Consumers’ Shift to Renting Video Content Seen Bad for Profits
Consumer spending on video rental formats will surpass retail purchases this year for the first time since 2000, the beginning of the transition from VHS to DVD, according to forecasts from BTIG Research. BTIG predicts sell-through spending on video content in 2013 will be 49 percent of total consumer spending on video, a 60 percent falloff from 2009, which BTIG called “a tremendous change in just four years.”
BTIG analyst Richard Greenfield cited a published quote from Michael Lynton, CEO of Sony, speaking recently on shifting consumer attitudes toward media ownership. “People are getting over the idea of ownership,” Lynton said, and they're more interested in access to content, breaking the “emotional hold” of needing to own content they consume. Once the trend shifts, “a lot changes and it is happening pretty quickly,” Lynton said. Greenfield said the rise of subscription streaming services from Netflix and Amazon, along with the various rental service options from Vudu, iTunes and Amazon, are indications of the “shifting consumer psychology” around owning home entertainment content.
Consumer video spending has been flat between 2011 and 2013, buoyed by high-margin digital spending, which jumped by 46 percent to $2.3 billion from 2011-2012 for subscription streaming and by 11 percent to $2 billion for VOD, according to BTIG. But a continued shift to lower-margin rental spending is negative for the industry, Greenfield said. Total sell-through sales for physical and electronic video are expected to drop 2.9 percent this year to $9.2 billion, compared with growth of rentals of 3.8 percent to $8.7 billion. Total consumer spending in 2012 inched ahead by 0.2 percent to $18 billion but is expected to slip this year by 0.4 percent to $17.9 billion, BTIG said.
On what studios need to do to boost profitability, Greenfield said windows between theatrical release and home video need to contract further from current spans of 14-15 weeks to 6-8 weeks, “if not shorter, if the studios really hope to sustain consumer interest in owning movies.” Pricing is too high for consumer video purchases, Greenfield said, noting that Fox has led the charge to cut pricing for digital HD movies to $15, which “still feels too high.” Without a shorter window between theatrical and home release, purchase prices for digital movies need to be under $10 “or consumers will continue to shift toward rental spending,” he said.
On UltraViolet, Greenfield noted that millions of accounts have been registered but “we do not sense consumer usage is robust.” Windowing and price are “far more important problems to solve than functionality,” he said. A lack of functionality could be a deterrent to UltraViolet progress, we found in a scan of the group’s FAQ’s page. The section lists 81 FAQ’s including “What is an account name,” “What is my UltraViolet Collection” and “How do I link UltraViolet services and my UltraViolet account,” indicating consumers could be confused by setup and the various components of the service.
Netflix, meanwhile, continued its campaign to overhaul the video distribution model with an announcement Tuesday that it will have an exclusive on DreamWorks Animation’s Turbo: F.A.S.T. Netflix’s first series for kids will debut in December following the release of the movie Turbo, which premieres this summer. Netflix will make all 2013 shows of the series available at launch, as part of its exclusive programming model that began with House of Cards this month. DreamWorks’ CEO Jeffrey Katzenberg said in a prepared statement that Netflix “pioneered a new model” for TV dramas and the studio is “thrilled to be part of the television revolution.”