Studios' and Netflix's Newest Threat: $1 Online Rentals From Zediva

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The Web site that offers DVDs for online viewing and physical rental uses the tag line “New Movies Now” and highlights that it is offering “new movies before Netflix and Redbox.”

NEW YORK - New online film rental service Zediva, which offers current DVD titles for as low as $1, may become the latest headache for Hollywood studios and the latest challenger to Netflix, DVD rental firms and cable video on demand services.

Zediva, which just went live to a broader audience after a year-long beta trial with what it says were a few thousand beta users, allows users to watch movies, which are newly released on DVD, via the Internet - on computers and select Internet-connected TVs, Blu-ray players and other devices - without the delays of other services.

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On its Web site, the company uses the tag line “New Movies Now” and also highlights that it is offering “new movies before Netflix and Redbox.” It buys the DVDs via retail stores and other outlets, thereby making films available quickly. Its site on Wednesday mentioned such current DVD releases as The Fighter, Hereafter and 127 Hours. The company says it is focusing on current and major titles.

Other services offer movies with delays. Netflix’s streaming service, for example, offers older films, and the company has to wait 28 days under its studio deals before it can offer new DVD releases via mail. Coinstar’s Redbox service offers $1 rentals per night, but is also subject to the 28-day delay window.

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While comparable services on cable or the Internet typically cost $4 or $5, according to the Wall Street Journal, Zediva offers single film rentals for $1.99, but a package of 10 rentals costs only $10. The company may launch a subscription service in the future.

The company’s operation depends on a data center full of DVD players that play the movies ordered on its site. Users control playback via the site and get DVD functionality, including subtitles and the like. “When you rent a movie from Zediva, you have up to 14 days to complete watching the movie,” the company says on its Web site. “Each time you rent the movie, you receive control of that DVD for 4 hours.”

Founder and CEO Venky Srinivasan told The Hollywood Reporter that the company thinks about its online service as a DVD rental and remote DVD playing and viewing service rather than a streaming service or anything else. "It's like watching with a long cable and an online remote control," he said. The firm wanted to combine a low price point a la Redbox with place-shifting technology a la Slingbox, he added.

The company's use of physical DVDs and DVD players in the Silicon Valley appears to be at the core of Zediva's argument that it is working within the copyright rules of the so-called first sale doctrine, which applies to DVDs, but not streaming content. That doctrine allows a purchaser to sell or lend a lawful copy of a copyrighted work without permission once it has been obtained.

Asked about Zediva's competition, he said it is any service that offers film rentals or purchases. He mentioned Apple's iTunes, online film rental services from the likes of Blockbuster and others, as well as cable VOD services, among others. Srinivasan said though that users can also rent out DVDs for additional shipping costs, which he said depend on location and speed of desired delivery.

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The low price point is possible because the company looks for a high enough number of rentals to bring in enough revenue to turn a profit, according to the CEO. Plus, since users of the online service don't need to physically return DVDs like in the case of Redbox, the company sell more rentals per day, he added.

Some film titles on the company's site appear as being "rented out" in a sign that the site's access to DVD copies of each title is limited. Srinivasan said Zediva has held talks with studios, but he didn't share any specifics on topics or possible terms having been discussed, citing the confidential nature of the talks. "Of course, we are happy to partner and work with them," Srinivasan said about studios, but also emphasized. "It is important for us that our customers have the best value aswell as the best selection of things that they would like to be able to see,"

The Journal predicted that Hollywood would likely mount a legal challenge to ensure that the company doesn’t undercut the balance of power in Hollywood.

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Asked if the studios have a legal case against Zediva, Srinivasan once again highlighted that his team is positioning the company as a video rental firm. "Zediva buys real authorized DVDs. We are a DVD rental service. The notion of DVD rentals is well established," he said, adding that Blockbuster, Redbox and Netflix all buy some of their DVDs on the open market. "Just like any other DVD rental service, only one user can rent a DVD at a time. If there is more demand, we buy a lot more copies of the DVD. They are all authorized. We pay market price for these. We are not ripping them off or anything. We don't think the studios have anything to complain about. Just like Blockbuster or your local video store, we buy DVDs and we rent them to our customers."