Why Strong DVD Rentals Could Be Good News For Comcast


With the economy in the toilet, DVD rental services Netflix (NFLX) and Redbox (kiosks) are on fire. But longer term, that could end up benefiting their cable industry rivals like Comcast (CMCSA).

In a blog post today (registration required), Pali Research analyst Rich Greenfield lays out a not-too-far-fetched scenario: As studios watch Netflix and Redbox clean up with DVD rentals, they might have an incentive to cling tighter to cable’s video-on-demand (VoD) offerings.

Specifically, they may increasingly push VoD releases to the same day as DVD releases, “particularly for second and third tier titles (movies you do not feel compelled to own),” Greenfield says. That would, in theory, make cable VoD more attractive to consumers and DVD rentals less attractive.

Why bother?

Studios still make the most money from DVD sales — not rentals or VoD. But Greenfield says studios make higher per-transaction sales from VoD than rentals. And unlike rental services, VoD doesn’t end up creating huge piles of used DVDs that are sold for much less than retail.

Would this benefit Netflix’s on-demand movie streaming service? That depends. So far, it’s only spending money on cheaper, older movies. But if it decides to spend more for new releases, it will want to get the same “day-and-date” treatment as its cable rivals.

If it can, that’s good news for Netflix. If not, it’s one more advantage the cable industry has over upstarts like Netflix and Apple (AAPL), which are competing via Internet-based movie streaming services.