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Insights from home entertainment industry experts. Home Media blogs give you the inside scoop on entertainment news, DVD and Blu-ray Disc releases, and the happenings at key studios and entertainment retailers. “TK's Take” analyzes and comments on home entertainment news and trends, “Agent DVD Insider” talks fanboy entertainment, “IndieFile” delivers independent film news, “Steph Sums It Up” offers pithy opinions on the state of the industry, and “Mike’s Picks” offers bite-sized recommendations of the latest DVD and Blu-ray releases.


Opinion
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4 Jun, 2004

T.K. Returns Next Week

T.K. Arnold's column will not appear this weekend, due to a family emergency. His column will resume next week.


2 Jun, 2004

Another Reason to Love DVD: It's the Perfect Father's Day Gift

I was browsing around a Borders location yesterday and noticed a sign in the window touting: “DVD for D-A-D.”

And it's really true, I think. DVD is perfect for Father's Day. After all, Father's Day (whether you think of it as a manufactured bogus holiday or not) has always been a little bit tougher than Mother's Day. On one hand, expectations are usually a bit lower from dads because they don't put nearly as much stock into the “holiday' as moms. On the other hand, it's harder, because what do you get for your dad to say ‘Hey, thanks for sitting in the chair by the door reading the newspaper during my flute lessons for all those years.”

With Mom it's easy: a sappy card, a lunch date, a few flowers and you've pretty much sent her to the Kleenex box.

We were kind of lucky growing up in my family when it came to Father's Day gifts. My dad didn't wear ties to work, but he was really into books and music, and we knew exactly what kinds, because he was always foisting his tastes onto us. Also, he was pretty much blas? about the whole Father's Day thing.

Now, it's all about DVD — specifically Lord of the Rings, for him and for my uncle as well. New Line's timing with Return of the King couldn't have been better. And they're always asking me “Hey Jesse, when does [insert upcoming sci-fi/fantasy/action/thriller here] come out on DVD?” So, basically, I always have some idea of what to get them for any occasion.

My brother-in-law is another one. He's a new dad, and all about the showering of Father's Day gifts, and he's a DVD freak to boot. The only problem with him is making sure I time it right and make my sister put the brakes on his DVD spending so he doesn't buy what I'm planning to give him.

For Christmas, I piled a bunch of classic films and war movies into a steel bucket with some gourmet popcorn and gave it to my grandpa.

He cried.

So, now he's getting some World War II DVD stuff for Father's Day.

There are so many genres and types of product out there on DVD that there's practically something for any dad.

And we don't have to do hardly any work for that perfect gift. The retailers help us out with plenty of signs and merchandising to offer DVD suggestions for dads.

Maybe I'll eke out a few tears this Father's Day after all.


1 Jun, 2004

Want More Proof that Rental Is Dead? Go to the Flea Market

Two topics that come up frequently in The Buzz are guaranteed to bring a hail of angry — or at least perturbed — letters: 1) VHS is dead and 2) Rental is dead.

I'm bracing for a round of slings and arrows for saying so, but methinks the rentailers doth protest too much. Face it, folks, rental is down this year. Blockbuster says 10 percent for the first quarter at its stores; Video Store Magazine Market Research says 16.5 percent across the industry. Other estimates range in-between.

I know, I'm jaded. I work in the industry like most of you, so I have access to a lot of product, and I know I was fairly early in the technology timeline to jettison VHS. I am in a bustling metro area that may not precisely represent what is going on nationwide. But this weekend's stroll around the flea market made it clearer than ever that nobody, even bargain hunters, has much interest in VHS anymore. Even at rock-bottom prices, they just sit there. But across the lot, stands selling used DVD at prices ranging from $7.99 to $13.99 each looked like little beehives with all the folks buzzing around — and buying. (One stand, by the way, was selling off rental stock. You could tell because of the hand-numbered stickers on each case. And they sell almost everything they bring to the market each weekend.)

It's funny how most of the letter writers assailing the “rental is dead” statement concede that they are surviving (and some are thriving) on PVT and used, not rentals. Even over on the VSDA discussion boards, people are talking exit strategies. The writing is on the wall, and it's discount. True, the craftier specialty dealers are coming up with ways to stay profitable and stay in business. But those new strategies are not based on rental or VHS. For the most part, PVT and used DVD are keeping businesses afloat.

Don't get me wrong, I'm all for it. I'm glad to see honest businesses stay in business. I just wonder about the Pollyanna mentality that says people will keep renting for $4 a night or even $5 for five days when they can buy for not much more and, in many cases, rent for much less.

I couldn't help notice an article in The Citizen News (Atlanta) that quoted a Blockbuster executive, Terri Murray, saying the chain had converted “one of its ‘most profitable’ stores to a Movie Trading Company. I'm guessing that store was one of the larger footprints in the chain, and I expect to see those stores that are big on square footage targeted for conversion first. Hit-driven rental stores just don't need the real estate.

I don't think the industry can keep going as it has for much longer. It may keep going, but it won't look much like it has in the past.


1 Jun, 2004

Mom Often Knows Best

While many in the industry debate the effect of McDonald's move into the video vending business, I'd like to note that one of my favorite sounding boards — my mom — thinks the threat is real.

I've often used my mom as a gauge of trends. She's usually the last to adopt one — when she got a DVD player a year or so ago, I knew the format had triumphed — and she's very conservative in her assessment of anything.

When I told her of McDonald's plans to offer rentals through vending machines, her first reaction was, “Well, Blockbuster's finished, isn't it?”

I know it's not scientific, but in my experience, Mom often knows best.


30 May, 2004

The Commoditization of Packaged Home Entertainment

Customer loyalty and convenience. These are watch words that are being applied in the retailing of home video product across as diverse a spectrum of locales as one can imagine these days, as is evident by several recent announcements.

First, and certainly not least, is Blockbuster's subscription-model response to Netflix, which rolled out nationwide in the United States last week — as the chain has been promising for some time — after an 18-month-long test in more than 1,000 stores. A company spokesperson said the test showed the chain's customers have responded well to the idea of a rental transaction that is not time-sensitive, that is, it does not expose them to the potential for “extended viewing fees” if they choose to hold on to the video and return it at their leisure. That's a convenience they are willing to pay up-front for.

Apparently, Blockbuster has not seen enough potential negative financial impact from the possible conversion of high-volume rental customers to a subscription model to make the program unpalatable.

And, importantly, this sort of customer-loyalty deal typically will preclude subscription customers from using the services of another video store chain, and thus, market share can be gained at the expense of competitors.

Meanwhile, a different sort of chain, McDonald's, announced last week it is getting more serious about its own home video customer-loyalty program, placing DVD vending machines in all 105 Denver restaurants this summer, with the promise that if the program goes well, the chain will consider a national rollout later in the year. The machines, capable of holding hundreds of DVDs, will offer about 30 new releases at a $1-per- night rental. Customers can return the video the next day at any Denver restaurant.

That's a fairly convenient new option for Denver home video customers and one that creates plenty of profit opportunity for McDonald's in what it does best — selling you something to eat or drink anytime you come by.

Even multilevel marketers are increasingly getting into the act, as it seems from a variety of recent examples I have seen. Again, the idea is to appeal to people's desire for convenience. That has always been the point of multilevel marketers. But while credit cards, phone services and other consumer items can have product differentiations that can make one pause before buying from your neighbor, a movie is a movie, and one would think the threshhold for buying (and getting involved as a “distributor”) might not be so difficult to overcome. Time will tell if every neighborhood has its own local video distributor.

Hit movies, thanks to the deep marketing pockets of Hollywood, are a shared national awareness that makes the packaging and retailing of them, unlike other forms of media such as music and books, increasingly a commodity business where convenience and customer loyalty will reign.


27 May, 2004

McDonald's Is Making A Big McStake

I shook my head when our marketing director walked into my office and showed me a USA Today story headlined “McDonald's Wades Deeper Into DVDs.”

Apparently the fast-food chain, whose fatty Big Macs and killer fries aren't flying out the door the way they once were due to an increasingly health-conscious environment, is once again looking to video to shore up its bottom line.

According to the USA Today piece, McDonald's plans a summer-long test of DVD rental kiosks in all 105 of its Denver restaurants — which comes on the heels of smaller trials in Washington and Las Vegas. Based on the results, “McDonald's hopes to become the first fast-food chain to rent top DVDs nationally.”

Plans call for the top 30 DVDs to be rented at Redbox kiosks, inside or outside restaurants. The overnight rental rate is a buck, and DVDs may be returned to any McDonald's.

This is hardly the first time McDonald's has tried to undercut its way into the home video market. Back in the early 1990s, there was an uproar when McDonald's hatched a plan to use videos as premiums, selling top titles for as little as $5 each at a time when sellthrough was still in its infancy. Retailers cried foul over the sweetheart deals that allowed McDonald's to sell cassettes at so low a price. They also argued that these promotions would devalue videos and make it more difficult for traditional retailers to not only sell cassettes for $20, but also to justify charging customers around $100 for lost or damaged rental cassettes.

In some cases, studios backed down, but over time McDonald's kept at it, although the results were unspectacular. The cheapo promotions didn't devalue video, nor did they make the fast-food chain the new Blockbuster.

I can only surmise that McDonald's, hit hard by the general malaise affecting the fast-food business, is looking toward DVD as salvation — just as the mass merchants are using hot new DVD releases as loss leaders to drive people into their stores in the hopes that they'll buy things like toothpaste and toilet paper with comfy profit margins.

But I think McDonald's approach is all wrong. By renting DVDs, McDonald's is hoping to boost return trips to its restaurants. And yet there's a far better way to get people to come back that the great minds at corporate headquarters probably haven't thought about:

Better food. I used to work there as a teenager and let me share a little trade secret: To keep costs down, at least back then, the Big Mac used “reconstituted” onions rather than fresh ones. I was once in charge of doing the “reconstituting,” meaning I scraped dried onions that looked like the stuff that collects under your fingernails onto a countertop, added water and voila! — spread the stuff on the bun. I haven't eaten a Big Mac since.


26 May, 2004

The Lure of the Theater

When querying U.S. home video distributors about their sojourns to the 57th Festival de Cannes last week, I realized that despite the phenomenal impact DVD has on a film's potential profitability, the lure of a theatrical release, despite the cost and marginal return, at times will supersede conventional wisdom.

Wellspring Home Entertainment, which acquired the rights to Vincent Gallo's infamous The Brown Bunny, plans to release the film theatrically prior to video.

Tanya York, CEO of York Entertainment, said filmmakers prefer a theatrical debut largely due to ego and tradition.

“There is absolutely more money to be made in home video, but the prestige remains with theatrical,” she said.

Ildi Toth-Dady, director of international home entertainment at First Look Media, agreed.

“DVD is the bread and butter of our business,” said Toth-Dady. “It has to be really special to get a theatrical run.”


25 May, 2004

Would You Like Fries With That DVD?

The competition is getting scary out there, and the first casualty is likely to be rental margins.

Just last week, I was ranting about $9.99 sellthrough discs at supermarkets. Now video specialists will have to compete, at least in Denver, with McDonald's. The chain is putting DVD rental kiosks in or just outside of its 105 Denver-area stores, and I have to tell you, I would not want to be the guy with the video store across the street from Mickey D's.

Since McDonald's is in the burger business, the chain — much like Wal-Mart — doesn't have to make money on DVD. It just has to keep people coming in to buy more burgers and salads. Hence the $1-a-day rental fee at those Redbox machines: DVD has already become the carrot dangling from the end of the stick, a mere incentive to buy whatever you really wanted in the first place. Or at least to buy it in a different place.

And that may not even be the worst of it.

Dee Cravens, the EVP and chief marketing officer for DVDPlay, which makes the vending machines McDonald's is using, told me that some other companies testing the machines offer rentals for as little as 69 cents a night. That's going to put a lot of pressure on rental pricing, at least for the latest hits. The ones on which Blockbuster has depended for growth.

Meanwhile, Big Blue has only this year got its software worked out so customers can use their membership cards at different stores. Those folks still have to return the rental to the same store where they got it, while McD's renters will be able to return their discs at any McD's with a rental machine.

Same-store rentals at Blockbuster stores in the United States were off 10 percent in the first quarter of 2004, and movie rental revenue was down 10.7 percent, according to a corporate filing with the Securities and Exchange Commission. And that was before one of the few companies with such pervasive brand recognition and more store locations decided to get into the game.

Even though Blockbuster wants to offer its customers subscription rentals nationwide this year, this increases the pressure out of the gate to make sure customers can rent and return in different places. It will also make a $25 monthly subscription much less attractive than it is to consumers who are paying $3 or $4 a night for a new release. The chain's new initiatives, which are aimed at “replacing declining rental revenue,” will face that much more of a challenge.

No doubt the other chains will feel it as well, on new release pricing at least. Even Movie Gallery, which has been relatively insulated from competing new technologies like broadband and cable video-on-demand, will have the specter of Ronald McDonald looming over its stores.

This could also hit other Denver dealers large and small with problems maximizing pre-viewed revenue: If even 10 percent of a business' customers rent from McDonald's, it will start to take longer to turn any hit title enough times to reach the selloff threshold. If McDVD forces others to rent new releases even cheaper, hitting the selloff point will take that much longer.

Even Netflix may have to evaluate how much of an investment it wants to make in new hit releases, part of its growth strategy, going forward. It will depend on how big of a dent McDonald's makes.

The one thing that most likely is safe from the burger giant is adult product. I doubt McDonald's will want its child-dependent brand associated with porn. Will we see Hollywood and Blockbuster start offering adult (Movie Gallery already does) to compete?

The chains seem to understand that they will have to offer more to keep growing, or just to stave off disaster. But I'm not looking for burgers or cheesecake at my neighborhood Blockbuster any time soon, so they had better hurry.


24 May, 2004

TV DVD Finding Its Channel and Muscling Out Reruns

In their bid to compete with cable and provide something fresh in a market where viewers can record their favorite shows with TiVo, broadcast networks are doing away with reruns, according to a recent story in The Los Angeles Times.

Another reason cited to retire reruns: TV DVD. The TV DVD channel may be new to small-screen distribution, but it is already finding a strong niche, muscling out rebroadcasts.

To see this phenomenon, you don't need to go far. Just visit the local Target, as I did this week. About 15 percent of the DVD/VHS wall in a Target I visited featured TV DVDs, including the recent “Friends Party Pack” exclusive — with a DVD of the producers' favorite “Friends” party episodes, a CD sampler and party favors, including a commemorative serving tray, party recipes, coasters, Central Perk House Blend branded coffee and “Friends” trivia cards — created for the finale of that long-running NBC show.

“Sex and the City,” “The Family Guy,” “CSI” and many other TV shows on DVD took up most of the multipack section.

It's also apparent in casual conversation. I've heard friends and strangers alike discuss staying up bleary-eyed to watch an entire season on DVD.

The addictiveness of the genre is evidenced in the sales numbers, according to Video Store Magazine market research director Judith McCourt. First seasons of TV shows invariably tally a higher sales number, as those who buy subsequent seasons go back and purchase the first installment.


23 May, 2004

Warner's Rebuke of Electronics Boutique is Refreshing

I think we can all agree that Warner Home Video's public rebuke of Electronics Boutique Games last week for its blatant, chain-wide breaking of street date for The Lord of the Rings: The Return of the King, and cancellation of all future product shipments, was refreshing.

Studios have, in the past, been chided by retailers for not doing enough to punish those who break street dates. But this was an instance in which the infraction was so large, the response from the retailer so blatantly, well, unresponsive, that Warner just had to lower the hammer and do so in as public a manner as possible.

I must say, EB certainly showed a lot of chutzpah in its infraction. It appears to have orchestrated a chainwide, 10-day jump on the May 25 street date for Return of the King and didn't seem to be terribly interested in responding to Warner's initial calls to cease and desist. Indeed, EB store managers reportedly were gleeful in their accounts to Warner execs on how well the title was selling, even as they refused to stop selling the video without orders from the mother ship. Those orders, apparently, hadn't come by late last week. The chain's president and CEO, Jeffrey Griffiths, went as far as publicly dismissing Warner's concerns during an investors call on Thursday, which must have been really galling to WHV.

Street-date violations continue to be an issue in the industry and were a topic for discussion during the last National Association of Video Distributors (NAVD) meeting. As more and more retail channels get involved in selling home video releases, it's bound to continue to be a problem, both from those inexperienced clerks who unknowingly bring out product from the store room before its time (at least that is the well-worn excuse we hear so often) and specialty retailers who ought to know better, who may feel they have to respond to the competitive damage if they hear of an infraction anywhere near them.

While most street-date violations do not result in drastic action by studios, it is important that suppliers begin to lower the threshold on when they will take action on street-date violators, or the concept of a street date will continue to degrade in the marketplace until a mild case of retail anarchy begins to set in — and then things will get really ugly.