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October 17, 2008

Failure Continues to Reward

Demonizing corporate greed during the worst economic meltdown since the Great Depression has become almost too easy with no shortage of public enemies to assail.

Apparently, Trans World Entertainment — parent of the f.y.e., Suncoast and Second Spin stores — wants in on the abuse.

Last week, the compensation committee of the Albany, N.Y.-based packaged media retailer’s board said it approved incentives to three executives in the form of restricted stock and deferred cash payments totaling $900,000.

The perks to Jim Litwak, president and COO; Bruce Eisenberg, EVP, real estate; and John Sullivan, EVP and CFO, include individual payments of $150,000, payable Nov. 3, 2009, and successive $75,000 payments payable Nov. 3, 2010 and 2011, respectively.

They hardly need the money as Litwak’s 2007 compensation (including stock options) totaled $831,737; Eisenberg tipped the pay scale at $452,278; and Sullivan earned $514,770.

The company said the additional monies are part of a long-term incentive plan originated in 2005 — incidently, the last time Trans World turned a profit. Corporate "wisdom" says that without incentives companies would find it difficult to recruit and retain qualified senior executives. Apparently, a multiple six-figure salary isn't what it used to be. 

Why should you care? Because it is precisely this sense of entitlement among many public companies that contributed to the stock market mess. Corporate denizens beholden with the fiduciary duty to maximize shareholder value, instead enrich themselves while their companies' fortunes freefall.  

In a 2007 financial call, several investors decried the millions in compensation and related perks (use of corporate jet) awarded founder/CEO Robert Higgins, his executive team and board members.

“It does seem out of whack for a company that has had negative to flat [same-store] comps for six plus years to have a corporate jet,” said one investor.

Obviously, management is out of whack and investors have pulled the plug with shares down near historic lows. Maybe, it’s time to put the plane on eBay.

 

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October 13, 2008

My $1 Question for Netflix

Netflix last week decided to raise subscription prices for those who rent Blu-ray Discs.


On the surface, that seems reasonable. Blu-ray Discs cost more to buy than DVDs. Why not charge customers who want to rent those higher-cost discs more?


But when you consider that Netflix offers movie streaming at absolutely no extra charge, it brings up some interesting questions.


Why is the ability to rent Blu-ray Discs worth $1 more a month, when streaming — which obviously costs Netflix something in terms of server space, programming and IT — isn’t worth a penny more?


It may indicate the value Netflix — and by extension its customers — place on the high-def disc versus lower-resolution streaming. Or it may indicate that Blu-ray has a stronger market than streaming — one for which customers are willing to pay.


Also, it may indicate that Netflix, while straddling the packaged media and digital delivery line, is determined to compete in the Internet-delivery arena — even if it means subsidizing it while charging more for renting the high-def discs.


Netflix executives have said Blu-ray Disc rentals represent a very small part of their business. Why then are they charging this very small group of customers more? Why are they subsidizing the streaming customers?


For the most part, the inexorable trend for rental prices has been down, helped along by the ever-shrinking cost of DVD. During an extended price war, Blockbuster Online’s rental service and Netflix pushed the price of viewing rental movies to new lows. In that particular battle, Blockbuster finally blinked.


And now Netflix, too, is looking to hold the line on pricing and even raise it (at least on Blu-ray) — except when it comes to digital delivery.


I have to ask, though, if Netflix sets a precedent of giving movie streams away for free, how will it ever be able to charge for that service?


How will Netflix make money in the non-disc future when it has so devalued the very service upon which it hopes to base its new business model?


It’s the quandary facing many Internet movie delivery services, and it will face Netflix in the years to come.

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October 07, 2008

Sony’s Style Stays Blu

I’ll say this for Sony: It puts its format where its mouth is.

Responding to a last-minute invite to attend the grand opening of a Sony Style store inside The Americana at Brand shopping center in Glendale, Calif., I wasn’t interested in the Sony pitch for the evening; they were all pumped up about something called the Sony Reader Digital Book. I had the same reaction I had when I heard about Amazon’s Kindle: yawn.

Instead, I wanted to see how Sony was treating high-def in its own line of boutique stores, four of which are now in the Los Angeles area.

I can best compare Sony Style stores to Apple’s line of shops, albeit better looking and more fun to shop in. Anything and everything Sony is here, from headphones to cameras to giant HDTVs. A corner is dedicated solely to PlayStation, and advertisements for upcoming Sony films are prevalent. The store begs customers to sit and stay awhile, with couches, benches and a “go ahead, manhandle the merchandise” attitude. There are enough employees on hand to answer everyone’s questions, and they actually know what they’re talking about (I’m glaring at you, Wal-Mart employees). These stores even have concierge desks. All they need are popcorn machines.

Most importantly, at every corner of the store, Blu-ray Disc is showcased. Not a single DVD player is hooked up to the 20 or so HDTVs for sale; most have a Sony Blu-ray player on display. Sure, you can buy a Sony upscaling DVD player if that’s what you’re here for … it’s collecting dust in a dark corner toward the back of the store. Blu-ray signage, Blu-ray reading material, especially Blu-ray Discs, all draw attention to the format. I counted a half-dozen spots where Blu-ray Discs were for sale, and while Sony Pictures Home Entertainment product got first billing, Blu-rays from other studios could also be found. And just try to find the few DVDs for sale in this store.

Dennis Syracuse, Sony’s SVP of retail, told me Sony Style stores are a gateway for first-time Blu-ray owners, with Sony offering discounts for those who walk away with new players and new HDTVs. He added that his company isn’t catering to those looking for marked-down, out-of-date merchandise, and proudly.

“We don’t sit next to Radio Shack. We sit next to Tiffany’s. We sit next to Gucci,” he said. “Ultimately what draws people here is the selection … you want to see what Blu-ray is all about, we’ll tell you. We incorporate Blu-ray into all of our displays.”

It’s not surprising Sony would push its own format in its own stores, but it did leave me wondering: How much better might Blu-ray product do this holiday season if other electronics retailers were to take the same tact?
 

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October 07, 2008

Blogue From Prague: Round Two

The supply chain has been hit again at the Entertainment Supply Chain Academy Europe conference in Prague. After several bags went missing, the morning the supply chain for hot water took a hit. Are the supply chain gods trying to prove a point?

Still, attendees were braced for some interesting panels, including one on digital delivery.

Futuresource projects digital delivery will be 14% of annual video revenue by 2012. Right now, hardware-linked services such as iTunes and Xbox Live dominate the pay business, with Sony’s PlayStation 3 poised to be a key player, said Futuresource analyst Alison Casey. On the ad-supported front, studio-backed Hulu has been surprisingly popular, she said, generating 100 million streams in July. That compares to only 7.3 million paid downloads for iTunes.

“A lot of people are willing to sit through the commercials if they can get content for free,” Casey said.

Most of the ad-supported content is TV content, she conceded, with movies more dominant in the pay arena.

One panelist noted that in talking about electronic delivery revenue growth, the industry needs to take profitability into account as well.

I couldn’t agree more. Entertainment content can’t just be a means to help Apple sell iPods or Microsoft sell Xbox 360s. It’s got to offer profit for the content suppliers and creators.

Also, electronic delivery may prove a draw for rentals, but the electronic sellthrough model seems more problematic, especially for movies. Once consumers download movies, where will they store them? On a fragile hard drive or in the Internet cloud where they’ve got no direct control?

I still think the disc is the most stable, convenient storage device for high quality video. When hard drives don’t break every couple of years, maybe I’ll change my mind.
 

 Editor in chief Stephanie Prange, in track suit, hosting a panel at ESCA Europe.

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October 07, 2008

DVD Resilient in Tough Times

Could the economy get any worse? After a summer of sky-high gasoline prices and a nationwide mortgage meltdown, we are experiencing an economic crisis the likes of which haven’t been seen since the days leading up to the Great Depression. Bank failures, crashing stock prices — it appears to be 1929 all over again, and the entire nation is clearly, and justifiably, on edge.


Entertainment has traditionally been resilient in tough economic times, and there’s no reason to believe otherwise this time around. Home entertainment, in particular, should ride out the current economic storm remarkably well, with renting or even buying a DVD a most affordable alternative to a night out on the town — or a night at the movies.


The only variable this time around is that we are in the midst of a format transition, and tough economic times might make switching from standard DVD to Blu-ray Disc something of a hard sell, since transitioning consumers have to buy not just a new player, but also a new TV to fully enjoy the high-def wonders of the Blu tide.


But if budget-conscious consumers are wary about making the switch to Blu-ray, we still have a healthy DVD business to fall back on, and it is my belief that any DVD sales slowdown we might have been experiencing these last few years will flatten out and possibly even reverse itself in the weeks leading up to the holidays.


There’s a ton of great product in the pipeline, and while the studios are aggressively pushing Blu-ray Disc, they certainly are not dropping the ball on DVD. The usual crop of high-profile theatricals coming to disc in the fourth quarter is complemented by a dazzling array of rich catalog product, movie collections and TV DVD compilations, and the penny-watching public is sure to take note, thanks to well-orchestrated marketing and advertising campaigns already in the works.


Each year the fourth quarter is make-it-or-break-it time for studios looking to finish the year in the black. And this year we will likely see the Hollywood number crunchers focus not just on tentpole year-end theatrical releases, but also on the studios’ home entertainment divisions.


We may not be in the driver’s seat, but we’re certainly in the hot seat. Here’s hoping no one will get burned.

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October 02, 2008

Blogue From Prague

I’m at Prague’s Hotel Don Giovanni attending the ESCA Europe conference, at which panelists are discussing many supply chain challenges. My most immediate supply chain challenge involves no supply of luggage. Thus, I moderated my panel this morning in a tracksuit.

But that has really been the only snag in this conference in beautiful Prague. It’s interesting to hear a perspective of the business outside of the bubble of Southern California and the United States. While domestically we’ve taken for granted the enormous Blu-ray Disc push that retailers and studios mounted in the past few months, analysts commenting on the European market wish retailers here would do more.

Europe is looking to America to take the lead, and will surely follow if Blu-ray takes off in the United States, as we all expect it will. Retailers such as Blockbuster, Wal-Mart and Target are helping to make that happen.

Meanwhile, certain European territories are still trying to figure out DVD. In perhaps one of the most under-developed regions in the video industry, the Czech Republic is having trouble generating a video specialty market. Much of the pricing in the country is undercut by extremely low-priced vanilla discs of Czech films sold at local newsstands (they call them “kiosks”). The rest of the market is dominated by grocers and other non-video specialists. It’s hard to make a profit, Czech suppliers say, when the populace thinks DVD is worth so little. While we may have our low-price leaders, I think retailers such as Blockbuster and Netflix help maintain an excitement and value for a category that can be sold next to toilet paper at other retailers.

Where Europe may be more aggressive than the United States is in fighting peer-to-peer piracy. There are several laws and government actions in the works that involve tracking and warning alleged pirates. I don’t think that sort of stuff would go over in the good ol’ USA. Heck, the American people are ready to play chicken with a possible Great Depression, rather than give the government more control.

While Hollywood leads the video pack, it’s a global business that we are in, with a variety of challenges and triumphs that may or may not match those in the United States.
 

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October 01, 2008

Riding on the Back of ‘Iron Man’

The retailers were out in full force this week with enough Iron Man exclusives to drive a collector mad. At least eight chains were offering some sort of exclusive with the film, which Paramount already was offering in three versions anyway: a single-DVD edition, a two-DVD special edition and the Blu-ray Disc version.

Costco offered the two-DVD special edition with three bobble heads. Trans World-operated FYE and Suncoast stores had the special edition in steelbook packaging. Borders offered a sketchbook of “Iron Man” comic book covers. Circuit City offered access to six digital comics with purchase of the special edition or Blu-ray Disc of the movie. Kmart and Sears offered a $5 discount with a $25 Craftsman purchase.

 

 

 

 

 

 

 

Circuit City's digital comics

If sorting through those weren’t enough, the big three of Target, Wal-Mart and Best Buy checked in with more than enough packaging variants of their own.

Best Buy offered a lithograph with purchase of Iron Man, and also had a DVD gift set that included an Iron Man bust and a $50 Sideshow Collectibles gift card. Sideshow, which created the Iron Man bust, specializes in statues and high-quality action figures based on pop-culture franchises. The upcoming Indiana Jones and the Kingdom of the Crystal Skull Best Buy exclusive will offer a similar arrangement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Best Buy's Iron Man bust

Best Buy also was exclusively selling a DVD (from 20th Century Fox Home Entertainment) of the 1998 TV movie Nick Fury: Agent of S.H.I.E.L.D., starring David Hasselhoff as Fury. The Fury character cameos in the Iron Man film, with Samuel L. Jackson playing the role (Jackson inspired a re-design of the character in 2002 for Marvel’s “Ultimates” comic books, hence the racial change).

Wal-Mart certainly didn’t do collector’s any favors, either, offering collectors a choice of the single-disc version with a bonus disc containing an episode of the upcoming “Iron Man” animated series, or the two-DVD set with an exclusive mini-comic.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wal-Mart's exclusive mini-comic

Target offered the two-DVD and Blu-ray versions in special packaging molded like Iron Man’s mask. The mask opens to reveal the discs. Curiously, Target isn’t offering the regular versions of either as an alternative, just the collectible version.

Target’s approach here isn’t too different from what it did with its exclusive Transformers DVD packaging. Last year, Target offered a transforming Optimus Prime case with the two-DVD special edition of Transformers, and this year, to coincide with the Blu-ray release of the film, also offered an Optimus Prime mask package and a Megatron package (equal time, I guess).

Pictures of all the Iron Man exclusives can be found here (www.movieweb.com/news/NE6KDa79FWfl9a).

And if you don’t think this is out of hand, wait until The Dark Knight hits Dec. 9.
 

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September 30, 2008

Two Retailers That Weathered Change

In our latest issue, we recognize significant anniversaries for two important retailers in the video industry, Best Buy and Hastings Entertainment.


Best Buy was an important player in the rise of video sellthrough and DVD. Now on the 25th anniversary of its name change and expansion into video from its Sound of Music origin, Best Buy is helping to transition the industry to Blu-ray Disc through both hardware and software initiatives.


Hastings Entertainment, which has embraced an a la carte entertainment concept now being championed by the likes of Blockbuster Inc., has weathered the difficulties of the music and video industries for decades, outlasting such venerable institutions as Tower Records and Video.


Much has been made of new digital players, such as iTunes and Netflix, but Best Buy and Hastings deserve a round of applause for riding the many waves of change in a business that seems to reshuffle the deck every few years.


When I first joined what was then Video Store Magazine in the early 1990s, the industry was primarily a rental business of VHS videocassettes (I don’t quite date back to Betamax, but I do vaguely remember it). By the late 1990s, direct deals and complex copy-depth models dominated the rental business, flooding shelves with copies of the hits.


But a new format, DVD, appeared on the horizon to shake up the business once more. The little disc turned out to be a video collector’s dream, but it also offered a low price for rental dealers that made copy-depth a snap. It also opened up a whole new business for used discs. Suddenly, by-mail concepts such as Netflix took off, as did rental kiosks. Those concepts would not have been viable with clunky VHS cassettes.


And now we are transitioning to yet another format in Blu-ray Disc, which both Best Buy and Hastings are embracing, as they have embraced and adapted to the other changes in the business.


It’s not easy to keep abreast of the video wave, and retailers such as Best Buy (on its 25th) and Hastings (on its 40th) deserve kudos for their savvy business practices.

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September 23, 2008

EAA’s Wine & Wisdom Brings Together the Industry

For such a sobering cause, the people running the Entertainment AIDS Alliance sure know how to make fundraising a festive affair.

The annual Wine & Wisdom and Visionary Honors events are two of my favorite of the year, where the industry shows it has heart (EAA has raised roughly $4 million for various AIDS foundations) and offers one-of-a-kind networking opportunities.

The Four Seasons Hotel in Beverly Hills was host to this year’s Visionary event, where Walt Disney Studios Home Entertainment and Target were honored for their support of the organization. WDSHE North American GM Lori MacPherson and Target’s Darrell Tucker, VP of merchandise, entertainment group, accepted the honors.

Last year, at my first Visionary dinner, I knew few in this industry, and when introduced, I didn’t really have a first name. It was usually “Oh, you’re Ralph Tribbey’s kid.” There are two replies to this: if you’re on good terms with him, “Yes, I am.” If not, “No, we disowned each other years ago.”

This year, it’s like the closing minutes of that old children’s series “Romper Room,” though instead of a magic mirror, I’ve got my camera: I can see Leslie McClure and Matt Lasorsa. There’s Steve Nickerson and Sandy Friedman. Gaby Vizcaino and Maria LaMagra. Tom Chen and a newlywed Fritz Friedman. Rich Marty and I debate the holiday SRPs for Blu-ray Disc players. Brenda Ciccone and I talk about marketing for Kung Fu Panda. Paula Tait reminds me we need to do dinner. In addition to mingling with familiar people, I also get to meet those I only know by name or email.

Networking over cocktails and hors d’oeuvres is the highlight of my event, but the auctions are a close second. Last year Steve Feldstein outbid me on the one thing I bid on. I’m determined to not let this happen again. I get into a minor bidding war with EAA Secretary Vicki Greenleaf over two tickets to Santana, a really neat trick on her part, considering she’s at home with the flu.

My name’s called for winning two auctions; everyone starts to suspect a fix might be in when it comes time for the evening’s raffle. My father (or that old guy with the same last name, depending on who’s reading) wins a DreamWorks gift basket. The very next draw comes up with my lucky number, for a Panasonic Blu-ray player. My magazine coworkers and the EAA crew look at me with disbelief. I have a tough time winning coin flips, much less two auctions and a raffle in one night.

Memo to the EAA: You really didn’t have to bribe Ralph and I … we would have written nice things about you anyway.


 

Editor in chief Stephanie Prange and senior reporter Chris Tribbey at EAA's Wine & Wisdom.

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September 23, 2008

Beyond the Glass Ceiling

In our current issue, Home Media Magazine honors the women of home entertainment, a smart and savvy group of executives who are leading our industry at a time when we are at a critical crossroads.

DVD, the format that led our industry to unprecedented growth over the past 11 years, is now mature, and sales have leveled. Blu-ray Disc, the format that will likely allow packaged media to survive, and even thrive, in an increasingly digital world, isn’t “there” yet. Sales are climbing impressively, but the format is still a good year or two away from mainstream adoption.

As our industry buckles down to weather the transition, we find a significant percentage of top industry executives are women. We decided to profile some of them in this issue, and as I edited senior reporter Chris Tribbey’s nearly 6,000-word report on the women of home entertainment, I found some similarities among the honorees. Specifically, they are well-educated, well-rounded and in positions of increasing importance, both at their own company and within our industry. While there is just one worldwide president of a major studio’s home entertainment division — Kelley Avery of Paramount — there are more than a half-dozen other business and marketing leaders who essentially call the shots at their respective studios, from developing and implementing an overall Blu-ray Disc strategy and overseeing every stage in the product distribution cycle to acquisitions, packaging, sales and marketing, and fulfillment.

The import of women isn’t limited to the studio system. Amy Jo Smith, executive director of DEG: The Digital Entertainment Group, is now taking the lead in promoting awareness of Blu-ray Disc to the world at large. Jill Hamburger at Best Buy is a trendsetting retail executive whose empire happens to be one of the country’s biggest sellers of DVD software. And there are several other women who run, or have founded, independent DVD suppliers — entrepreneurial mavens who have been taking pot shots at the proverbial glass ceiling for years.

So congratulations to all the women of home entertainment. And lest I forget, let me also give kudos to the women of Home Media Magazine: Stephanie Prange, Angelique Flores, Kyra Kudick, Renee Rosado, Julie Savant, Joni Wu, Kristina Kronenberg, Kaitlyn DeWaard, Jennifer Evans, Brady Gallardo and Jennifer Guerena. Hey, that’s more than half the staff …
 

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