Saturday, July 26, 2008

DVD Online Rental market - Business Models

India is a virgin market for online DVD rental companies. The concept of movies on rent has been in India from late 80's but was largely dominated by local video parlors most of whom had pirated movie versions. With Internet spreading reaching out to tier II and tier III cities, this space is slowly turning into a big market opportunity. To be an early entrant and establish itself, the companies are trying different business models to make this a profitable venture. Some of the business models that are currently in play include:

1. Subscription Model: The core business model across all the players in this space is the subscription model. Companies are offering monthly, quarterly, half-yearly and annual membership plans to woo consumers based on their preferences. The subscription plan include following components :
a)subscription fees (monthly, quarterly, half-yearly or annually)
b)refundable deposit
c)number of movies that you can rent at a time within a plan(Limited, unlimited)
d)Time-Limit for rental period (new titles need to be returned earlier while old titles may not have any time limit)

2. Brick and Mortar Model: A number of companies started off with an online store and have slowly expanded its presence into retail outlets. The web sites are now acting as store fronts rather than the core revenue generation machine. This has allowed the companies to widen their customer reach

3. Advertising: Many companies are also offering their real estate on their web sites for advertisers to advertise their products and services. The major source of revenue is from the entertainment industry.

4. Franchisee Model: In order to scale up, companies are also looking at opening new outlets through the franchisee route. The investment for a franchisee is to the tune of 13 -14 lakhs. In addition to this their is going to be franchisee fee and revenue sharing.

5. Online Movie Sales: Some of the companies also offer DVDs/CDs on its web site for sale. Bigflix in fact allows the users to download movies from its web site over a broadband connection(Not available in India though).

I have focused only on the revenue generation aspects of the business model here. It would be interesting to see the cost centers in this model given the fact that the companies may need to pay royalties to production houses.

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