DVD Rental Market Remains Brutally Commoditized

 |  Includes: NCR, SWY
by: Joel West

Last night I parked my car, walked by the empty shell where our neighborhood Blockbuster used to be, and went into our local Safeway (NYSE:SWY). My first stop was the Blockbuster kiosk inside Safeway, to rent a recent Harry Potter movie prized by our eldest.

Even before the store closed, we only rented about one video/year there. Instead, we have been renting from the two local kiosks — DVDPlay in Safeway and RedBox in Lucky. Unlike two years ago, now I can check the availability of movies at each kiosk before I left the house.

I suppose this is a small victory for Blockbuster, since this kiosk is now a “Blockbuster Express” kiosk since NCR bought DVDPlay 13 months ago and entered a joint venture with Blockbuster.

But I used to pay the local Blockbuster franchise $3-5 per rental, whereas the kiosk grosses $1 per rental. Hollywood is still garnering the largest share of the COGS, while meanwhile Blockbuster gets a small part of the money left after Hollywood, NCR and the grocery store get paid. (The exact financial terms between NCR-Blockbuster don’t appear in either company’s 10-K).

So realtime rental of physical DVDs remains brutally commoditized while some predict it will only get worse as the two major players duke it out.

Meanwhile, DVD downloads appear to be dominated by Netflix (NASDAQ:NFLX) (just as Apple (NASDAQ:AAPL) has two-thirds of the audio downloads). Much as the studios would like to commoditize all distribution, they have thus far failed to do so for digital downloads — the only channel that is likely to matter a decade from now.