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Netflix’s options were not strong and the upshot of such a decision was surprisingly positive. After all, their product doesn’t exist if they do not have the consent of the major movie studios to sell their movies. With their streaming service their new imperative, the physical rental of discs was not that important. Plus, there existed the strong possibility that if they signed the agreement, Redbox would have to follow suit. That part of it makes sense. Netflix would state later in the year that they have become primarily an online movie streaming service that also rents DVDs. With Redbox the primary competition in terms of video rental marketshare, a deal that didn’t impact Netflix while dramatically damaging Redbox could be described win/win. Netflix had more titles to stream from their online service, their primary focus now and for the immediate future. Simultaneously, Netflix’s primary competition would be cut at the knees as new releases are a primary source of revenue for Redbox.

Redbox’s ceding to the demand is the strange part. Without the possession of a streaming service as of yet, video rentals are their bread and butter, their only service up until videogames were introduced in the Fall. An additional month of waiting to dispense these DVDs hurts them much more than Netflix, whose subscription plans charge the same independent of the actual discs rented. My best guess is that the decision makers at Redbox made the determination that the current and potential legal fees exceeded the revenue lost by the studio demands. Whatever the reason, Universal and Fox quickly followed suit in making the same demands of Redbox (and Netflix). Worst of all, Warner Bros. has indicated an interest in pushing the window BACK even further from 28 days. Given how little resistance they met with their last decision, their thought process is understandable financially even as the movie lover (and Redbox user) in me dies a bit.

The fallout for Redbox has not been momentous thus far. Still, early warning indicators are emerging. Redbox missed their fourth quarter estimates by $25-$40 million. The company stressed in its quarterly announcement that revenue was up 38% year over year from the fourth quarter of 2009. The ubiquity and awareness of Redbox itself has more to do with those increase, though. In describing the state of the company, CEO Paul Davis acknowledged the following: "This was Redbox's first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter.” In short, even the CEO realizes in hindsight that this was a significant miscalculation.

The causality for this is readily apparent. Our society has become shorter in terms of attention span and more demanding in terms of WANT NOW mentality with each technological advance. Since the advent of video rentals, we have witnessed the release window for home video rental shrink from a year to a quarter. This is the first major instance in which a studio has pushed said window back a month. While some onlookers are inclined to say, “Big deal, it’s just 28 days”, a certain portion of early adopter consumers had grown spoiled by their ability to watch a movie for a dollar on the date of its video release. In lieu of that ability, they have collectively punished Redbox a bit for their choice to meekly cede to the demands of the major studios. Meanwhile, Netflix added over three million new subscribers in the fourth quarter of 2010. At this point, they appear well positioned to control home video exhibition over the next decade, just as Blockbuster did before them.

Speaking of Blockbuster, perhaps the strangest aspect of the 28 days delay window is that none of the major studios enforced this with the fallen video rental company. Over the past 12 months, debate has centered upon why this happened. A possible explanation is that they were shown deference due to prior relationships and respect Blockbuster had developed with various studios. Alternately, Blockbuster may have become just that irrelevant as we face the future of home video rental. Whether Redbox suffers a similar fate or not is one of the primary stories we will track in 2011.

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