Blockbuster and the End of Movie-Buying

Something funny happened this week when I read the news about Blockbuster shutting down all of its stores. For a split second, I thought: “Wow, this means I can buy lots of DVDs at discount prices.” Then I remembered that I don’t own a DVD player anymore.

OK, that’s not entirely true. I do still have one, but it’s tucked away in the basement and hasn’t been used in years. Instead, I stream everything. Netflix, Hulu, and the occasional video-on-demand rental from services such as Vudu or Google Play have kept me busy enough to also make me forget about those few hundred DVDs I still own. And if I ever really want to watch something from a disc, I can always use my MacBook. But honestly, I don’t remember the last time I did that.

I know what you’re thinking. How does one guy’s habits make a trend? It’s true: My setup and my television- and movie-viewing habits may not be representative of mainstream America, but a closer look at the numbers shows I may not be that far ahead of everyone else:

First, there’s Blockbuster. The chain had 9,000 stores at its peak, with a total revenue of $5.9 billion in 2004. This week, Dish Network said it was closing Blockbuster’s remaining 300 stores. In the second quarter of 2013, Blockbuster’s revenue fell to $120 million.

Sales of physical media peaked a decade ago, with U.S. consumers spending $24.9 billion on DVDs, Blu-ray discs, and VHS tapes in 2004. In 2012 that number was down to $8.46 billion, according to numbers from the Digital Entertainment Group, a trade association that tracks revenue in this space. And hopes that Blu-ray sales and rentals would pick up while DVDs faded largely haven’t materialized.

Netflix’s DVD subscriptions also continue to decline, from almost 14 million subscribers in 2011 to just 7.15 million in Q3 of this year.

But the end of Blockbuster isn’t just about the decline of physical media. It’s about the end of movies as a product, as consumers quickly adapt to a world of digital access. And that’s a trend that should really scare Hollywood—much more than those going-out-of-business signs that are popping up at remaining Blockbuster stores all over the country.

Studio executives would like to believe they can get consumers to purchase and collect movies again if they add some bells and whistles, such as cloud access and exclusive online content. It’s the thinking behind UltraViolet, the more-or-less industrywide cloud storage locker. UltraViolet provides streaming access to digitally purchased movies as well as digital copies of plain old DVDs, and it’s being heavily promoted by both studios and retailers including Wal-Mart Stores, Best Buy, and Target. But two years after the service’s launch, only 15 percent of consumers even know about it.

That’s why Hollywood is also pushing to make digital purchases more attractive, even if that means sabotaging other business models. Prices for so-called VOD rentals (movies you can access for 24 to 48 hours) are going up, while digital sales (digital files that are yours to keep) are becoming cheaper. Revenues from digital sales are increasing as a result, reaching $274 million in Q3 of 2013, up from $178 million in Q3 of 2012.

The Digital Entertainment Group doesn’t differentiate between movie and TV shows when discussing digital sales, but an industry insider told me that 80 percent to 90 percent of all digital movie revenue comes from rentals, not sales. That’s impressive, until you compare it with the $25 billion consumers spent on physical media 10 years ago. And it becomes even less significant when you consider that TV show episodes are only available as digital sales. I regularly “buy” episodes of shows like The Walking Dead only to never watch them again, simply because there is no option to rent.

And then, of course, there’s online subscriptions, which dwarf the entire sector. Netflix alone clocked $700 million of digital revenue in Q3. Amazon’s contribution is a little harder to calculate, but the company said it added “millions” of paying Prime subscribers last quarter, thanks in large part to its video service.

All of this goes to show that the way in which people consume their movies is rapidly changing. Studios would like consumers to go back to a pre-Blockbuster era, when movies were bought like physical products at a price that came with a healthy profit margin. But Blockbuster’s demise is just one more reminder that physical products are disappearing—and with them, the concept of ownership.

Instead, consumers value convenience and access. The idea that you have to buy a movie to watch it may soon be as forgotten as that DVD player in my basement.

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