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Disposable DVDs Far from Being a Sure Bet
Sep 15, 2003
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Disposable DVDs may have a short shelf life in more ways than one. With major retailers such as Wal-Mart Stores Inc. already selling more cut-price DVDs, industry experts say it is far from certain whether consumers would be eager to shell out U.S. $7 for a DVD movie they can't keep or watch beyond a 48-hour deadline.

This week Buena Vista Home Entertainment, the home video arm of Walt Disney Co., began distributing a limited number of movie titles on the self-destructing DVD format -- known as EZ-D -- to a few U.S. markets.

The EZ-D comes vacuum sealed in plastic. It looks and plays like a regular DVD but once it is exposed to air, consumers have just 48 hours to watch it before it goes black and stops playing.
But as discount stores, supermarkets and even drugstores stock up on lower-priced DVD movies to lure customers in a downbeat economy, analysts see the EZ-D struggling from stiff competition.
Video-on-demand and pay-per-view movies from satellite or cable also pose a challenge to the EZ-D, whose key selling points are convenience, no late fees and no endless trips to return movies to the corner shop.

Dennis McAlpine, an analyst with McAlpine Associates, said the EZ-D was more "a learning experience for Disney than it is an opportunity to make money."

Blockbuster Inc., the world's leading movie rental chain, said it was skeptical that a DVD that goes blank 48 hours after being viewed would have much appeal. "We think the consumer proposition on this (EZ-D) disc is pretty tough," Blockbuster Chairman and Chief Executive Officer John Antioco told Reuters in a recent interview.

For decades, movie rental chains like Blockbuster have benefited from charging late fees on rentals. In some instances these late fees have doubled the cost of a rental, but provided no additional revenue to the studios that make the movies. As a result, Mr. McAlpine said, studios will keep trying to find alternative distribution channels, like the EZ-D.

According to Mr. McAlpine, the EZ-D underscores some of the frustration studios have about losing out to rental chains, who are now cashing in from selling movies in addition to renting, which generally has higher margins.

Even so, the home movie industry -- which includes rentals -- remains a lifeline for studios to make money after movies are off the theatrical circuit.

Adams Media Research estimates that the home movie industry represented about $12.3 billion, or 59 percent, of the $20.8 billion estimated domestic studio revenue in 2002. Studios typically enter into revenue-sharing pacts with movie rental chains.

In exchange for buying agreed-upon quantities of DVDs -- sometimes at reduced or no up-front cost -- rental chains then share agreed-upon portions of the revenue they derive from the movies with the applicable studio.

Mark Zadell, an analyst at Blaylock & Partners L.P., said that at about $7 a piece, the limited-life EZ-D could be seen by consumers as "a little expensive." In contrast, a typical 5-day rental costs about $4 at some movie rental outlets.
But in time, Zadell added that the EZ-D could well appeal to those looking for convenience, "depending on how pervasive it becomes."

Discounter Wal-Mart, which sells DVDs for as little as $5.88, better illustrates just how tough the days ahead may be for EZ-Ds.
The world's largest retailer now also rents DVD movies just like Netflix Inc., which pioneered Internet-based movie renting for a monthly fee with no due dates or late charges. (Reuters)

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