How Hollywood is Killing Itself with the “Rental Window”

A few years ago, someone in Hollywood got scared. They started looking at the volume that DVD/Blu-Ray (“shiny media”) movies were selling at, versus the volume movies were selling to shiny media rental stores and Netflix. And that someone’s reaction? The most idiotic idea I’ve ever seen (I even think it was dumber than DIVX). The “28 56 Day Rental Window”.

I said it was stupid then, I’ll reaffirm it is stupid now. But just wait – it’s getting dumber. You see, almost two years ago, most of the major studios got together, and set up the idea that movies would be available for rent 28 days after they had released for sale. After gloating that they had movies for rent when Netflix and Redbox didn’t, even Blockbuster rescinded and agreed to the 28 day window a year ago – turns out that Blockbuster, amid hard financial times, was paying dearly for the privilege of 28 days of rental window that their competitors didn’t have.

Well, here we are just over a year later, and those economic powerhouses in Hollywood have decided that the artificial scarcity created by the 28 day rental window worked so well (actually, it hasn’t), they want to double that mofo.

You see, the idea here is that there are four windows when you can see a movie (in order):

  1. In the theater (you buy a ticket)
  2. In your home (you buy the movie)
  3. In your home (you rent the movie)
  4. In your home (it finally hits Netflix streaming)

Hollywood of course would love it if you did both #1 and #2, it never really liked #3, and it frankly hates #4.

Hollywood makes the most when you buy the movie, and of course theater tickets have the opportunity to make them an obscene profit. When a movie hits the theater, it has the optimal marketing buzz it will ever have. From the time it hits, it may crescendo and hold for a bit, but within a week for most movies, it’s a downward demand trend.

Now the idea is that when the movie hits the movie stores, say, 3-6 months later, that they can initiate a secondary marketing machine and induce sales by creating artificial scarcity. The thinking being, “customers can’t rent it, so they’ll buy it instead”.

No, you idiots. That’s not the way it works. We’re in a recession, bordering on a depression. Everything that isn’t food, water, or shelter, for most of us, is a discretionary purchase. Offering a DVD for $20-$50 and telling me I can’t rent it works like this:

  1. I like a movie. I go see it in the theater. Sometimes I can’t make it, so I plan to watch it when it comes out on video.
  2. I hear the movie is coming out. I consider renting it.
  3. It’s available – I know, because you started marketing it again – I go to see if I can rent it at Redbox or Netflix (or gasp, even Blockbuster), but no. In 28 (60) days I can, or I can buy it now for, say $35.
  4. I “walk out” of the movie store, not considering it again until months or years from now when it’s either on Netflix, Netflix streaming, or iTunes rentals. But if I decide to even ever view it, I likely do it by accident. Because there is no tertiary “It’s available for rental” window that really echoes like the first two marketing windows.

With the rental window, you’ve single-handedly killed the demand for rental for your partners who ARE willing to buy your movies with regularity. Stupid. You’re killing your partners.

I’m going to let you in on a little secret here, Hollywood, you can’t convert a renter into a buyer. Yup. It’s true:

  • Someone who rents a Porsche isn’t really that likely to buy one.
  • Someone who rents a weekend house at the beach isn’t really that likely to buy one.
  • Someone who rents a movie for $1-$5 per night isn’t really that likely to buy one.

You can lie to yourselves all you want. But you are killing yourselves. If you put the window at 28, 56, 60, 120, 800 days… it doesn’t matter. You’re only cutting of your own nose to spite your face. You can’t create a sales market from rental customers, and every move you do that harms Netflix, Redbox, or even Blockbuster, hurts you far more than it hurts us. Your rental channel partners (and studio partners) are the best allies you can ever hope to have. But no, you’re killing your own channel. You’re killing partners who will pay you for your content. Fine, put yourselves out of business in the name of greed.

This is the same type of brilliant economic game that countless banks thought they could get away with by giving giant mortgages out to consumers who could never pay them off (and strikingly similar to what the music industry went through). It doesn’t work. Learn how your markets work, charge what customers are actually willing to pay, or you will fail, and you will die.

The ultimate irony is, the studios, failing at basic economics, funnel money into our government, to get ass-backwards, unnecessary laws like SOPA (or some less aggressive, but still unnecessary) law passed because they’re terrified of piracy. You can’t have your cake and eat it, too, Hollywood. If you want people to buy movies, market well, and charge what the market will bear. If you create artificial scarcity, and you overcharge for your content, you’re knowingly encouraging piracy. Why, some might even say that by simultaneously backing SOPA, forcing our government to do their – incorrect – dirty work for them, and pushing for a 56-day rental window, Time Warner is doing just that. Simply evil – and it won’t work out well for them in the long run.

But for now, they’ll grease the right palms to get SOPA passed. They’ll keep issuing takedowns. They’ll keep trying to charge more than the market will bear for content, in an ever-flailing vicious circle.

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