The technology was originally used to produce compact discs; the new DVD format requires little change to the machinery. DVD replication equipment is used to create glass masters and metal stamping masters. It is used to stamp substrates in hydraulic molds and apply reflective layers. The equipment also bonds substrates together, prints labels, and inserts discs into packages. Most replication plants will run a small number of discs, perhaps one to a hundred, to make certain there are no errors with the discs before discs are mass produced.
Some movie studios such as Warner Bros. or Sony are large enough to engage in DVD manufacturing and duplication in-house or through subsidiaries. Sony DADC, a subsidiary of Sony Corp., is one of the largest DVD replicating companies in the world. In the duplication process, the manufacturer provides the replicating company with the master disc, label design, and possibly graphics and promotional materials. If this process is kept in-house, it helps smooth the overall DVD production process. Studios also benefit from having well-developed distribution networks to get these discs to retailers. Some studios contract out their DVD manufacturing. Technicolor was the largest independent distributor of DVDs and CDs in 2007; it replicated 1.7 billion DVDs and 175 million CDs. Technicolor and Cinram are the major replicators for the Hollywood studios. In 2007 the major studios were split in their support of the next generations of DVD technology: HD-DVD and Blu-Ray. Some studios announced that they would only release their movies on HD-DVD and others announced they would only release movies on Blu-ray disc. By the middle of 2007, the home video market was at an impasse. Manufacturing costs may help determine which format will become the industry's new standard. DVD replication machines require more modification to produce Blu-ray discs than to produce HD-DVD discs; this ultimately makes the discs more expensive for the manufacturer to produce.
When the DVD movie first came to market, they were available to rent through the local video store and to purchase through a retailer. These are still the two primary channels for consumers to obtain DVDs. However, the distribution of DVDs and movies has changed considerably since the 1990s.
The Video Store
As stated, with the VHS medium, video stores were charged up to $100 per tape and then had to rent the tape as much as possible to recoup their investment. Most retailers could only afford to purchase a few copies of popular titles. Consumers frequently complained about the long wait to rent such titles. In 1998 Blockbuster and other video chains entered into revenue sharing agreements with their suppliers. Under such an agreement, a supplier charges a retailer a wholesale price per unit plus a percentage of the revenue the retailer generates from themovie rental. Under the old arrangement, the retailer paid the high tape price and kept all revenues. The new agreement lowered the price considerably, but half the revenues went back to the studio. The revenue sharing agreement included both the VHS and DVD format.
Netflix
In 1997 Netflix founders Reed Hastings and Marc Randolph decided to start a company that rented movies by mail. The rent-movies-by-mail plan was not feasible while movies were only available on bulky video tape. However, the DVD, which had just come on the market was small and light and could be shipped through the mail. The two men conducted tests to determine how quickly the DVD could be shipped through the U.S. Postal Service and to determine the most suitable means of packaging DVDs to minimize damage to the disc in transit. Netflix opened in 1998 with 30 employees. It offered 928 titles. As more titles became available on DVD, the company's catalog expanded. Online video rental has become very popular. Customers who rent movies through the site no longer have to deal with late fees or go back to the store to return the movie. Movie rental sites have various subscription plans to accommodate the needs of the renter. Netflix had 6.3 million subscribers and a library of 70,000 titles at the end of 2007. It ships an estimated 1.575 million DVDs each day. The company has 42 distribution centers across the United States and employs 1,300 people. Blockbuster launched its own online site and has been stealing customers from Netflix. In the first quarter of 2007, Netflix added 480,000 new subscribers while Blockbuster added 780,000. In the second quarter, Neflix lost 55,000 customers while Blockbuster added 525,000. As of the middle of 2007 Blockbuster had 3.6 million subscribers and a library of more than 70,000 titles.
According to Netflix there will be approximately 12 million online DVD renters in the United States at the end of 2007. The DVD distribution industry has been affected by the Internet in other ways as well. Consumers can purchase and download DVD-quality television programs, movies, and other video content to play on their computers. The films are usually available for purchase on the same day that they arrive in the stores. Apple found great success with music downloads since it launched the iPod in 2001. In January 2007, the company made video content available for download on its iTunes web site. Users may keep the video on their computer hard drive or transfer it to their iPods to watch. Amazon.com launched its Unbox service to compete with iTunes in September 2006, but the programming on its site is coded with Microsoft Digital Rights Technology, which means downloaded video can not be played on Macintosh computers or iPods. Netflix began offering streaming video of approximately 1,000 titles on its site in early 2007. By the middle of that year Netflix reported that its subscribers had downloaded 5 million movies and television shows using this newly offered digital, streaming video service.
Many of these sites also offer streaming video for rental as well. A user downloads a film and then is issued a license to view the film for a specific amount of time, such as one day, seven days, or a month. Wal-Mart launched a downloading site in February 2007. It created a stir in the motion picture community by undercutting the prices charged by iTunes. It has also worked out deals with all the film studios. Apple's iTunes only has deals with Disney and Paramount. Amazon has deals with Lionsgate, Warner Bros., Fox, Paramount, MGM, Sony, and Universal.
According to the Entertainment Merchants Association Annual Report, mass merchandisers had a 43 percent market share of DVD sales in 2006. Mass merchandisers include stores such as Target and Wal-Mart. Consumer electronics retailers such as Best Buy or Circuit City had 16 percent of sales. Online retailers represented 12.5 percent of sales. Blockbuster Video is still the king of video rentals. It represented 43 percent of the movie rental business. Online rental stores had 16 percent of the market.
Other movie rental stores had 39 percent of the market.
