A Bid To Get Film Lovers Not To Rent

A Bid To Get Film Lovers Not To Rent

An excerpt from an article by Brooks Barnes for The New York Times

Hollywood has had enough of the sharp consumer shift toward renting movies through Netflix. Desperate to raise home entertainment profits, studios want people to start buying movies outright again, either digitally or on little silver discs.

A Flixster iPhone app. Flixster is the home of the new movie storage service UltraViolet.

But what’s the best way to force that pendulum to swing?

Every studio is grappling with that question, but one of the more aggressive and risky bets is being made by Warner Brothers. The studio, which is owned by Time Warner and commands a 20 percent share of the DVD and Blu-ray market, has decided to center its buy-not-rent hopes on Flixster, a small social network for movie buffs that it bought in May for about $75 million.

Warner last month introduced technology that makes Flixster the home base for a new movie storage service called UltraViolet. The free service, backed by most of the big studios, allows people to buy a movie once and watch it anywhere — on a computer, mobile device or Web-ready television. The strategy is to make owning more compelling than renting by loading digital portability into purchases.

“We must move consumers in mass numbers toward collecting movies digitally, and this is a path,” said Kevin Tsujihara, president of Warner Home Entertainment.

Retailers like Wal-Mart are working on UltraViolet access sites, but the only way to use the cloud-based service for now is via Flixster. Once consumers buy an UltraViolet-enabled DVD or Blu-ray set — say, “Harry Potter and the Deathly Hallows: Part 2,” which arrived in stores on Friday — they can set up an account on Flixster and type in a code provided on the disc packaging to claim their digital rights.

Warner and other studios are racing ahead for a variety of reasons. Purchases provide margins for the studios that are typically three times greater than rentals — and the rise of Netflix, Redbox and video-on-demand rental services have severely cut into purchases. And the down economy has also taken a toll. Sales of DVDs in the United States last year totaled $7.8 billion, a 43 percent decline from the industry’s 2006 peak of $13.7 billion, according to the media-tracking firm IHS Screen Digest.

At the same time, the sale of movies online, hampered by the lack of interoperability that UltraViolet is intended to fix, has been “a complete failure to date,” Mr. Greenfield said. In the first three quarters of 2011, electronic sales increased about 7 percent to $406 million, according to the Digital Entertainment Group.

Flixster will also transform itself into a film retailer, allowing users to buy digital movies through what it calls a “studio agnostic” storefront. That positions Flixster as a competitor to Apple’s iTunes and Wal-Mart’s Vudu, a strategy that some other studios see as foolhardy. What does it know about retail? Won’t retail partners — especially Wal-Mart — see the move as turf infringement?

Still, building a direct relationship with consumers was one of the primary reasons Warner bought the site. Flixster Collections allows the studio to see users’ movie purchases, for instance. If Warner sees that a user has bought five of its eight Harry Potter films, the studio can try to sell the other three. “It’s a huge opportunity from a marketing perspective,” Mr. Tsujihara said.

Flixster.com had only about 1.2 million unique visitors in September, according to comScore. Most of the company’s muscle comes from a free what’s-in-theaters-now app that works on Apple, Android and BlackBerry devices. The app, which Warner says attracts about 25 million unique users a month on a global basis, includes information from RottenTomatoes.com, the review aggregation site that is also owned by Flixster.

It is too early to judge the consumer response to Flixster’s UltraViolet push, but there are early indications of trouble among the geek squad. “Talk about a bad first impression,” wrote the tech blog GigaOm.

Warner’s analysis of early results is starkly different. “We are very, very happy with the redemption rates,” said Thomas Gewecke, Warner’s president for digital distribution. He declined to reveal numbers to back up the assertion, but he said Warner had plans to prod more people to open UltraViolet accounts on Flixster by offering a “starter kit” that comes with a choice of a free digital movie.

“This is only the beginning,” Mr. Gewecke said.

This is an excerpt. Click here to read the full article.