Online movie rentals edge closer to SA shores

The Wall Street Journal recently reported that YouTube is talking to major US film studios about offering movie rentals on the international video site. Speculation suggests they would charge about $3.99 (roughly R30 as of this writing) for on-demand movie downloads. After spending several billion dollars on YouTube (including the $1.65 billion purchase price), and differing reports on whether ad-supported free video content is a viable business model (or how to make it one), Google may be realising that ad-supported content might need, at least in the medium term, to be subsidized with paid-for premium content. And movie downloads is an obvious source of revenue. That’s why Amazon, who understand online consumer behaviour more than most, have already been in this business for 3 years (to far less fanfare). But they can only operate effectively in countries like the US, where broadband is an ocean and is cheap and accessible to all.

There are many potential implications and spin-offs of movie rental downloads online. The obvious one is the expected demise of the “real-world” movie and TV rental and sales outlets. This might happen at some point, unless Blockbuster and others evolve their business model (and stop copying Netflix), but not as soon as people think. When television came out, some predicted the demise of cinema. That never happened for reasons which we won’t go into here (a fascinating essay on the “recurrent demise” of cinema can be read here). Positive spin-offs, of premium video on demand downloads, include opportunities for smaller production or distribution houses to distribute movie content on an equal level, and to as large an audience, as the Sonys and Foxes. As cinema technology advances, and more cinemas get equipped with digital projection and sound systems, it may be viable even for cinemas to get their films via broadband (satellite is the costly medium of choice at the moment), as opposed to the old-fashioned physically shipped reels. And this means a much wider selection of films for a cinema going audience, and potentially the option to select the film you would like to watch as you enter the cinema. But that is a bit into the future.

Coming back to today, the most important question from a local point of view is: will movie rental downloads happen in South Africa anytime soon. The easiest way to answer the question is economically. In environments where bandwidth is charged pro-rata and capping limitations exist, consumers factor in the cost (and to a lesser extent time) of downloading content into their online purchasing behaviour. In South Africa, where bandwidth is relatively expensive, monthly limitations are the norm, speeds are average, and a triopoly exists in the telecommunications industry, it is difficult to see this happening soon. If the average movie is 2GB (and more if it is HD), then it will cost the consumer at least R60 just to download in bandwidth costs (without factoring in the purchase price). This is mitigated somewhat if the user’s account includes a certain amount of “free” local bandwidth (usually only beginning though once the ‘normal” data cap is depleted). For a local company wanting to offer such a movie on demand service, it would cost roughly the same amount to deliver the content to the consumer from South African servers (the doubling of sender/receiver costs in South African bandwidth deserves its own investigation). Notwithstanding infrastructure and billing costs, the minimum break-even price that a SA movie-on-demand company could charge would very roughly be R60. Then a profit and a revenue share with distributors be accounted for (let’s say a R40 profit to make the total cost R100 excluding minimum guarantees). So the total consumer price, including bandwidth, would be say R160 a tad more expensive than your local DVD rental store. You could purchase a shiny new DVD for that amount. That changes, of course, if you control the lines of distribution, like Telkom, who could offer the service much cheaper and subsidize the consumer’s download costs as well. It is debatable, however, whether they can get the total price down to around R30 in order to compete in price with DVD rental stores. If not then they would be better off selling you the content at a price less the in-store amount for the physical DVD.

But we should remain optimistic (a recurrent reminder to SA broadband consumers). Progress is being made on the bandwidth front, with Seacom’s recent arrival, industry players shifting towards alternate broadband offerings, and SA bandwidth hosting costs being reduced. However it will be several years until the ocean of broadband floods the SA market, turns the tide, and rises the currently low-lying ships of websites, service providers, and consumers. What we might see, in the meantime, are watch on demand services from the likes of DStv (which already exist to some extent), who have their own distribution networks, and don’t need to rely on bandwidth.

So SA movie rental outlets and DVD stores, you can hold on to your territory for the time being. You are just above sea-level, but the sea will not rise for several years to come. Consumers are still unfortunately on dry land, but we are gaining experience in the ponds and low-tides of South African bandwidth. For now we have to drive to the video store, but we relish the time when we can finally surf there on a wave of bandwidth.