Bye, bye Blockbuster: Video on demand will take over

Like something out of a tragic film, Blockbuster, the once-popular video rental company, is facing the reality that it may have to file for Chapter 11 bankruptcy.

On the surface, Blockbuster’s imminent erasure from the media rental business may seem like just another casualty of the recession. But more than likely, the factor which has contributed most is the change in the viewers' habits. The causes of the shift are explained in an article in the New York Times which quotes the senior VP at Comcast, Derek Harrar: “'Improvements in technology, the instant availability of the most recent box-office hits and thousands of library titles have fundamentally changed viewing patterns.'” Because the way information sharing is constantly changing, media companies have to keep up with advances in technology and viewing trends. While DVD rentals and sales have declined steadily, just last year, viewing of on-demand videos rose 20%.

The main concern for Blockbuster and the movie companies: turning a profit. There are two ways to make money in the media business: (1) to sell units (2) to sell advertisements.

Movie studios make their money by selling theater tickets and DVDs. Though the movie production industry is not ailing as much as Blockbuster, the drop in DVD sales motivated eight studios to collaborate in a cross-medium advertising campaign to promote on-demand video services called “The Video Store Just Moved In." Rather than pushing the public to purchase DVDs, movie studios are taking advantage of the new market niche created by the change in viewer behavior by marketing the on-demand service.

It may seem contrary to convention that competing companies would work together on this campaign; yet the companies are working toward a common goal and accomplishing more collectively than any single company could on its own. If the campaign causes an increase of on-demand views, they will all benefit. After all, most viewers don't care who produced the movie, so long as it is entertaining. Disney and Paramount, did not participate in the campaign; its likely that their movies will receive more on-demand views as a result of the ads even though they didn't pay up.

The on-demand video format is beneficial to the advertising mediums (as far as the promotion of the format), the movie companies, and the viewers.

A big portion of the $30 million movie studios are spending on the campaign is being raked in by cable companies (which make most of their money by selling the attention of viewers to the highest bidder, ususally without regard to the content of the commercial). To maximize the impact of their advertising investment, movie studios arranged for the TV advertisements to be strategically debuted during the prime-time broadcast of American Idol.
Even though DVDs are very inexpensive to produce, movie studios keep a greater percentage of profit from on-demand usage. Since the movie rental "middle man" (i.e. Blockbuster) is eliminated, in on-demand transactions 65% of profits are returned, in comparison to 25% from the traditional in-store rental.

The main benefit of the on-demand format for consumers is its convenience. Scrolling through a list of titles requires less time and energy than going to the video rental store to pick up a DVD; plus there is nothing to return (which means no late fees). Also, most new releases are available on-demand the same day the DVDs are released in the store. Although this practice has not been blamed for the decline in DVD sales, it provides an alternative to purchasing or renting a hard copy DVD.

In my experience with on-demand services, I've found the title selection to be limited. Certainly, this is an issue that will be eliminated as the services expand. Even though the number and genres of movies available on demand may be more limited than the selection available at a video store, growth of on-demand services has not been hindered. When it comes to media, consumers are conditioned to be satisfied with whatever is on TV, simply because TV watching is a habitual activity. If given the choice between going out to buy or rent a DVD and choosing from a more limited on-demand list, they're going to choose what is easiest.

The promotion of the on-demand format in advertisements on TV, in print, and online is sure to continue the trend toward its increased usage and the bankruptcy of Blockbuster.

~M.D.W.