Is It Time to Roll the Closing Credits on the DVD?
DVD sales peaked in 2004, and it's been a slow fade. Some media platforms fall off the cliff when their consumption tenure is done, but optical discs have only seen unit sales decline by a third over the past decade.
They're still around, but it won't always be that way.
The Rise and Fall of the DVD
The DVD arrived before the turn of the century, easily besting VHS as the video platform of choice. Discs looked better. They were portable. There was also no need to rewind at the end of the viewing experience. The same thing could've been said about the LaserDisc, but DVDs came at the right time and eventually at the right price.
The compact nature of the DVD also helped breathe new life into the rental business. Blockbuster, Hollywood Video, Movie Gallery and other rental specialists were able to stock more titles in their small-box stores. Outerwall's (OUTR) Redbox likely wouldn't exist as a model if the automated kiosks had to spit out chunky VHS videocassettes.
Unfortunately for the optical disc, the disruptor can be disrupted. The same migration to digital that has turned CDs into MP3s, books into e-books and video game discs and cartridges into apps has taken hold of video.
Be Kind and Rewind
Movie studios aren't going down without a fight. They initially hoped to keep DVD sales alive by making rentals less desirable. They struck deals with Netflix (NFLX) and Redbox, offering them cheaper discs in exchange for holding back on rentals during the first four weeks of retail availability.
The plan was supposed to make it more compelling to buy a DVD, but it likely backfired by killing the rental industry. Blockbuster and its store-based peers eventually folded. Netflix saw its subscriber base receiving DVDs by mail peak at roughly 20 million four years ago, and it has plummeted to just 6 million members today.
Redbox has held up relatively better, but it's finally showing signs of peaking. Rental volume declined 13.7 percent in its latest quarter relative to the same period a year earlier. Redbox announced earlier this year that it would be closing hundreds of kiosks, and in an effort to make up for shrinking rentals, its rates went up this week.
Follow the Money
The nightly rental rate on DVDs went from $1.20 to $1.50 earlier this month, but that will likely only drive more of its customers to rely on the convenience of on-demand rentals from the cable providers or the growing number of marketplaces selling digital rentals.
The DVD revolution was important, and Hollywood will make out just fine in the digital revolution. Netflix alone has $8.9 billion committed to future streaming content obligations, and making it easier for customers snapping up smart televisions and set-top devices this holiday shopping season to stream premium video offerings will pay off nicely. However, the slow death of the DVD itself will likely accelerate in the coming years. It had its time, but now that time is up.
Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check outour free report.