A feud that flared up this week over the DVD release of "John Carter" has demonstrated the growing tension between rental giants Redbox and Netflix and Hollywood movie studios desperate to prop up their shrinking home entertainment businesses.
Disney this spring informed all of its rental partners that it would no longer provide them with DVDs until 28 days after the discs go on sale, according to people with knowledge of the situation not authorized to discuss it publicly.
Universal Pictures and 20th Century Fox have taken similar positions in hopes of steering consumers away from discount rentals — Redbox charges just $1.20 per night, while Netflix monthly prices start at $7.99 — and toward more profitable DVD purchases and video-on-demand rentals.
The studios believe that fans eager to see a movie right away will pay $5 for a video-on-demand rental or about $20 to buy a DVD if they have no less-expensive options. More price-sensitive renters, they believe, will wait.
But while Fox and Universal reached agreements with Netflix and Redbox, offering them significant discounts in exchange for accepting the 28-day window, Disney did not follow suit. It wanted more favorable terms than its competitors had received, terms to which Netflix and Redbox would not agree, the knowledgeable people said.
Instead, Redbox is stocking its kiosks — and Netflix its warehouses — by purchasing the discs from other suppliers, including stores like Wal-Mart and Target.
The strategy can be costly: DVDs typically cost between $15 and $20 at retail, plus the cost of sending out buyers, compared with the $6 to $12 that Netflix and Redbox pay when they buy directly from studios.
But it gives the rental giants leverage to use against studios like Disney. According to the Redbox website, "John Carter" will be available to rent by Tuesday, just one week after it hit retail stores. Some Netflix subscribers have already received the "John Carter" DVD in the mail.
"These companies own the rental market, which gives them a lot of power," said Eric Wold, a media analyst at B. Riley & Co. "Eventually there will have to be a compromise."
Warner Bros. has been engaged in a similar standoff with Redbox since January, when it extended its DVD rental window to 56 days. But the kiosk company's website boasts that it will have Warner's"Journey 2: The Mysterious Island," which also came out on DVD this week, by Tuesday.
Disney Chief Executive Robert A. Iger first indicated that his studio might change its rental policy during a conference call with analysts in February.
With falling DVD sales contributing to a 16% decrease in revenue at the movie studio the previous quarter, Iger said it was important to "take a step in the direction of further protecting the initial window of the sell-through."
Disney previously offered its DVDs to Redbox the same day they went on sale at retail stores and online. Iger said that at the time the studio's top executives were "not seeing any effect from these dollar-rentals on their sell-through business."
That was in part because Disney's most successful films were largely family fare, much of it animated, that people preferred to purchase so their children could watch them over and over.
But the studio's slate now includes some PG-13-rated pictures, including "John Carter," the recent box-office blockbuster "The Avengers" and a number of upcoming Marvel superhero pictures that people may want to see only once.
"Disney's in a new situation with movies that could rent well," Wold said.
Home entertainment market veterans, speaking on condition of anonymity, said Redbox and Netflix probably will be able to survive Disney's changes because, while they are paying more to obtain the discs, they have the advantage of buying the exact number they need and not having to stock other films from the studio that they don't want. Long-term agreements typically obligate rental companies to buy a certain number of copies of every movie the studio releases.
The dispute further complicates for consumers the already fractured market for buying and renting movies once they have appeared in theaters. Different studios have varying policies on when movies are available to buy or rent online, in stores, from kiosks or via subscription.
Rental chain Blockbuster is also subject to Disney's new 28-day delay and is, like its competitors, stocking its shelves by buying "John Carter" from other sources and not the studio itself.
