VOD vs. DVD

When it comes to the competition between DVDs and Video on Demand (VOD) the two forces of Increasing Returns and the Red Queen seem to be weighing in with equal significance. Both competing technologies are currently present on the market yet VOD has managed to capture both the people’s imagination and the larger market share. This metamorphosis follows suit with Thornburg’s (2014b) characteristics of the Red Queen force. The table below was adapted from a timeline of milestones created by the Entertainment Merchants Association (EMA, 2015). I chose a few of the salient events to verify that both of these technologies entered the market at approximately the same time and forced similar competing technologies to disappear from the market. 

DVD-Blu-ray Rental	Industry Disruptions	Video-on-Demand
2000 – Movie Gallery reaches 1,000 stores. 2000 – Babbage's Etc. becomes GameStop, Inc. 2000 – Video sell-through revenue totals $8.6 billion, surpassing theatrical box office ($7.7 billion) for the first time. October 2000 – Sony launches PlayStation 2, the first video game console to incorporate DVD playback capability. November 2001 – Microsoft launches the second DVD-based video game console, Xbox. March 16, 2003 – DVD rentals generated more revenue than VHS rentals during the preceding week, marking the first time that weekly DVD rental revenues exceeded VHS rental revenues. For the week ending March 16, 2003, U.S. DVD rentals generated $80 million in revenue, and VHS rentals yielded $78 million, according to VSDA VidTrac. The milestone occurred six years to the month after the launch of the DVD format in the U.S. 2003 – Annual DVD rental revenue exceeds VHS rental revenue for the first time. Consumers spent $4.38 billion renting DVDs and $3.82 billion renting VHS cassettes during the year.	February 2002 – MGM becomes the first major studio to permit its movies to be made available online on a pay-per-view basis, through CinemaNow and Intertainer. One of the first two titles offered is What's the Worst That Could Happen? On CinemaNow, the movies are available both as downloads and streams, prices range from $1.99 to $4.99, and the movies are available to viewing for 24 hours after purchase. 2002 – TNR Entertainment Corp. is formed and soon begins offering DVD rentals through self-service kiosks in supermarkets and other venues under the brand name "The New Release." March 27, 2006 – Trans World Entertainment acquires Suncoast Motion Picture Co. April 2006 – The Video Software Dealers Association merges with the Interactive Entertainment Merchants Association and the combined organization renames itself the Entertainment Merchants Association. October 10, 2005 – GameStop and EB Games merge, creating the world's largest video game specialty retailer January 25, 2006 – Redbox enters into an agreement with Stop & Shop and Giant Foods to install DVD rental kiosks in their supermarkets.	2000 – Netflix offers Blockbuster chance to buy the DVD rental company for 50 million. They pass. November 2002 – MovieLink launches its Internet video-on-demand service. January 15, 2004 – CinemaNow becomes the first service to offer "electronic sell-through," motion pictures that can be downloaded for unlimited viewing on the computer to which they are downloaded. May 2004 – McDonald's launches "Redbox" DVD rental kiosks, offering $1 per night rentals, at its restaurants in the Denver area. August 2004 – Blockbuster launches its online DVD rental service, "Blockbuster Online." February 2003 – Netflix surpasses 1 million subscribers. June 2005 – McDonald's expands its Redbox DVD kiosks to the Houston, Salt Lake City, Minnesota, and western Wisconsin markets. January 25, 2006 – Redbox enters into an agreement with Stop & Shop and Giant Foods to install DVD rental kiosks in their supermarkets. Q3 2010 – For the first time, more discs were rented via kiosks than in traditional brick and mortar stores, according to The NPD Group. November 2010 – Netflix introduces a “streaming only” subscription, for $7.99 per month. February 2011 – Redbox achieves a 35% market share and becomes the leading renter of discs.
RED QUEEN  and  INCREASING RETURNS DEMISES
2004 – Viacom divests itself of Blockbuster. June 12, 2005 – Movies Unlimited, which claimed to be the first store specializing in video, closes after operating in the same location for 27 years. The owner decided to close when the building was sold. The business continued as a mail order enterprise. December 22, 2006 – Following a liquidation sale, Tower Records & Video ceases operations. January 4, 2008 – Warner Home Video deals what will be the death blow to the HD DVD format when it announces that it would abandon HD DVD and release high-definition videos exclusively on Blu-ray Discs. February 19, 2008 – The high-definition disc format war ends as Toshiba announces that it will no longer manufacture HD DVD players. June 2010 – Hampered by debt it incurred to acquire Hollywood Video, Movie Gallery – which operated more than 4,700 stores at its peak – liquidates its stores and ceases operation, leaving Blockbuster as the sole national brick and mortar rental chain. April 6, 2011 – Dish Network acquires Blockbuster, which had filed for Chapter 11 bankruptcy protection in September 2010. June 12, 2005 – Movies Unlimited, which claimed to be the first store specializing in video, closes after operating in the same location for 27 years. The owner decided to close when the building was sold. The business continued as a mail order enterprise. November 6, 2013 – DISH Network announces that it is closing all remaining corporate-owned Blockbuster stores. Rentals ceased on November 9, all stores were liquidated by January 12, 2014. 2014- DVD-Blu-Ray Sales decreased 11% to $6.93 billion,     2014 Digital VOD Sales increased 16% to $7.53 billion. (Willens, 2015).

Though several smaller players such as Movies Unlimited, Toshiba, Hollywood Video, Tower Records & Video, and Dish Network fell by the wayside, Blockbuster was perhaps the biggest and hardest to fall. Their tumble likely began as early as 2002 when major motion picture studio MGM permitted its movies to be made available online on a pay-per-view basis. That point is highlighted on the chart as it seems to be a pivotal point for the acceleration of VOD. Viacom’s 2004 divestment of Blockbuster and their 2010 Chapter 11 bankruptcy forewarned the final closing of all stores and liquidation in 2014. Blockbuster’s lack of vision on where the video industry was going precipitated one of worst investment decisions ever. They were offered a deal to purchase the then DVD-by-mail rental company for $50 million which now has a market cap of $19.7 billion (Graser, 2013). They passed and the rest is history.

The Force of Increasing Returns is also indicated as the rise or fall of the technologies discussed here centers around their profitability. Credited with influencing and describing the modern theory of increasing returns, Brian Arthur, depicts the force as “the tendency for that which is ahead to get further ahead, for that which loses advantage to lose further advantage” (1996, para 2). In 2004, the DVD marketplace hit a peak of $21.9 billion in revenue, representing 96% of home entertainment spending in that year (Bradwell, 2014). Bradwell reveals research published by the Digital Entertainment Group (DEG), indicates full year sales of DVDs and Blu-ray Discs declined nearly 11 percent in 2014, to $6.93 billion, while digital spending, which includes subscription streams as well as video-on-demand services, shot up more than 16 percent, to $7.53 billion (2014). Generator Research, an industry research firm feels this trend of technology and the internet transforming media, is set to continue. It predicts that the sale of DVD and Blu-ray will decrease around 38% between 2014 and 2018 (Bradwell, 2014, para.4). 

                  Image-Gabriel Dusil

Increasing returns will in my opinion, have the strongest impact on the future of VOD. One might hope that consumer preferences would wield more persuasively, but one might be disappointed when profit is involved. I mean, we are, talking about billions of dollars in annual revenue. In analyzing the milestones of the industry, MGMs 2002 move to allow the release of its movies expedited the acceleration of VOD. The movie studios control the timing of the release of those movies to DVD and VOD services. As indicated in the graph above, release windows were initially anywhere from 4- 24 months depending on the venue to which they were released.

According to BTIG research analyst Richard Greenfield, by 2006, the typical window between DVD and VOD release was 30 to 45 days and down to 21 days by 2009 (Lawler, 2010, para 2). He suggested in 2010 that the window was closing because the studios get a greater profit margin on releases with shorter windows.  The math is pretty easy to do. Netflix rents DVD’s for as low as 8.99 per unlimited while Redbox does it for $1.00. An average VOD is about 4.99. There is more profit on traditional VOD units where studios get 60% of the revenue and even more on the same day releases we see today where studios get 70% (Lawler, 2010, para 4). Decreasing returns at the box office has prompted Paramount to announce that it is dropping its release window to two weeks according to the Wall Street Journal (Schwartzel and Fritz, 2015). 

McLuhan’s Laws of Media identifies four simultaneous stages that emerging technologies go through as they are incorporated into society. Every technology advances, obsoletes, and retrieves some other while it also meeting its end in a reversal process (Thornburg, 2013). This tetrad shows where I’d place DVDs and VOD in respect to the stages. I see VOD strengthening exponentially with a possible reversal into more of the interactive elements of the interactive on-demand video. Immersive experience capacities could possibly evolve in further development.

References

Arthur, B. (1996, July 1). Increasing Returns and the New World of Business. Retrieved from https://hbr.org/1996/07/increasing-returns-and-the-new-world-of-business

Bradwell, J. (2014, August 12). What's the State of the DVD Market? Retrieved fromhttp://www.vodprofessional.com/features/whats-the-state-of-the-dvd-market/

Graser, M. (2013, November 12). Epic Fail: How Blockbuster Could Have Owned Netflix. Retrieved August 6, 2015, from http://variety.com/2013/biz/news/epic-fail-how-blockbuster-could-have-owned-netflix-1200823443/

Industry History. (2015). Entertainment Merchants Association Retrieved from http://www.entmerch.org/industry/industry-history.html

Laureate Education. (2014b). David Thornburg: Six forces that drive emerging technologies. Baltimore, MD.

Laureate Education (2008a). Thornburg, D. D. Emerging technologies and McLuhan's laws of media. Lake Barrington, IL: Thornburg Center for Space Exploration.

Lawler, R. (2010, August 20). Studios Giving Up on DVD, Pushing VOD Instead. Retrieved from https://gigaom.com/2010/08/20/studios-giving-up-on-dvd-pushing-vod-instead/

Schwartzel, E. & Fritz, B. (2015, July 8). Paramount to Speed Up Home Release of Movies. Retrieved from http://www.wsj.com/articles/paramount-to-break-hollywoods-home-video-window-1436377631