OPINION: Facing the cost of filling up

Pull in to Blockbuster and fill ’er up. That’s the basic idea behind the in-store download kiosk that Blockbuster chairman/CEO Jim Keyes unveiled in New York this week during the company’s annual meeting of shareholders.

The kiosk itself even resembles a modern gas pump a bit: insert your credit card, touch your selection on the touch screen and the pump starts dispensing content into your “tank”—in this case a portable digital storage device.

Fortunately, the resemblance does not extend to the price you pay at the Blockbuster pump.

According to Keyes, movies can be downloaded from the kiosk for approximately the price of a standard DVD rental. Digital rights management technology in the device and in the content itself would make sure that rental copies do not become permanent copies for the price of rental.

That doesn’t mean that pricing won’t be an issue, however, especially if Blockbuster tries to get creative with its kiosk offerings.

As Apple discovered while trying to secure day-and-date access to new releases for Apple TV, just because there’s no DVD involved in a transaction doesn’t mean the studios are prepared to lower the wholesale cost of movies.

That could limit the kiosks’ appeal to consumers as a source for buying movies.

Keyes is also keen on a subscription model for the kiosks.

“Imagine if you have kids, and you're going for a drive somewhere, and you could go to any kiosk and load up a portable device with movies for them to watch in the car for, say, $10 a month,” Keyes said in New York. “I think that's very powerful.”

Powerful perhaps, but it’s likely to run into the same road blocks that keep Netflix from including major studio new releases in its subscription streaming service: the pay-TV networks, which collectively control exclusive subscription on-demand rights to most of the major studios’ output.

In some cases, those exclusives extend only to the pay-TV window, when HBO and Showtime make their monthly schedule available on demand to digital cable subscribers.

In others, such as Starz Entertainment’s deals with Disney and Sony Pictures, those exclusives extend to any type of Internet-delivered subscription VOD, regardless of the window.

Both Disney and Sony, moreover, unilaterally re-upped those deals last year through 2014 and 2013, respectively.

At a time when post-theatrical distribution channels are in greater upheaval than at any time since the introduction of the VCR, including the revenue leader that home video became, the certainty, predictability and forecast-ability of an output deal with a pay-TV network is very hard for a studio to turn down.

As the old saying goes, no one in Hollywood ever got promoted for taking a risk.

If that means signing over exclusive subscription-VOD rights as part of the bargain, well, what’s the price of piece of mind?

Unfortunately, the need for risk-taking by the studios has rarely been higher.

Consumer behavior is changing rapidly, calling into question the premises on which traditional long-term output deals such as the studios’ pay-TV contracts are based.

Retailers, meanwhile, driven by their own circumstances, are working overtime to develop creative new ways to get video content into the hands, set-tops and portable media players of consumers.

The question for the industry is whether retailers, distributors, packagers and aggregators will be given the pricing and rights flexibility to develop new distribution channels, or whether the studios will insist on clinging to the short-end money no matter the long-term cost.

Get more of Paul Sweeting's analysis here.