Buying versus Renting
iTunes changed the music landscape by allowing a user to buy a song for $.99, instead of having to buy an entire CD (record, 8 track, cassette) as in the past. A new model has emerged, but has yet to catch on. This is buying the right to listen to songs for a monthly fee such as the Napster (Yahoo and Rhapsody also offer this service). ‘Renting’ songs has not been nearly as successful as buying songs for two reasons:
1)The price point is so low that $.99 may not be enough for the average listener to change their behavior.
2)Buying music, to have ownership over it, has been ingrained in our collective consciousness.
Let’s look at a model moving in the opposite direction: Movie rentals. In the 1980s, buying a movie (on VHS) could cost a consumer anywhere from $30-$100. Currently with the invention of DVDs and more home entertainment centers, it’s not unusual to find people who have a collection of 50-100 movies. Why would someone buy a movie, when they could rent one for a small percentage of the price?
This is the question that Wharton marketing professor Jehoshua Eliashberg and Wharton doctoral candidate George Knox ask in “The Consumer’s Rent vs. Buy Decision: The Case of Home-Video.” What makes someone decide to buy a movie instead of renting one? The answer to this question is worth millions, as the margins on selling a movie are significantly greater than those of renting.
Eliashberg and Knox posit that one reason someone will buy a movie over renting is if they expect to watch the movie multiple times- so they’d save money buying instead of renting multiple times. Another reason? Convenience- being able to watch the movie whenever one wants- and perhaps, not feeling obligated to watch the movie during a certain time frame.
Where will the movie rental business go in ten years? OnDemand movies are already changing the way people view movies. With OnDemand, you pay a set price (currently $3.95) and you can watch a particular film anytime over the next 24 hours, without going to the video store, no potential for late fees, and no scratched DVDs.
Is the next step a subscription service, where for a fixed fee you can stream movies onto your TV? Will you also be able to stream them onto your computer? In ten years will the TV and Computer be one and the same? Anyone want to rent a TV from me
