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Disc-Based Entertainment Won't Go Quietly

10/26/2011 01:46:00 PM

All the fuss over Netflix’s recent tribulations with disc-rental price increases and the moves by competitors like Dish Network’s Blockbuster unit to capture its disgruntled subscribers (800,000 by last count) has made one thing clear — U.S. consumers are not ready to abandon their disc-based entertainment systems just yet.

Prior to announcing the price move and business separation plans, speculation had been brewing that Netflix was looking for an exit strategy on disc rentals to cut costs and strengthen its competitive status as a streaming service.

Company CEO Reed Hastings seemed to confirm that sentiment with his announcements this summer to spin off the disc business into a separate and more expensive Qwikster service, which got a lot of DVD and recent Blu-ray Disc player purchasers nervous.

Hastings eventually apologized for and canceled the Qwikster plan, adding that he had underestimated the continued value of disc rentals to Netflix customers. But out of necessity, he left the $7-a-month price increase in place on disc rentals.

In hindsight, a simple explanation that changing policies and costs by the U.S. Postal Service and movie studios had forced the increase probably would have been a much simpler pill to swallow and would have shifted the blame to the rightful parties. But that’s spilled milk now.

It cost the company 800,000 subscribers and created concern and ill will among the remaining 24 million.

This isn’t hard to understand.

Blu-ray may seem passé in this ever-changing technology industry, but in reality it is still a relative newcomer by CD and DVD player standards and has just recently hit price points that make mainstream purchasers believe. The company’s DVD catalog also offers many films that are not available via its streaming service. And virtually every U.S. home now has at least one DVD-compatible player.

Consumers want to continue to enjoy their disc players for another seven to 10 years, at least, and they’ve watched Netflix and others force the neighborhood mom-and-pop disc-rental stores out of business all around them.

For many without a nearby Blockbuster outlet or a video-rental kiosk (and don’t get me started on how unsatisfying that experience can be), disc-by-mail rental services are all that remains for a continuing supply of content. Let’s face it — no one wants to have to purchase every disc they want to view.

Hastings and others are right that streaming will be the future of home entertainment distribution for impulse viewing, but there is still a ways to go before all of the kinks are worked out of that proposition, and a sizeable percentage of people still enjoy buying and renting physical media for a variety of reasons — including a resistance by many to adding broadband service.

More importantly, renters like discs for their superior ability to stream the highest quality audio and video content and to accommodate new formats like 3D.

Then there are those people who just purchased a Blu-ray player in the last couple of years and aren’t ready to see that investment relegated to door-stop status so soon.

According to the Digital Entertainment Group’s midyear report on home entertainment sales, the number of Blu-ray homes grew 16 percent over 2010 (inclusive of BD set-tops, PlayStation3s and HTiBs) in the second quarter, bringing the total household penetration of all Blu-ray-compatible devices to more than 31.6 million U.S. homes. This makes Blu-ray one of the fastest-growing new technologies in the home entertainment industry.

In this editor’s opinion, if Hastings wants to quickly right his listing ship, he will find a way to reinvigorate and improve the disc-rental component of his service and show subscribers that the company will fight for the survival of physical media.

He can start by actively promoting and clarifying that the company has a lot of recent theatrical releases still available by disc before they reach the streaming library and will continue to link the businesses in an even more simplified, compelling and easy to understand pay-one-bill approach. He might even want to use his still sizeable subscriber base to pressure studios into shortening the theatrical release windows for disc releases via Netflix.

Hopefully that will lead to a longer future for both disc-based entertainment and the Netflix service.

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