OPINION: Content control

Blockbuster plans to relaunch its Movielink download service this summer, but CEO Jim Keyes has already acknowledged it will be missing a crucial element: a subscription offer.

In a conference call with analysts Thursday to discuss Blockbuster’s first-quarter earnings, Keyes admitted that the retailer has had little luck so far securing the rights necessary to offer an online subscription video-on-demand service.

“Subscription is an important missing piece,” Keyes said. “We want our digital business to basically mirror our core business, with the ability to buy, rent and subscribe electronically.”

Blockbuster is hardly alone.

Arch rival Netflix—arguably ahead of Blockbuster at this point in online offerings—has had no greater luck cobbling together a comprehensive subscription VOD service. It’s video streaming service gives subscribers on-demand access to nearly 10,000 titles but not the new releases most consumers crave.

Once those titles do become available to Netflix, they don’t all remain permanently available to subscribers. Many disappear from Netflix’s subscription service during the pay-TV window because of their distributors’ exclusive deals with HBO, Showtime and Starz!

CinemaNow has probably the largest online library of on-demand titles in the U.S. but it too lacks a subscription program.

The closest thing to a comprehensive online subscription VOD service is Starz Entertainment’s Vongo. But it too faces the pay-TV blackout on a large part of its library—a particularly ironic twist in Vongo’s case given that Starz! was the first pay-TV service to negotiate S-VOD rights as part of its exclusive pay-TV deals.

So what, you might ask? There are plenty of other ways to get movies online, some of them even legal. The studios don’t owe the retailers a living. If Blockbuster doesn’t like the terms being offered, it doesn’t have to take them.

But the studios do owe it to themselves—not to mention their shareholders—to nurture an orderly and profitable digital distribution business. And they’ve been wrong before about the positive role retailers can play in building a new business: Once upon a time, they asked Congress to help put the kibosh on the video rental business as well.

There’s plenty of evidence of consumer demand for subscription-based offerings. The pay-TV business was built on subscriptions. Between them, Netflix and Blockbuster have over 12 million DVD-by-mail subscribers.

It’s not exactly obvious why, as a vendor, you would want to turn your back on retailers clamoring to fill consumer demand for your products.

But of course, we know why the studios haven’t made those rights available.

In some cases, they can’t even if they wanted to because of their long-term pay-TV deals.

But in other cases, they view digital distribution as an opportunity to reclaim the very degree of control they feel they lost with the advent of the video rental and sales business, in which the studios’ role is static and retailers are free to leverage the studios’ products to capture as much value as they can.

A subscription VOD service would hand too much control over the user’s experience to the retailer.

That attitude carries a significant opportunity cost for the studios, however.

Imagine if every electronics device you bought that was capable of playing video—whether hand-held, set-top or portable—came with one or more embedded application that let you stream movies at will for a reasonable monthly subscription fee.

Instead of a few, handpicked operators, you would have dozens, perhaps hundreds of retailers, and an untold number of device makers, competing to make your products available to consumers, investing in your business, cooperating to combat piracy.

Yes, it would mean letting those retailers and device makers capture some of the incremental value created by those services.

But the alternative is frustrated consumers and under investment in the digital distribution business.


Get more of Paul Sweeting's analysis here.