EXCLUSIVE Q&A! <i>Video Store Magazine</I> Goes One on One With Bob Chapek7 May, 2002 By: Kurt Indvik
Since taking the helm as president of Buena Vista Home Entertainment in November 2000, Bob Chapek has put considerable steam into Disney's DVD business by focusing on “maximizing the creative assets.” Now having recently been elected president of the DVD Entertainment Group association, Video Store Magazine thought it timely to talk with the Chapek about his views on DVD and its future in Disney, along with a wide-range of other industry issues.
VSM: How are you going to ensure that Disney's leadership role in the family market is maintained in the future?
Chapek: The core of it is we understand the family market better than anybody. As a result, the Disney company, in conjunction with its filmmakers, makes products that deliver on consumers' expectations. The best example of that in home video would be DVD and bonus materials. When DVD was first started, bonus materials were designed for film enthusiasts, for the early adopter group. We realized that for DVD to reach its true potential we had to design bonus materials that were targeted at that [family] group of consumers, which included the kids. We had to drive some evolution to this, and I think we paved the way to developing family-friendly DVD bonus materials that go well beyond storyboard-to-scene comparisons. You have to have something for the whole family in order for them to get the benefits of owning DVDs.
VSM: What are your strategies for exploring your catalog and renewing it in the market? You just announced a major “Movie Showcase” catalog promotion.
Chapek: I think it depends on the product. There are classics we sold 10 years ago that we can sell now, 10 years from now, a hundred years from now. That's the cycle of our Platinum Collection, the highest echelon of Disney classics. We treat those with a lot of respect and with a lot of care, both in terms of premium prices, which they demand, and in marketing campaigns that are of the highest magnitude.
We also have a huge library of live-action films where we have a tactical opportunity to be a little more aggressive with in-and-out-type retail promotions and where pricing can be a tool that we can use to incentivize people to try our products. We do that keeping in mind that this is, we believe, a long-term opportunity for growth for the industry. We're not interested in maximizing revenues today and then foregoing them in the future because we burned a bonfire instead of a candle. The whole portfolio is oriented toward not only short-term growth but also long-term growth for ourselves and our retail partners.
VSM: Besides the strategy to maintain the annuity of the classics you are recycling through the Platinum Collection, one every year for 10 years, what else comes along with that strategy?
Chapek: There are also the derivatives. For instance, with Beauty and the Beast, we're following up the DVD four weeks or so later with Beauty and the Beast: The Enchanted Christmas, which is the Disney Video Premiere sequel. So we have a very intense period of time where we take the original movie, [shown] in IMAX, then sell it on video in its Platinum form, and then have the Disney Video Premiere. So you have this one year of time where you are keeping something fresh in the consumer's mind. The whole company supports it. Retail supports it aggressively, and then next year you turn your attention to another title.
VSM: The big screen approach to Beauty and the Beast was interesting. How does that affect transition to video?
Chapek: Beauty and the Beast has been adapted in terms of reanimating the peripheral edges of the images so that it not only played in typical 35mm theaters, but also in IMAX theaters. Quite a bit of work was done on that film to get it so that it would look great when it's, you know, seven stories high. And the home video consumer is going to be the benefit of that because when you take that image which looks exquisite on a huge screen already and move it into a small screen, well, it's just going to get sharper and sharper. I think consumers will be astonished at how great this looks.
VSM: There has been a lot of industry discussion of late about the direction of DVD pricing and positioning of the product. Is the industry doing a good job of pricing DVD?
Chapek: A studio's job is to maximize the value of its creative assets. Using that definition, I believe, on hit products the studios are doing a pretty good job of maximizing the value of their creative assets. I do believe there is a trend now, when it comes to catalog products, of a race to the bottom. And if you buy my premise that a studio's job is to maximize the value of its creative assets, then one might come to the conclusion that if you race to the bottom too quickly, you're not doing that. It took DVD only a few years to get to pricing levels that VHS took 15 years or more to get to. You can suggest that's market-driven or studio-driven, but, again, we like to think not only short term but also long term for our products, maximizing the value of our products for us and for our retail partners.
Now, it makes sense that, over time, as the value of a product falls off, so does the pricing in order to interest people in buying it. My question is, in a marketplace where 75 percent of the consumers don't own DVD hardware, what studio, if they wanted to maximize the commercial value of their creative assets, would want to be pricing their library at $5?
VSM: Do you see a correlation between installed base and pricing?
Chapek: One would think there would be a correlation between installed base and pricing, but when you see DVDs being sold for $5 when 75 percent of people don't even own a player yet, then you would say there is no longer a correlation.
VSM: What role do you see VHS playing, and for how long?
Chapek: We're not anxious for the VHS market to go away. But given the excitement that consumers have for the DVD format, given the added value and experience they get, we're not going to artificially support the VHS market in order to detract from the DVD side. That said, we're also not going to prematurely end the VHS market. Pricing in the current market, though, makes that difficult. With DVDs so aggressively priced, it makes even less sense for consumers to buy a VHS tape, as opposed to a portfolio that has VHS priced relative to its point in its life cycle and DVD priced relative to where it is in its life cycle. But, again, at least in catalog product, it just seems to be converging in a race to the bottom.
VSM: How does this fit in with the rental side of the business?
Chapek: In terms of the rental business, it's my personal belief that in an optimal market, not every consumer wants to own every film that's made. People want to try movies, but not necessarily own every movie. At some point there will be so many movies out there that not everyone is going to want to own every movie. There is going to be a certain group of films that — though right now may be sellthrough because everyone is buying everything they can get their hands on — at some point the sellthrough retailer is going to say, “I don't need these titles because I've got hundreds to choose from, and there's just not enough demand.” If you don't have a viable rental option at that point, then studios are not, once again, maximizing the value of the commercial assets.
Right now, there may not be a right opportunity for a rental window on DVD, but that's not to say that at some point that won't happen. It's largely controlled by how many movies people will buy. The average DVD household right now, our research is telling us, is buying about 16 [a year], while the average VHS household is buying about 5, so there is still a high demand to buy a lot of movies. If that moderates in the future, you may come to a time when it's in the studios' best interest and in the retailers', both sellthrough and rental, to have a DVD rental window on some titles.
VSM: Do you see pricing on VHS having to continue to come down in the face of DVD?
Chapek: It has come down. To us, though, a hit movie is a hit movie, and we'll provide that movie in a VHS format if the consumer wants it. But to us, the value is in the hit movie, not the format. The DVD format does demand a premium, but I don't think you'll see a day where there is a wide pricing disparity in hit product between VHS and DVD.
VSM: How is Disney approaching the full-screen vs. widescreen issue?
Chapek: Well, you have two very passionate groups. One group is watching movies on 19-inch televisions. And while technically they are getting more picture with a widescreen version, the image of the picture is so small that their impression is they're getting less of a movie. And in some cases there are subtitles that can almost be illegible. So it's understandable that sometimes a pan-and-scan version is optimal. And many major retailers are emphatic about having those versions of the movie as separate SKUs. On the other hand, you have the film enthusiasts who have the 65-inch widescreen televisions, and the last thing they want to do is lose a portion of the movie to the formatting. So our position is that you pretty much have to provide everything to everybody, unless of course the aspect ratio of a widescreen is not too extreme. Then you can do one so-called widescreen version and have it appeal to everybody.
Editor's Note: Buena Vista after this interview announced that Snow Dogs and Max Keeble's Big Move DVDs would be issued in full-screen format only.
VSM: Disney is involved with Fox in the VOD [video-on-demand] venture Movies.com. How do you see the VOD model working in the future?
Chapek: I don't think anyone really knows how the whole VOD model is going to work in the future. There is so much uncertainty around it. I think it's one of those things that's coming in the future … and in the future it may be “coming in the future” as well. There will always be a desire to own movies and to own tangible copies of movies. In the rental business, it becomes much more of an interesting question. However, we believe that the rental prepackaged-media business that we're in right now will continue to flourish for many years, whether it's in VHS or DVD, or whatever is coming up in the future. That's not to say at some point in the future VOD won't gain some foothold in the market. But if you look at the sheer magnitude of the video rental business and do calculations as to how fast the growth would have to be for the current PPV [pay-per-view] market in its new iteration (which would be VOD), it would take quite a long time to put a dent in the video rental market.
Editor's Note: Last week Fox and Disney announced they would be separating as co-partners in Movies.com, with Disney going ahead with Movies.com, and Fox pursuing other broadband strategies. See this week's cover story.
VSM: It seems the business and creative aspects of theatrical and home video are moving closer together with cross-marketing. Filmmakers are much more involved in, and mindful of, DVD even as they make their films. How do you see this playing out?
Chapek: We deal with filmmakers a lot more than we used to — a lot more and a lot earlier — because of the development of bonus materials. In order for us to make the windows we need to make, you really need to be developing the bonus materials while the movie is still in production. We work very closely with filmmakers to ensure that their artistic vision of the material meets our commercial version of it.
VSM: Which can be a challenge at times, can it not?
Chapek: Yes, it can, but generally it works pretty well. You have to allow [directors] some creative leeway. If you have their respect in your ability to do commerce, then it's a lot easier. In terms of marketing, we're also working more closely with our theatrical brethren. Doing cross promotions as we did with Peter Pan 2: Return to Neverland and our original Peter Pan, which was released simultaneously on video. From a video standpoint we thrive on the heat from a theatrical release, and at the same time they thrive because the very same core equity of what their new movie is spun off of is being repromoted in the marketplace at the same time. It's really a symbiotic venture for everybody.
VSM: What are the industry issues that you are most passionate about?
Chapek: I think one of them is the timely evolution of technology. There has been a tremendous amount of press recently about new video or DVD technologies — blue laser and red laser and others — and I think they could all be potentially good for the industry at the right time. So a strategic metering of who, what, when, where and why on the rollout of new technologies as opposed to a willy-nilly, stomp-on-the-gas, 12-different-directions- and-we-all-collide-at-some-point-in-the-future approach. It should be rolled out for everyone's benefit, including the retailer and the consumer.
VSM: How about within the Disney organization. What are the focal points you try and get your people to focus on? What's the mantra?
Chapek: The growth of the DVD business is important for anyone in this industry. So we're definitely focused on that. But a huge growth opportunity for us and our retail partners is our Disney Video Premiers business. We have had extraordinary success over the years with titles like Cinderella 2, Lady and the Tramp 2, our upcoming Tarzan and Jane full-length adventure; these and other titles have been a $1.5 billion business at retail since we started with Return of Jafar. These titles can each represent $100 million opportunities, so that is obviously something we're focused on. Another thing we're focused on is pragmatic growth of catalog in the new DVD format.