The State of Online (and Offline) Rentals

20 09 2006

Coming to San Diego next week is DemoFall, a great launch and demonstration platform for emerging technologies. If you will be in the San Diego area and are an entrepreneur, investor or technologist, I’d love to meet up with you and discuss anything. Contact me from my About Me page.

As a prelude to DemoFall, I’d like to cover the State of Online (and Offline) Rentals – I’ll cover only DVDs here for brevity. It’s a subject near and dear to my new startup iLetYou because it’s something we’re aiming to change for the better…

Big Rent By Mail

NetFlix and Blockbuster are the clear dominating companies in this space; NetFlix even more so than Blockbuster. NetFlix expects as many as 20 million subscribers by 2012, up from 5.5 million in 2005. Several stock analysts have recently been reiterating NetFlix as a ‘buy’ rating. Clearly, a lot of people believe this market won’t be going anywhere for a while.

The biggest complaint is throttling, but this is just a reality of business. NetFlix loses money on the power renters and they’ve devised a way to somewhat combat that. The methods used may be subject to debate, but not the overall motivation for throttling’s occurence.

I’m personally a big fan of these models. The ‘all you can eat’ approach to movie viewing has clearly struck a cord with the consumer, along with the overall service, fast delivery and sheer inventory of NetFlix.

Small Rent By Mail

In this environment, it is difficult for smaller competitors to compete, so you see fewer outfits than you would originally expect. GreenCine is a good example of a competitor who have done well for themselves – filling a proper niche does work.

The big guys are entrenched with significant reach, technology and fulfillment resources and marketing budgets. It does beg the question: who’s helping the mom-and-pops succeed? Is there not a better way for a targeted niche store (either genre-based or location-based) to succeed?

The Video Store

Unfortunately, the video store is suffering in the well-documented clash with rent by mail outfits. Some of it is well-deserved. The big chains BlockBuster and Movie Gallery provide a convenience factor that is showing itself to be only of marginal value to the consumer. If you don’t provide the value-add for the added cost of all that physical space and take advantage of more efficient delivery models, you’re going to find it tough going. However, I still believe in the mom-and-pop store, especially to serve the personal and quirky tastes of movie viewing.

There has to be a way to let the video stores that want to fill their niche (again either genre-based or location-based) do so as well.

Digital downloads

As has been covered multiple times (Washington Post has a particularly negative view of the experience), announcements by Amazon.com, Apple and Wal-Mart (details pending) are being heralded as the replacement mode of movie viewing. In a nutshell, this hasn’t come to fruition – the experience is inconvenient (long, unreliable downloads), expensive (sometimes more than a DVD), less rich (less than DVD quality, no special features) and not portable (DRM restrictions and no DVD burning).

Apple announched over 125,000 downloads in the first week after announcing iTunes movie downloads, impressive given the availability of 75 Disney-only titles. Another widespread criticism is that titles are only available to buy, completely omitting rental options. It’s a consensus that rentals and one-time viewing are here to stay and this seems like a mistake.

No one disagrees that this is the future, but as of right now, it looks like the studios don’t want this to happen quite yet, Wal-mart certainly doesn’t and the consumer won’t come on board until the entire process becomes easier and moves completely to the living room.

My new startup iLetYou is coming soon. If you’d like to see how we’ll fit into this picture, please sign up for a Beta invitation.

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2 responses

20 09 2006
ruhi

Hello,

I came across your blog through the tag “business”. I am of the opinion that while Netflix has a very good inventory, their delivery is actually not all that fast. I am a subscriber to their service. The more you order, the slower is your delivery. This is because it costs them as much as 85 cents in postage to send you each movie. So if they see you ordering about 2-3 movies a week (depending upon your plan) they will “Accidentally” cause a delay in your shipment, or they might show that its been shipped, but you wont receive it before atleast 2 business days. After they receive it, they will ship you another movie in replacement, but most of the times, they dont ship it before the next business day. So, if you are in a 2 movies at a time, then its very rare that you will be able to “eat up” more than 2 movies every week. I lose a lot of time in shipment….

20 09 2006
rodgerv

Hi Ruhi,

Indeed, delivery time can be cited as another possible weakness of the unlimited plans. Even if you’re not experiencing what seems like a limiting factor, you sometimes don’t know how quickly you will get your movie. One day turnaround is the goal, but as you say, it doesn’t always happen that way.

What if you have a better estimate of time? If there’s a way to ensure the sweet spot of ‘next day delivery’, I think that’s something that would be interesting for consumers.

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