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Home Entertainment Presidents Discuss Format Challenges

8 Jun, 2004 By: Holly J. Wagner

The allure of new formats for presenting and retailing entertainment content is great, but the heads of studio home entertainment divisions are circumspect about when to leave old formats behind and jump into something new.

Executives speaking on a Presidents' Panel at DVD Lucky 7 are leery of choosing sides in a technology showdown that could become an all-out format war between HD DVD and Blu-ray unless the technology and hardware camps resolve differences.

Although, as 20th Century Fox Home Entertainment president Mike Dunn put it, “it's important to have our gun ready,” the time may not be right to pull the trigger.

“We cannot go to market with two formats. It will be the death knell for this technology,” said David Bishop, president of MGM's home entertainment group. He and others also don't want to leap into a new technology before maximizing the existing DVD revenue stream.

“We don't want to step on growth for standard DVD a little bit too soon,” said Steve Beeks, president of Lions Gate Entertainment.

“We are looking for something to augment the already high-definition of DVD and the lossless audio,” said Bob Chapek, president of Buena Vista Home Entertainment. “We're not in a big hurry to align ourselves with one format or the other.”

He, Bishop and Warner Home Video president James Cardwell all made it clear that their studios have not settled on which of the nascent high-definition formats to support. And other countries are still building steam toward the phenomenal success of DVD in North America.

“DVD penetration in Italy is 20 percent. I don't know what the big rush [for a new format] is,” said Henry McGee, president of HBO Home Video.

Even putting more support behind existing formats like video-on-demand (VOD) in the form of possible window changes is not yet an attractive prospect, the executives said.

“We all make lots of money here from non-use of our product,” Bishop said. “If we go to a model that has almost 100 percent consumption, it cannibalizes our revenue.”

Cardwell said that “from a theoretical point of view, it's great to think of selling directly to consumers,” but the VOD marketplace has not reached the critical mass necessary to drive a window change.

“Sellthrough is dominating our market these days, and I think it will largely determine what happens,” Chapek said. “Windows in general are good. They prolong the revenue stream and satisfy different consumer needs at different times.”

Preserving the price point is as important and may be even more challenging than prolonging revenue streams.

“We have certainly seen, in the domestic marketplace, prices continue to decline as we continue to exploit library,” said New Line Home Entertainment president Stephen Einhorn.

“Retail is increasingly aggressive. Week one, the price points they are coming out with is artificially devaluing our product with consumers,” said Kelly Sooter, domestic head of DreamWorks Home Entertainment. PVT and used-disc trade also help keep prices down.

“It's potentially harmful if it means people are buying used or trading used. But it also trains people to collect,” Cardwell said.

Just as multiplexing has concentrated the theatrical revenue into the first few weeks of release, street dates and consumer awareness of them has concentrated home video revenue early in the cycle as well.

“Street-date rewards are greater than before. We need to manage it better,” Cardwell said.

But DVD still reaches a vast market of consumers who don't often go out to the movies, said Universal Studios Home Video president Craig Kornblau.

“One half of the people who buy DVD never saw the movie in a theater,” he said. That makes the street date more sensitive to authoring timelines than to theatrical performance.

“Rather than sticking with a rigid, six-month video holdback, I think we are all testing it,” Beeks said.

TV shows on DVD, direct-to-video titles and other product also create greater competition for release-date thunder. Then there is the strategy of timing theatrical-to-DVD releases.

“I don't think you want to compete with somebody who whacked you in the theaters,” Dunn said.

The upside is that now that DVD is entrenched, home entertainment executives can make timing decisions as soon as a project begins.

“Starting at the green light phase lets you pick the window,” Sooter said. And DVD's success makes it easier to get promotional partners as well.

“The video category has grown so significantly that people are really seeing the benefit of tying in to the video release,” she said.

While Bishop pointed out that accurate figures about the impact of piracy are difficult to come by, the panelists agreed that piracy, especially in overseas markets, is an ever-present threat.

“The DVD duplicating capacity in Russia exceeds legitimate demand by 10 times. That gives you an idea of how big the problem is,” McGee summarized. “This could all come crashing down if we are Napsterized.”

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