Disney is becoming disposable.
In an effort to boost DVD sales and counter the advantages of electronic delivery, Buena Vista Home Entertainment is teaming with a DVD technology company to test disposable discs that are designed to sell in supermarkets, drugstores, convenience stores and other nontraditional retail outlets.
The self-destructing discs, dubbed EZ-D, are playable for 48 hours from the time they’re removed from their vacuum-sealed packaging, after which the bright red coloring on the backside turns to black and the disc becomes little more than a reflective coffee table coaster.
Disney will kick off a four-city test in August with eight titles, “Signs,” “The Recruit,” “The Hot Chick,” “25th Hour,” “Frida,” “Equilibrium,” “Heaven” and “Rabbit-Proof Fence.”
Disney hopes to sell the discs for a dollar or two above the price of a standard vid rental by appealing to consumers who may want to watch a movie once or twice but hate having to take rentals back or pay late fees.
“Since 1996, the video rental market has basically been flat,” Disney homevid prexy Bob Chapek said. “The main reasons people stop renting is the perceived inconvenience of returning and late fees. The most important finding in our research is that this product appeals to the lapsed renter. It addresses their issues.”
Blockbuster collects hundreds of millions of dollars in late fees each year, a number that has sparked several customer lawsuits and an effort by Blockbuster to reduce that sum through the introduction of monthly passes and other extended-viewing programs.
The discs use technology from 4-year-old privately held New York-based Flexplay Technologies and partner GE Plastics, a 50-year-old multibillion-dollar company that produces the plastic used in many standard DVDs.
New titles will be added to the mix every four weeks, according to Chapek. More cities will be added depending on how well the idea tests in the first four. “If it takes a year to reach national rollout I’m perfectly happy with that,” he said.
The EZ-D technology, developed by Flexplay, has been kicking around studio lots for the past year, but to date, the only other studio to test the discs is MGM, which released a 20-minute promotional disc last year tied to “Die Another Day.”
Move is bound to be controversial. Aside from threatening the current rental business, dominated by Blockbuster, Disney’s strategy could undercut sales of full-priced DVDs.
To counter that threat, the studio plans to delay the EZ-D release until a few weeks after a movie’s initial homevid bow.
“We’ll test various scenarios, but there will definitely be a (full-priced) sell-through window before the limited-play window,” Chapek said. “We can’t have even a modest amount of sell-through cannibalization.”
Disney’s EZ-Ds will be plain vanilla offerings, leaving out the extra features and bonus material included on many full-priced DVDs, although the discs can technically accommodate anything on a standard DVD.
Some major theatrical hits — including the Disney animated classics — may never be offered in the format, Chapek added.
EZ-D’s potential impact on the rental market could raise hackles among rental shops, including Blockbuster, where relations with Disney are already strained. Earlier this year, the studio sued Blockbuster over disputed accounting in their now-expired revenue-sharing deal.
The studio was to discuss the new technology with Blockbuster on Thursday after similar conversations with retailers such as Wal-Mart and Best Buy earlier this week.
Although the studio believes the discs could work in Wal-Mart, its ideal scenario is to penetrate nontraditional but high-traffic retailers like supermarkets and convenience stores, Chapek said.
Disney is targeting checkout aisles and other locations that draw a high percentage of impulse purchases. Impulse purchases rep about 40%-50% of all Disney movies bought on homevideo, a figure Chapek thinks could be much higher.
Disney’s deal with Flexplay and GE is not exclusive, and Flexplay CEO Alan Blaustein said his company is talking with all other studios and suppliers who could initiate a launch of product on the new discs. Blaustein is also in talks with videogame and computer companies about applications for the technology that he believes could be even bigger than DVD movies if used for limited-play promotional samples.
A spokesman for MGM said it has no further plans for the technology.
Other studios were skeptical of Disney’s strategy. A high-ranking exec dismissed the plan as “Divx in a can,” a reference to the short-lived limited-play DVD system backed by Circuit City Stores that came and went in 1999.
Others doubted the EZ-Ds would have the consumer appeal Chapek thinks they will. “You’re asking consumers to pay more for the same thing as in a rental store only later,” one exec said.
Chapek is undeterred, noting that Divx discs required a special player and a telephone hookup to Divx headquarters, while Flexplay discs will work on any standard DVD player.
Boosting bottom line
He also said room for growth remains in the rental biz and that EZ-D sales will only boost the overall pie.
Though overall DVD/VHS rentals are up 6% so far this year — thanks mostly to a 76% surge in DVD rentals — overall spending on rentals has been basically flat since the mid-1990s at around $8 billion, Chapek said.
Even if rental revenue stays on pace this year at about 6%, it’s not enough when revenue from the sales side of the business was up 22% last year. “We shouldn’t be satisfied with minor percentage growth (in rental),” he said.