Will VOD Kill The Video Store?

Aug 11, 2003  •  Post A Comment

Greg DePrez of Starz! is lucky he didn’t see stars after addressing last month’s convention of video software dealers. DePrez told the retailers that video-on-demand could someday replace their rental business. That’s the equivalent of going to Lennox Lewis’ house and telling him to hang up the gloves.
“I think I gave them a real wake-up call,” said DePrez, VP of the on-demand division of Starz!, the premium movie channel.
However, the video retail industry needs more than a wake-up call. It needs a cold pitcher of water poured over its head. Video-on-demand, which enables you to watch new video releases without waiting, is now available in more than 10 million cable homes. And cable operators are rolling out the service faster than Blockbuster can assess a late fee. Comcast, which has 22 million subscribers, said last month that it would offer VOD in 50 percent of its homes by year-end. It’s now in just 20 percent of the homes.
And there’s growing evidence that VOD users are saying bye-bye to Blockbuster. DePrez told me that 67 percent of Starz!’s on-demand customers say they are “likely” or “somewhat likely” to sharply reduce their video rentals. It makes sense. Why go to the video store if you can get the same movie without leaving the house-or risking the dreaded late fee? NetFlix, the online DVD rental service, which sends new video releases by mail, hasn’t accumulated more than 1 million subscribers just because it has a cute name. Americans are clearly looking to remove the hassle of watching movies at home.
I’m not suggesting that video stores should start padlocking the front door. The industry still has several major advantages over VOD. For instance, satellite TV operators do not have the bandwidth to offer a library of on-demand films. So VOD is largely a cable exclusive, which will slow its home penetration rate. In addition, because video retailers still outgross the home pay business by 12-1, the studios grant them a wider release window. Cable operators usually cannot broadcast a movie on VOD until at least 45 days after it’s available at the video store.
However, loyalties based on revenue do not run deep.
“The studios follow the money,” said DePrez. “When video-on-demand starts to bring in more money, the stores will have a serious problem. I think you’ll see the release windows closing soon.”
So what can the video rental business do?
DePrez said his research shows that VOD users are still buying DVDs, even though they are renting fewer. “There’s something about our country that we like to hold and feel things,” DePrez said. “People like to collect DVDs for their personal libraries. The video rental business may simply transform into the video selling business.”
Phillip Swann is president and publisher of TVPredictions.com. He can be reached at Swann@TVPredictions.com.