Online movie rental offers

The war for movie rental is on. Several players have released - or plan on releasing - their own offers: Amazon partnered with TiVo to have people download movies online on the TiVo. Apple lets people rent movies and watch them on either the iPod and the Apple TV. Netflix struck a partnership with LG electronics to roll out a set-top box that allows to download and watch movies. LG's device, which is rumored to cost $800, might be its BluRay / HD DVD player. Vudu sells a set-top box for $400 that lets consumers buy or rent movies from the Internet. Last but not least, cable companies already provide movies-on-demand offerings.

Plenty of competitors, who have all signed up all the big movie studios, but no clear winner so far. There are indeed two key factors, and no player masters them both.

The first key factor is convenience. People need to be able to EASILY choose movies and watch them ON THEIR TV. "Easily" means "without too many steps". So a solution based on connecting a PC to the TV through a third party device doesn't cut it. In other words, a convenient offer leaves the computer out of the picture. "On their TV" means "not on their iPod or iPhone" (got it Mr. Jobs?).

The second key factor is the price. Downloading movies right to your TV involves some electronic device that connects to both the Internet and the TV. Eventually TV sets might incorporate this feature, but we're not there yet. So in the meantime consumers need to buy that device. But the thing is, will they really want to shell out hundreds of dollars just for the "privilege" of renting movies online? On top of that, because all the solutions are proprietary, consumers might be reluctant to purchase a device before there is a clear winner. Even deep-pocketed Wal-Mart dropped its online rental service. Who wants to buy the Betamax of online rental? Considering this, there are several approaches:
- One way would be to lend the set-top boxes for free (or rent it a very low price). So far, nobody has gone that route for obvious financial reasons.
- A common way is to just sell the device and hope that a lot of people purchase it. This is what Vudu and Apple propose.
- A third way is to add the functionality to a device that consumers may already have. That's what Amazon and Netflix have done by partnering with respectively TiVo and LG. The downside is that this approach restricts the pool of target customers.

To recap:
- Amazon's offer: the price is right (provided you have a TiVo), but downloading the movie first on one's computer is cumbersome. Another downside is that TiVo users are already likely to have hundreds of TV channels with TV on demand. On the other hand, users who might be interested in online rental (e.g. people with basic cable) may not have TiVo.
- Vudu's offer is convenient, but $400 for the privilege of using their service is just too much. And because it's a startup company there's no guarantee it will still be in business a year from now.
- Apple has just upgraded a terrible offer into a so-so one. The apple TV's price has indeed been slashed from $300 to $230 and it can now download movies directly without involving a computer anymore. But you still have to purchase a device to rent movies. Also, will Steve Jobs manage not to alienate movie studios executives like he has done with their music counterparts?
- Netflix's offer is convenient but at $800, LG's BluRay / HD DVD player isn't exactly mainstream which highly restricts the pool of customers.
- So far the cable operators have a very compelling offer. It's convenient and consumers already have. The only downside is the reduced choice in movies the consumer can watch on demand.

So as we can see, nobody has the perfect angle. On top of that the movie studios seem to be ready to hamper rental download for fear of cannibalizing their DVD business. For instance, most online rental offers are around $4 per flick. That might not seem that much, but considering they don't have to ship anything it is. It is pretty much what Blockbuster charges, and much more expensive than Netflix. To make things worse, movie studios let new movies be available online after their DVD releases (30 days in the case of Apple iTunes) which hampers convenience. So one can wonder what market segments is targetted. Early adopters are ready to pay a premium but expect in return to have the best offer available, so will be frustrated if new movies are available after their DVD releases. Price-sensitive customers will want to stick with NetFlix.

There is however one area where online rental can shine: high definition. Even if the HD DVD / Blu-Ray war seems to be tilting in favor of the latter, very few people still have next generation DVD players. Online rental thus can cater to the millions of customers who have a high definition TV but are not sure yet what next-generation DVD player to buy.

But here is another approach that nobody has taken and which might work too: sell a set-top box that people will buy for something else than renting movies. I might sound like a broken record, but a device that turns your TV into a Web browser might do the trick. Any taker?