Warner Bros. Revolutionizes Movie Rentals

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Here is something very interesting. Warner Bros. is trying out offering movie rentals via Facebook. Using Facebook’s own Facebook Credit payment system, the company is offering online movie rentals of The Dark Night.

Online Business StrategyWhat makes this new business strategy so interesting is that it completely cuts out the middle man companies that Warner Bros. currently depends on to rent it’s films. The idea is that instead of going to Netflix or Redbox to rent a movie, customers could do so directly through their Facebook account. Assuming the user already has Facebook Credits or a credit card linked to their Facebook account to do so, paying for a movie rental is as easy as clicking a button.

This is an important step because it prevents the possible hodgepodge of payment systems that would arise if each studio rented its movies directly from their own websites. Facebook credits are not necessarily used widely even by the the website’s own users, but Facebook is working hard to change that, and once a customer makes their first rental, subsequent rentals have virtually zero barrier.

The success of Warner Bros. Facebook gambit will be limited, however, because the studio refuses to face the realities of movie rental. Pricing is set at 30 Facebook Credits, or approximately $3, which is the same price for a DVD movie rental at the now bankrupt Blockbuster video stores.

Renting the movie is actually cheaper if you go through the middle men rather than buying direct, a completely upside down pricing system.

Warner Bros. is overvaluing the convenience of renting online through Facebook and charging a premium for it, rather than following the pricing model of every single successful online venture, which is to make it cheaper online. Customers have no incentive to rent through Facebook rather than through Comcast On Demand or other services, and customers actually have a disincentive compared to renting via Redbox or Netflix.

No doubt, the company’s strategy is to offer new releases directly to customers first, before they can be rented via Netflix or Redbox, thereby justifying the premium charged on the rental. Of course, in order for that strategy to be successful, Hollywood would have to generate movies that customers can’t wait 90 days to rent, and those don’t seem to be too common these days.

Warner Bros. Online Movie Rental Strategy

In the fantasy world that movie studio executives live in, they will be able to build up a large enough distribution channel for online movie rentals via Facebook that they won’t have to do business with Netflix or Redbox at all.  Unfortunately, in order for that strategy to work, the company would have to understand the reality of business strategy.

As everyone else seems to understand, the way you build a large base of users is to aggressively price your product. Only AFTER people have fully invested in your service and seen your full value proposition can you squeeze out competitors. Apple’s iTunes dominates because of its low-price and ease of use.  Amazon’s Kindle platform has grown to dominate the market by offering lower priced electronic books.  Google’s Gmail email service displaced established market leaders by offering more storage space at a lower price (free) than the competition.

At this price point, there is no incentive for customers who don’t already have and use Facebook credits to put the effort into learning about them and getting the setup, and for anyone who lives within a 5 minute drive of a Redbox, there is no incentive to forgo the quick trip to rent a movie in person, and there is most definitely no incentive for a cable customer to setup and use online movie streaming rather than just click a button for their cable company’s pay-per-view service.

With the current terms, the Warner Bros. online movie rental scheme will fail, but the revolution may have begun anyway. Smarter studios will offer their movies for lower prices and Warner Bros. may actually learn that they can make more money renting many movies for $1 per rental than they can by having 10 percent as many rentals at $3 per rental.

Until then, look for the real growth in online movie rentals to come from Netflix and Amazon. In the offline world, Redbox and the copycat Blockbuster Kiosks will continue to dominate.


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One thought on “Warner Bros. Revolutionizes Movie Rentals”

  1. rick says:

    Sound commentary and analysis. I feel the big media groups just do not “Get it.” The economy is tanking and they want to make MORE money for the 90% tripe they trowel out. DRM will be the death of big media. The future is a media subscription like Netflix… Big Media are in good hands… They hired Sen. Chris Dodd, (US Senate Banking head). He will take good care of them, just like he did for Fannie Mae and Freddie Mac…LOL! It will be fun to watch the clay footed giants beat each other to a pulp in the death spiral.
    The model has changed and somebody forgot to tell big media…and some software companies…

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