Blu-ray rental stores go high, low on prices

PHYSICAL: Netflix charges more for high-def, but Blockbuster doesn't

By Susanne Ault -- Video Business, 5/22/2009

MAY 22 | PHYSICAL: If you want to buy a new Blu-ray Disc title, chances are it will cost $5 to $10 more than the standard DVD version of the same movie. Renting the Blu-ray also might cost more than renting the DVD—or it might not.

Netflix leads a faction of rental retailers who argue that because Blu-ray carries a higher wholesale cost, they have to charge more in rental fees. Many indie stores, including members of Video Buyers Group, Massachusetts’ Video Zone and Illinois’ People’s Choice Video Express are in this camp.

Blockbuster, however, insists it can operate smoothly without charging extra, as well as better compete with outlets that do ask for more. Regional chains TLA Video and DVD Now! are among other stores charging the same for Blu-ray and DVD rentals.

Netflix admits that it has angered some of its customers with its Blu-ray rental premium. For much of last year, Netflix charged $1 more per month across its subscription plans for customers who wanted to rent Blu-ray. Starting last month, however, the company raised the premium on its popular ‘three titles out at a time’ and higher-end ‘eight titles out at a time’ plans to $4 and $9 monthly, respectively. Netflix’s entry-level subscription continues to charge $1 extra.

“There was a vociferous outcry in the first couple of days, but this was a very small minority,” said Netflix spokesman Steve Swasey. “[Blu-ray] is a much more expensive format. Prices will eventually come down, but in the meantime, as long as they are more expensive to buy, then we’ll need to base the [rental] price on these higher costs.”

Blockbuster begs to differ, saying its online service and corporate-run bricks-and-mortar stores are fully capable of avoiding extra Blu-ray charges. The chain signs onto Blu-ray revenue-sharing agreements when possible and focuses on efficient ordering and distribution to maintain reasonable Blu-ray costs.

“Rental price is just one piece of the cost puzzle,” said Bob Barr, general manager for Blockbuster Online. “You can look at how the discs are handled in distribution. There is the actual purchasing of product. And sometimes you can set up a revenue-sharing agreement. And you can look at how often things are rented and re-rented. We don’t see the need to differentiate formats with our customers.”

In recent weeks, the company has been actively marketing its no-fee advantage in online ads. Both Blockbuster Online and Netflix say that their Blu-ray base amounts to about 10% of subscribers.

“It’s a matter of bringing value to the customer and the experience,” said Barr. “We are excited about the format. This will hopefully give them a good reason to try it. There are no barriers for them going forward.”

Likewise, other video stores choosing to stick to a zero Blu-ray premium hope they motivate people to sample the format.

“We want to encourage Blu-ray rental, so we’ve left prices the same as standard DVD for now,” said Tom Paine, owner of Redmond, Wash.’s DVD Now! “But we’ll reserve our options for the future.”

Blu-ray currently makes up just 3% of DVD Now!’s revenue, but that’s a 336% leap from the same time last year.

Similarly Philadelphia-based TLA Video, which has less than 5% Blu-ray revenue, hopes to encourage customers to try high-definition by not attaching a premium.

“It’s really more of a fact that I want to grow the market, and [higher pricing] is a deterrent,” said TLA general manager/buyer Adrian Hickman.

Blockbuster’s Barr says that the company intends to stick with its no premium position even as the format does become more popular with consumers.

“We have no plans whatsoever to change,” he said. “If there is a shift toward the Blu-ray format, we are fine. We have found no reason to discriminate at all between the two.”

There are a number of rentailers, in addition to Netflix, that are just as convinced that premiums are the way to go. Hoping to curb any pain, some work to limit the amount of the differential charged to $1 or less.

“One dollar extra is still a helluva value,” said VBG president Ted Engen. “It’s a better deal than buying. It’s not like we are charging $10 more. But because we pay more for them, the rental price is higher.”

Many VBG members charge a $2 to $2.50 premium on previously-viewed Blu-ray versions over standard DVD counterparts.