortar operation with day-and-date access to new video releases, in an echo of the 2009 studio initiatives to institute a 28-day rental window with Coinstar's Redbox and Netflix.
In 2009 Universal became the first major studio to refuse to sell DVDs to Coinstar for rental service in Redbox kiosks, followed by Fox and Warner. Sony, Paramount and Lionsgate opted instead to contract for day-and-date release to Redbox in exchange for guaranteed buy-in, guaranteed market share, cash payments or combinations thereof. Sony later established a 28-day window with Netflix on titles doing more than $50m at the box office, but chose to continue its day-and-date contract with Redbox past the 2011 opt-out date.
Warner's latest move will likely prove the first shot in a new round of rental window negotiations, as the company has also indicated that its contracts with Redbox and Netflix are up at the end of the year and that it intends to push for a two-month hold-back instead of the current 28 days. Disney remains the one major studio that hasn't committed either to day-and-date delivery or to a 28-day window. Its contracts with Redbox and Netflix and, presumably, its agreement with Blockbuster before the latter's sale to Dish Networks, allow the retailers to pay full wholesale price for day-and-date availability, or a much-discounted price for 28-day-later access on a title-by-title basis. For the most part, Disney has pursued a day-and-date strategy, and focused in recent years on producing the kinds of collectible animated feature films whose retail sales are not greatly impacted by rental availability.
Analysis
With Blockbuster's Chapter 11 proceedings behind it and its new owner, Dish Network, aggressively pursuing a video streaming service in addition to in-store and online disc rentals, Warner's action suggests it sees Blockbuster becoming too much of a Netflix clone. So far, neither Fox nor Universal has made any comment or announced plans to join Warner in pushing to expand rental windows beyond the kiosk and subscription arena, or beyond the current 28-day hold-back.
Back in July 2009, when Sony signed the first day-and-date revenue-sharing agreement with Coinstar, Universal was in litigation with the company over its efforts to enforce a rental window by withholding sales of its DVDs to the kiosk owner. Redbox kiosks still offered new Universal titles but had to purchase them at retail, an expensive and labor-intensive workaround that Blockbuster found itself using to stock Warner's new releases in October of this year. Back then, one of the biggest issues on the table was the disposal of used discs, which were flooding the market from expanding kiosk operations and competing with new disc sales. As each of the major studios worked out their agreements with Coinstar - and with Netflix in the months that followed - the disposal of used discs was settled as part of both the windowed and day-and-date agreements. Warner's new move is an indication that the company is seeing enough of a retail benefit from the 28-day window that it wants to improve that benefit even further by including traditional rental outlets in the hold-back and extending the window.
While it is true that retail sales of physical video have been declining since 2005 and rental turns have been increasing, inexpensive rental options are not the only culprits to blame for video retail declines. The expansion of videogaming to casual gamers and families, the popularity of social networking and the increasing consumption of entertainment on connected mobile devices - in addition to the ease of piracy in a world of high-speed connections - has fragmented the entertainment landscape while consuming more and more of consumers' leisure time. Free on-demand content and DVRs have vastly improved the entertainment value of TV, even as more TV content has become available online. In the evolution of the home video markets this is the first time we've seen the major studios adopt such divergent strategies as they look for ways to sustain the key revenue pipelines - physical-disc retail and rental - that fund new content creation.
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