Fox To Strip Special Features Out of Rental DVDs

As DVD movie sales continue to slowly dry up, some motion picture distribution companies are looking to make up lost revenue from other mediums, such as from Blu-ray movie disc sales and distribution deals with online media-streaming services, such as Netlfix, Vudu, and the recently announced ZillionTV. Blu-ray isn't anywhere as successful as the industry had hoped, and online streaming is a nascent business that is still just getting its financial feet wet. So, perhaps, desperate times call for desperate measures; which might explain why 20th Century Fox Home Entertainment will start making two different versions of its DVDs: a stripped-down version for DVD rentals, and a premium version with extras for DVD sales.

Variety's Video Business reports that starting with the March 31 DVD releases of Marley and Me and Slumdog Millionaire, Fox will put this new strategy into place. The retail DVD SKU for Slumdog Millionaire will contain "special features including deleted scenes and commentaries;" while the rental DVD SKU will only have the movie and trailers. There will be variations on this theme depending on the particular title; for instance, the rental DVD and Blu-ray SKUs of Marley and Me will both include special features, but the retail Blu-ray version will be "a combo pack with a DVD movie and digital copy."

Fox Senior VP of sales Don Jeffries sent a letter to DVD wholesalers that stated that they would be "authorized to sell rental accounts only the rental SKUs and to sell retail accounts only the retail SKUs"--Fox will abide by the same rules with all of its direct accounts as well. This has a number of wholesalers unhappy, as they are concerned that DVD rental stores will instead acquire the "premium sell-through version" of DVDs elsewhere, such as from Wal-Mart, and then use those discs as rentals. If rental stores did this, then they obviously wouldn't be purchasing the rental versions from the wholesalers. Some DVD rental stores are also unhappy with this strategy, as they are concerned that customers will feel cheated renting a stripped-down version of the DVD that lacks special features --especially since renters have come to expect these features on nearly all DVD discs, whether they are purchased or rented.

As to the justification behind this strategy, it is all about differentiation--making the retail version of the DVD movies appear that have more value than the rental versions. This might increase the possibility that someone would buy a DVD instead of renting it, as well as possibly reducing the likelihood that previous-viewed DVDs could also cannibalize new DVD sales. Fox provided a statement to Video Business that stated:

"We have developed product variations to feed different consumer consumption models and behaviors... For rental customers, we're delivering a theatrical experience in the home while promoting upcoming releases; for retail [or sell-through] customers, we're offering a premium product that expands the entertainment experience of that particular property to further enhance ownership."

This all might be a moot point, however, as first-sale doctrine essentially says that "buyers of retail DVDs in the United States are free to sell or exchange them, and rent and lend them to others." This was even established as a legal precedent (NEBG, LLC v. Weinstein Company Holdings, LLC, Mass. May 18, 2007):

"In which a film-industry defendant accepted that it had no right to restrict buyers of DVDs from renting them to third parties. Copyright owners sometimes affix warning notices to packaged DVDs, or display notices on screen before showing the content, which purport to list uses of the DVD that are forbidden under copyright law. Such notices do not always fairly reflect the buyer's legal rights established by the first-sale doctrine."

So while Fox can make its requests to wholesalers, and these wholesalers might very well enforce these requests; the retailers are still within their rights to get their discs elsewhere and sell and rent whichever versions they see fit. And while the rationale of this strategy makes sense on the retail side by providing a value-add, we wonder if it will wind up hurting the rental business, as rental discs could be perceived as value-removed.
Tags:  DVDs