Fast forward to the present and witness the harsh impact of progress. What the technology gods giveth, they taketh away. Today, Blockbuster is reeling from the unanticipated rush to online digital delivery. The company is, in fact, trying to avoid bankruptcy. It is furiously closing stores, cutting deals with movie studios for faster rental distribution, and jumping head first into online and smartphone digital video delivery.
Netflix, meanwhile, is re-engineering its business on the fly, as a majority of its customers wants movies over the Internet instead of movies via DVD. In addition to traditional DVDs, the company offers instant downloads of movies via computer and directly to a TV, with the help of a streaming device.
And now, another digital video retail brand, Redbox, is causing fits for both Blockbuster and Netflix. Redbox got its start in 2002, interestingly within McDonald’s Ventures, which was working to identify new ways to drive traffic to the fast food chain and provide added convenience to customers. Through consumer testing, new DVD rentals emerged as the most appealing item for distribution through kiosks. (Maybe the service should have been called “McDVD.”)
Redbox now has almost 25,000 kiosks nationwide. Each fully automated kiosk holds about 630 DVDs, which are available for $1 a day. If customers keep a DVD for 25 days, rental fees cease and they own it. Blockbuster has countered by opening up its own rental kiosks in partnership with ATM-maker NCR, who projects placing as many as 10,000 “Blockbuster Express” kiosks by year’s end.
But as the song says, “We’ve only just begun.” Increasing penetration of broadband and continuously improving mobile data networks have now made streaming digital video commonplace. U.S. cable operators, which have been busy with their own evolution from pay-per-view movies to video-on-demand rentals, are also looking at how to leverage their broadband strength to test new models of online video rentals.
Their foe isn’t just satellite TV players (namely, DirecTV and Dish Network) or telco-delivered TV such as Verizon’s FiOS and AT&T’s U-verse, but digital video brands that truly leverage PCs and wireless devices: YouTube, Hulu, and iTunes.
YouTube, which just turned five years old and is owned by Google, is now serving up record streams to a voracious audience for its free videos. Last month, it streamed an astonishing 14.6 billion videos, according to comScore. But, increasingly, YouTube is actively pursuing the paid rental market, too. The site just struck a deal with World Wrestling Entertainment to offer pay-per-view access to WWE events. It also offers movies from the Sundance Film Festival and will add movies from indie studios and Bollywood to its paid repertoire.
The three-year old Hulu already delivers “premium video content” online from over 200 content companies, including numerous film studios. Users can customize their viewing experience online and watch digital video content free because of Hulu’s advertising supported model. It’s expected to unveil its formal "Hulu Plus" subscription service any day.
iTunes, a division of Apple, may function largely as a music store, but the service also rents movies and episodes of TV shows. iTunes offers the added advantage of enabling digital video viewing on Apple’s iPod and iPhone devices.
Then there’s Best Buy – yes, Best Buy – who recently said it will offer a video rental service called CinemaNow that will appear on connected TV sets. CinemaNow is scheduled to launch some time this summer.
And if all of that isn’t enough to make your head spin, get ready for “Google TV.” One of the newest digital video developments, it is described by Google as “an open platform that adds the power of the Web to the television viewing experience.”
Google TV will ultimately enable consumers to “search and watch an expanded universe of content available from a variety of sources including TV providers, the Web, their personal content libraries, and mobile applications,” says the company. Intel co-developed Google TV; Intel’s chief executive, Paul Otellini, believes, “The revolution we’re about to go through is the biggest single change in television since it went color.”
Google is sure to upset a few apple carts. Ralph Schackart, a digital media analyst with Chicago investment firm William Blair & Co., says Google TV “will enable premium movie sales from many [third-party] stores such as Amazon VOD, [Blockbuster On Demand, Vudu and Best Buy’s CinemaNow].” Schakart adds that film studios could potentially deliver Video On Demand (VOD) movies at a higher profit margin directly through connected TVs which could “take market share away from Redbox and Netflix.”
In a business that continues to rapidly evolve, Blockbuster may become a casualty, while an unexpected player like Google may succeed by transforming digital video delivery into something entirely new. As technology and consumer demand converge, we can be certain of one thing: renting movies and episodes of TV shows will simply never be the same.