WASHINGTON — After years of pushing Hollywood to protect the video rental window, Blockbuster Video now says it can live without one.
In an interview with Daily Variety, chairman-CEO John Antioco said he’s willing to let viewers decide whether to rent or buy new vid releases, and he thinks the studios should drop the price of new releases across the board so all titles are available for rental and sale at the same time.
In the past, most studios have followed a dual-release strategy, issuing movies at a high price first for rental stores, followed by a low-priced re-issue for mass market retailers that sell but don’t rent videos.
The only exceptions were high-grossing family titles consumers might prefer to own.
Since the introduction of DVDs, however, most studios have followed a single, low-priced release strategy, hoping to make up in sales volume what they lose from high-priced rental units.
That’s forced vidtailers like Blockbuster to compete directly against powerhouse retailers like Wal-Mart, Target and Best Buy.
Two years ago, Blockbuster began pressuring the studios to protect the exclusive rental window, using its buying clout as a stick but offering revenue sharing on rental titles as a carrot.
Blockbuster’s new position in favor of eliminating the rental window reps a dramatic turnaround for the vidtailer.
While studios such as Warner and Sony, who have pushed for a low-priced strategy, may welcome the news, others have clung to their rev-sharing deals with Blockbuster and aren’t anxious to drop their prices.
An across-the-board move to lower prices would effectively kill those deals, since rev sharing only applies to high-priced rental titles.
“I guess that’s part of why we’re having this conversation,” Antioco said. “Those (revenue-sharing) deals aren’t forever. The studios are going to have some decisions to make, and I’m going to have some decisions to make when those deals come up.”
For the studios, the loss of rev sharing would hit low-grossing titles on vidcassette the hardest. Dropping prices on those would be unlikely to boost sales significantly, while revenue sharing provides the studio with minimum revenue guarantees.
Getting rid of a headache
Eliminating the rental window along with rev sharing would get Blockbuster out from under those minimum guarantees.
“Why do I need a protected window on titles people don’t want to buy anyway at the expense of 10 points of (profit) margin?” Antioco said.
On low-priced DVDs and vidcassettes, Blockbuster’s margins are about 70%, compared with about 60% on rev-sharing titles.
With low-priced titles, Blockbuster keeps all the rental coin, although its upfront costs are higher than with rev sharing.
In the past, vidtailers have been wary of having to compete directly with big retail names like Wal-Mart, out of fear that consumer purchases would cannibalize rentals.
But Antioco said the industry’s experience with DVD shows that concern is overblown.
“I think Blockbuster is very capable of competing in a world where the customer has a choice,” he said. “There may be some cannibalization of rental today, but I think it will be less in the future as DVD goes more mass market.”
Rentals won’t die
As more consumers get DVD players, he said, the bulk will still want to rent most titles, rather than buy them, regardless of the price.
Antioco said that eliminating the rental window would also solve the consumer confusion created by different pricing strategies for different formats.
“Today, if I want to watch ‘A.I.’ and I have a VCR, where do I go? To Blockbuster, to Best Buy or to Wal-Mart?” he said. “I can buy the DVD at Wal-Mart, but I can’t watch it on my VCR. If I want to watch it on my VCR I have to rent it.”
Going to a single, low price for everything, he said, “would let consumers go where they want, when they want, for what they want.”