Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
With new initiatives from Amazon, Wal-Mart and others, the video market gets upended again.
Few sectors of the retailing industry have been transformed as thoroughly as has the movie rental/purchase business. The revolution that Netflix Inc. begat in 1999 with its model of rent online, receive and return by mail was just the beginning. With broadband Internet access so widespread in the home, the whole industry is undergoing radical change-once again.
After a 2006 in which the video market experienced far-reaching changes (Internet Retailer, November 2006, p.43), the new year ushered in more change. In February alone, market leaders announced dramatic innovations. On Feb. 6, Wal-Mart Stores Inc. reported it is re-entering the online video market with a video-on-demand service at Walmart.com with more than 3,000 movie and television titles that consumers can download to their PCs and watch on their computers or transfer to portable viewing devices. The very next day, Amazon.com Inc. and TiVo Inc. announced they will introduce a service later this year that will allow consumers to easily watch digital video files on television sets.
“The Amazon/TiVo announcement is a symptom of change in the video-on-demand market,” says James McQuivey, principal analyst with research and consulting company, Forrester Research Inc. “It highlights the fact that nobody knows what VOD is supposed to mean anymore.”
The significance of the Wal-Mart announcement was that it represented a return to a market that Wal-Mart had abandoned to Netflix less than two years earlier. But the fact that Wal-Mart is the world’s largest retailer is no guarantee that it will succeed with a product that is essentially different from the products it stocks on its shelves.
To compete in the video-on-demand market, Wal-Mart needs to better grasp the service model, like that of online video renting, as opposed to the pure retail sales model, says Jim Okamura, senior partner at retail consulting firm J.C. Williams Group Ltd. “It’s a different mindset and involves different processes,” Okamura says. “This is not the selling of products per se, which Wal-Mart does better than anyone else. This is selling a service.”
The speed with which Amazon and TiVo one-upped Wal-Mart’s service is symbolic of what’s happening in the market. One of the great differentiators of the Amazon/TiVo service is that consumers can view videos on their TVs, still by far the most widespread medium for video viewing.
Amazon Unbox on TiVo will let TiVo subscribers with Internet-enabled TiVo digital video recorders rent and purchase movies and television shows online at Amazon.com and view the videos on TVs as well as computers and Windows Media Video-enabled portable devices. Amazon will deliver video files directly to customers’ TiVo boxes and, if they choose, PCs.
“In the old days, VOD meant ordering a specific program from your cable provider to be delivered through your set-top box live,” McQuivey says. “Now, all of those assumptions are in flux: it may not be your cable provider, the PC may be involved, it may be a DSL or fiber optic line instead of a co-ax cable line that delivers the content. And it may be cached somewhere in your home rather than watched live.”
This is another video-on-demand element that will force everyone to re-think video service, McQuivey says. “Amazon and TiVo throw more confusion in the mix because they plan to do movie searches via the PC but allow viewing on the TV, letting each system do what it’s best at,” he says.
The Amazon/TiVo service is in beta testing among a select group of TiVo subscribers and soon will be available to subscribers with Internet-enabled TiVos. Of TiVo’s more than 4.5 million subscribers, 1.5 million have set-top boxes that can be Internet-enabled; 600,000 have done so.
While Amazon and TiVo got all the publicity, Akimbo Systems Inc., an Internet video-on-demand service for TV, announced in January that it is working with Yahoo to bring Internet video directly to TV via the Akimbo Service. Akimbo subscribers will be able to browse a selection of videos updated regularly from the Yahoo Video service, access titles for free and watch them on TV.
The Akimbo Service features more than 14,000 movies, TV series and unique shows from over 200 content partners for watching on-demand on television. For $9.99 a month, Akimbo subscribers browse the onscreen Akimbo Guide and select from mainstream and niche video spanning 100 categories, including Hollywood studio movies via Movielink, classic films, independent films, foreign language shows, sports, travelogues, how-to programs and children’s videos.
Following the MP3 route
Not to be outdone, Blockbuster, the market leader in movie rentals through its chain and now its online ordering service similar to Netflix’s, is exploring video on demand as well. In January, John Antioco, chairman and CEO, said the 8,000-store chain which counts 2 million online subscribers among its customers also is readying a video-on-demand business. “It’s clear video downloads could be a $1 billion business five years out,” he says. “We need to be in the business and I won’t be surprised to see us enter a partnership.”
In addition, Netflix, which revolutionized the business to begin with, continues to innovate. It has said it will invest $40 million this year in creating a video-on-demand service. And in January it introduced an instant watching feature using real-time playback technology that enables subscribers to view a rental film on a PC screen almost as soon as it’s delivered.
In spite of the buzz that these developments have created, many experts caution that this is just the beginning of the digital video revolution and that the market for physical copies of movies still has lots of life left. “Amazon and TiVo’s offering is a good idea but ahead of the market because it’s dependent on installation. How many of those 600,000 TiVo subscribers will be buying downloads?” says Sucharita Mulpuru, senior retail analyst at Forrester Research. “Video on demand is a very, very small part of film and TV show sales.”
Ultimately, though, video content sales likely will evolve similarly to music sales, Mulpuru adds. “I can see the digital video download market going the same way as CDs. However, sales of digital music for MP3 players still are not as big as everyone thinks.”