Best Buy Hopes CinemaNow Will Strike Gold

The home theater is one of the new gold rushes in consumer electronics. Not just all the new units sporting 3D technology but how consumers get their media. This week Best Buy is stepping into that fray, hoping it’s home theater in a box system will entice consumers away from the reigning champion in the space Netflix. Aside from Netflix the market is already crowded with players like Hulu, Amazon, iTunes, Zune’s Xbox service, and YouTube all involved in the space.

Best Buy’s Plans for CinemaNow

The service is called CinemaNow, partnering Best Buy with Sonic Solutions Inc. The service will start as a la carte, and hopes to progress to a Netflix like subscription service. Movie rentals will start at 2.99, videos for purchase will run from 9.99 – 19.99.

According to ReadWriteWeb the service will be available through select connected Blu-ray disc players, HDTVs, and PCs via CinemaNow. ReadWriteWeb’s only problem with the plan is why purchase a digital DVD for $20 when you can go out and buy a physical copy of said same DVD for the same price? It’s a good point. It seems unlikely given current prices and the hit that Netflix has going where you can stream hundreds of movies to your home PC, Xbox, PS3 or Wii, that Best Buy will attract significant market share.

According to  Ryan Pirozzi, Best Buy’s Director of Digital Video, “It will be 2012, at the earliest, before the Internet video service gains enough traction to encourage Best Buy to begin phasing out DVDs in its stores”.

The timing of the move also seems to be in direct response to Wal-Mart’s recent acquisition of VUDU. According to Endgadget’s Richard Lawler Best Buy plans to “sneak boxes with its store (CinemaNow) embedded through other retailers.”

In an article last month speculating Best Buy’s tactics Lawler writes:

“CinemaNow is well prepared to set up online video stores for others, with Blockbuster (bad example) and Dell already on board. Variety suggests Best Buy could market and sell Internet-connected TVs and set-top boxes that include CinemaNow access, with a shared revenue stream between the two, but nothing is final. Netflix has a hit on its hands with Watch Instantly so think it over, would you give an Insignia Blu-ray player or HDTV a second look if it could download movies?”

Netflix’s Hold on the Market

As the big gorilla in the space, Netflix is only real weakness is on the technical side. Complaints about occasional audio problems, no subtitles, and occasional slow downloads, etc. Then there is the problem with selection since sometimes the movies you can download aren’t the ones you really want to, for every Guess Who’s Coming to Dinner there is three Pluto Nash like gems. No, it’s not the pick of the litter so-to-speak of movies, but I can’t say there’s nothing to watch.

Netflix’s market share is very strong. According to Media Post’s Steve Smith :

“The share of Netflix customers now accessing streaming media is 55%, up from 48% in the last quarter of 2009 and from 36% in Q1 2009.  But the habit of streaming clearly is there and I am sure the connection from Web to TV is gelling in consumers’ heads. Netflix knows what it is on to. It just cut some DVD windowing agreements with Hollywood that opened up more content for the Watch Instantly library.

I saw reports that Blockbuster’s CEO sniffed at this the other day by insisting that his competition’s on-demand library essentially was filled with junk. He obviously hasn’t spent much time browsing films on set top devices. The choices you make in the end often are serendipitous and not driven by a hunger to see the latest release.”

How Will the Affiliate Marketing Play Into Matters?

Netflix’s success is largely due to its affiliate program which it operates currently on the Google Affiliate Network. According to Google’s Affiliate Network the rough numbers are as follows:

There’s a $ 16 fixed commission. They have 42 million unique visitors worldwide, and 1.2 Billion page views. The average customer has some college education, between the ages of 25-55, and a household income between 25,000-99,999.

Best Buy also has a long standing and healthy affiliate presences, focused on their retail product. They are also very active in the industry and have positioned themselves to take advantage of the recent “Amazon Tax” Legislation:

“Some online-only retailers have recently terminated their affiliate relationships in some states due to recent legislation requiring online-only retailers to collect sales tax from online purchases. Since Best Buy has physical stores nationwide, this does not impact our affiliate program business model. In fact, we think it’s a great time for you to sign up with us!”

The question is will Best Buy develop an affiliate program for CinemaNow, on par with Neflix’s current affiliate program? It will be a challenge since the download space has significant differences than the retail goods space.

The bigger question is will consumers buy into CinemaNow enough to make Best Buy a factor, or will Netfix and the fast growing Hulu continue to rule the space?

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