Target announced this week that the company is shutting down Target Ticket, its transactional Video On Demand service, effective March 7. If your first thought is “I didn’t know Target had a VOD service,” you’re not alone–while available on a wide range of devices, the app is almost completely invisible in Target stores and on Target.com, and nothing other than the Target name sets it apart from competitors.
The logical conclusion that some have reached is that less than two years after Target Ticket’s launch, Target realized it couldn’t compete with Google, iTunes, and Amazon on the digital rental/sales front, and decided to focus on the physical DVD/Blu-ray sales that it is already successful with. Best Buy already got out with their decision to sell CinemaNow last year, as did huge British retailer Tesco with the sale of Blinkbox just last month (Target Ticket customers will be migrated to the current incarnation of CinemaNow under its new independent ownership). But sources in the home entertainment space (who asked not to be named) say that the implications could be bigger than the retailers are bargaining for, as streaming takes over and the physical video market is expected to decline significantly within three years. Target’s move may indicate that big box stores will soon find themselves out of the home video business altogether, a business in which they have long had a major stake. Walmart, with its Vudu service, is the only major holdout, and may eventually be the only big retailer selling movies.
Because of studio royalty rates reportedly in the 80% range, sales and rentals of movies through VOD don’t generate much revenue for any service compared to the costs (Target Ticket is sales and rentals only, not a subscription service like Netflix or Hulu). It’s no secret that movie and TV sales on iTunes and Google Play are loss leaders for Apple and Google to sell devices and gain data (and Amazon is Amazon, they don’t want to be out of any game). It’s the same reason that Sony initially had difficulty finding VOD partners for controversial comedy The Interview–no one wanted to risk their own hack for pennies, though eventually, services signed on when the panic waned. Walmart is still hanging onto Vudu so far, but they’re in a different position–as the world’s largest retailer, Walmart’s enormous customer base could give them leverage over the studios to pull down royalty rates when VOD becomes the primary delivery mode for home video.
So in the short term, it makes sense for Target to leave where they’re not wanted and can’t make money. A service like Target Ticket isn’t bringing anyone into stores, and it has little value added in terms of helping customers stream purchased DVDs and Blu-rays on multiple platforms–users can already do that with Ultraviolet-enabled movies and devices, and Target Ticket does nothing to expand or simplify that experience. And after the Target hack of late 2013 and the company’s subsequent troubles, new CEO Brian Cornell is smart to focus on what the company does best.
But if insider predictions about the end of the DVD Blu-ray era hold true, the exodus of companies like Target, Best Buy, and Tesco from VOD could mean that within only a few years, one of those retailers’ most strongly identified sectors–home entertainment–may look a lot different. If it’s no longer profitable to reserve floor space for movies, even if the stores are still selling televisions and XBoxes, they may be cut out of the content piece of the ecosystem altogether. It’s possible if they hung onto their infrastructure and improved their marketing that Target would be able to turn streaming movies profitable in a new all-VOD climate, but now they’re unlikely to find out.