By and large, the big Hollywood film studios have clung to the idea that digital downloads should be priced the same as DVDs. Sony Pictures is trying to find out if there's a better way.
On Tuesday, Sony began selling downloads of two new releases for about 13 percent less than the $15 DVD price. At Amazon.com and iTunes, "The Tourist" and "How Do You Know" could be downloaded for $12.99. Elsewhere at Amazon, the disc sold for $15. Both movies were disappointments at the box office, so the reductions seem barely to qualify as a toe dip into price cutting.
But according to two film industry sources, the studio is experimenting with pricing for download-to-own videos. Sony, which has tried similar tests before, is searching for a price that stimulates download sales but won't erode demand for DVDs.
This is all part of priority No. 1 in Hollywood now: rekindling consumer interest in building video libraries.
"2011 needs to be a year of sell-through" John Calkins, executive vice president at Sony Pictures' Home Entertainment, told a conference gathering in London last week.
This is no easy task. Disc sales have fallen off dramatically in the last two years, and despite earlier predictions that download sales of movies and TV shows would continue to grow for years to come, the segment fell 8 percent in the fourth quarter of 2010.
Netflix, the Web's top film-rental service, has much to do with that. The service offers all-you-can-eat streaming for $8, less than the price of a single DVD, and consumers are flocking there. The company saw a 60 percent increase last year in its subscriber numbers. Some analysts, including Rich Greenfield of BTIG Research, blame a portion of Hollywood's download troubles on the decision to price downloads the same as DVDs.
"The studios are trying to force something to occur that makes no sense for the consumer," Greenfield told The Hollywood Reporter in January. "Rental has become so convenient there is simply no need to purchase content anymore."
But studio insiders say nobody is panicking. They argue that interest in movies and TV shows remains high. Box office revenue was flat in 2010, but 2009 marked an all-time high. Despite the poor fourth-quarter performance last year in download sales, the segment for the full year grew 16 percent. The studios say consumer research proves that a large segment of the population still prefers to own rather than rent.
To expand that market, the studios are headed for the cloud, the virtual realm in which computer users can store and access content on third-party servers, rather than keeping it on their own hard drives. With the exception of Disney, the other five major film companies have agreed to back UltraViolet, a set of technology standards designed to let movie buyers store and transfer films across numerous Web marketplaces and services and access the movies with potentially hundreds of Web-connected devices.
The idea is to boost interest in downloads by making it easier to buy, play, and store them than it is a DVD.
In his London conference speech, Calkins said the rental model just won't pay the bills, according to a story in Cue Entertainment (subscription required), an online home-entertainment trade publication. Calkins told the audience that when consumers download to own, the studios see 60 percent or more of the revenue.
When it comes to subscription services that bundle titles, the revenue that comes back to the studios is in the 30 percent to 40 percent range, he said.
At the same time that some in Hollywood try lowering prices and adding convenience to make buying downloads more attractive, others may be trying to make renting less attractive.
Last night, Showtime Networks announced that starting this summer, Netflix's streaming service would no longer have access to any shows currently appearing on the cable TV service. A Netflix representative denied that any decisions about Showtime's upcoming licensing agreement with Netflix were final, as the talks were ongoing.
Nonetheless, the word coming out of Hollywood is that buying films is in and renting is out.
We'll see if consumers agree.