Disney Goes Digital First, Who's Affected?

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The news that Walt Disney (NYSE: DIS) will release Wreck-It Ralph via digital means first, rather than DVD or Blu-Ray, indicates that the movie studios are looking to disrupt. Let’s take a look at who such a decision may affect in the long term.

Disney Will Be Affected

Might as well start with the easiest in the bunch, Disney. The company receives higher margins on digital distributions as there is nothing to really produce. Wreck-It Ralph will be released worldwide via download and streaming services on February 12 in both HD and 3D. Those that prefer to wait for the disks will have to wait till March 5.

While the margins will be high on these digital distributions, one has to really consider if they will work. The great thing about a DVD or Blu-Ray disk is that you can watch it in your house, your neighbor’s house, or even send the DVD to your parents on the opposite side of the country to watch. Once you own a DVD, it’s yours and no one can pull it back. When it comes to the digital distributions, you're limited to use. You can’t lend it out and you can’t turn to eBay to resell it.

If Disney were to price these files effectively, say $9.99, then I think they’d do incredible in sales through digital means. If the price were to be in that range I think that Disney would benefit, along with all of the other movie distributors, in big ways. They’d have the huge margins on digital sales and potentially huge gains in sales from the reduced cost of new movies.

Netflix (NASDAQ: NFLX)

Netflix may have just signed a deal to get Disney movies streaming in 2016, but I think that movies going digital may be detrimental to Netflix, particularly if they’re fairly priced.

Disney and the other movie distributors will likely keep some form of embargo on Netflix streaming and that is what will kill Netflix. If they’re not getting the DVDs and they’re having to wait for streaming while iTunes is selling the movie for months in advance then I don’t see Netflix continuing. People will see that their $8 (or more for DVDs) a month could be spent on better things rather than seemingly $3 worth of content that Netflix provides them.

Redbox

You’ve likely swiped your card at a Coinstar (NASDAQ: OUTR) made Redbox to pick up a new DVD for the night but if DVDs are to become a thing of the past so too will Redbox.

Now, I know that Redbox is trying to jump into the streaming game by offering an $8 service pack that includes both DVDs and streaming, but how will Redbox be able to get the content if Netflix cannot? Quite simply, they won't. Redbox will have to stick to their bread and butter, DVDs, and if they go the way of the dodo then so too will Redbox.

Apple (NASDAQ: AAPL)

I own an Apple TV box. It happens to be the way that I get most of my movies via the 99-cent ‘Movie of the Week’ and some other rentals that Apple offers. I can get four movies and a more expensive $5 rental from Apple for around about the same price as a monthly Netflix subscription. The one difference here is that I’m actually getting what I want via Apple and iTunes whereas Netflix is constant searching for something worth the risk of watching.

Where am I going with this? Well, if Apple releases a full TV set, like we’re told they’re planning, then they could have a lot to gain from digitally distributed movies. Apple would likely end up one of the biggest distributors of movies via their iTunes system and would have an easy route into the living room to do so if they release a TV set. The only other company I could think of with that much of an “in” would be Microsoft with their Xbox.

A Shift Is Coming

There's no doubting that a shift is coming in the way that movies are distributed. I just hope that the shift benefits consumers rather than the studios charging extortionate amounts for digital releases when the DVD copy could be had for less. 

 


Ash1402 owns shares of Walt Disney. The Motley Fool recommends Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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