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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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3 Nov, 2002

THE MORNING BUZZ:Should You Integrate VHS and DVD? Check Out Blockbuster

The phenomenal growth of DVD over the past several years has caused rentailers to remerchandise their stores in a way that truly demonstrates the split personality of the industry as it struggles to balance two significant formats in VHS and DVD. (VHS rentals, after all, have generated 66 percent of the 2002 rental business to date, or about $4.8 billion, according to Video Store Magazine market research.)

As DVD roared into the public mainstream, many, if not most, rentailers, including the big chains, aggressively built DVD sections, segregating the two formats. The point was to appeal to the growing legions of new DVD owners looking for movies to play on their shiny new machines.

But as player penetration nears 40 percent, and as DVD continues to grow and push VHS into an ever-more-subordinate profile (at least in public perception), the challenge has become how to serve VHS customers in an ever-growing DVD world.

Interestingly enough, Blockbuster seems to be trying out a concept that ends this segregation between formats by combining both DVD and VHS copies in their new release sections. (See cover story this week.)

This is not a new idea, as recent postings on the VSDA's discussion board on this very topic attest. In fact, a number of rentailers have been trying out the segregation vs. integration approach for some time, with successes and failures reported on both sides.

Integration accomplishes several things, proponents say. It serves to give the impression that the retailer has a huge new-release section; it allows DVD owners to grab a copy of the VHS version if the DVD is out; it allows a one-stop shopping experience so that you can pick up a DVD of one title for the parents while grabbing a new release in VHS for the kids to view in the upstairs VHS-only den; and it serves to expose the VHS-only customer to what's available on DVD as an incentive to become a DVD owner.

On the other hand, other rentailers believe integration can cause DVD owners to take the fewer copies of VHS available for those VHS-only customers if the title is out in DVD, thus not protecting VHS-only customers who don't have a choice. And segregationists feel it does more to build the perception that their DVD libraries have more depth and breadth. Some don't like the unorganized look of an integrated new release wall.

The fact is that whether or not integration is good for your overall rental business -- balancing the need to maximize the declining VHS business while growing DVD rentals -- is something that must be decided on an individual basis depending on your customers' needs.


31 Oct, 2002

THE MORNING BUZZ: With the Loss of Rich, the Industry is A Little Poorer

Rich Thorward's sudden death earlier this week came as a real blow to many of us in the industry. As a journalist who's been covering this business since the late 1980s, Rich was a valued source and one of those rare birds who was as thoughtful as he was passionate about this business he loved.

Rich and I spoke a lot during the industry's first great shakeout of the early 1990s. He was a harsh critic of the studio establishment and a fervent protector of the independent retailer. After he left the retail side of the business — frustrated as many indies were — to launch his consulting and newsletter service, he channeled his energy and foresight into helping others. And I don't think I'm the only one who would credit Rich Thorward's knowledge with helping some retailers — maybe many retailers — remain competitive and solvent a lot longer than they would have without him.

I didn't speak with Rich as much after he left retailing, but in our periodic conversations at industry functions like the VSDA convention and the East Coast Video Show I could feel a sense of weariness that I'm sure we all feel from time to time. This business has changed so dramatically in the last few years, it's easy to see how insiders could feel like outsiders even though they are still in the proverbial thick of things.

Rich was a buying guru for independent rentailers at a time when the big chains had already knocked a good percentage of independents out of business — and the remaining ones just weren't that important to the powers that be in Hollywood any more.

That must grate on a guy, particularly the kind of guy Rich was. He knew his stuff, and he wanted to be taken seriously. He would have made a first-class consultant to some big chain like Wal-Mart or Best Buy, applying his years of experience in the business to the new consumer paradigm of buying rather than renting. But instead he stuck with the little rentaliers, and while he still had things to say, the expanding world of DVD retailing slowly seemed to drown him out.

Rich's passing, then, is a symbol of what could be construed as the passing of an entire era. The video rental industry, peopled by thousands of small entrepreneurs, has given way to a DVD sales machine operated by mighty chains who sell all sorts of other things besides video. And the Rich Thorwards of this world have been replaced by nameless, faceless consultants with fancy names like “category captains” who essentially fulfill the same function he did — helping their clients make more money — but on a far less personal basis.


29 Oct, 2002

THE MORNING BUZZ: Letting My Fingers Do the Walking

My TV went on the fritz this weekend. Which is of no concern to any of you, but it changed my weekend schedule because I had a friend coming over to play a new DVD game (more on that next week).

It was an old set with just one AV hookup in the back so it seemed low yield to have it fixed. I speculated that holiday pricing would be in effect and went online to shop. Not that I don't enjoy pushing buttons and comparing picture quality hands on, I just wanted to narrow the field before going to the store.

I shopped at five online sites: BestBuy.com, CircuitCity.com, Buy.com, Amazon.com and Walamrt.com. The search led me to two conclusions.

One was that BestBuy,com offers the best online shopping experience. (Well, after a brief glitch. The section of the site I wanted to see kept freezing my browser so I had to switch to the hated Internet Explorer. But after that it was OK.)

I shopped each of the sites by category, to see what was available. Best Buy and Amazon.com dwarfed Circuit City and Buy.com for selection. The ratio in the size range I was looking for was something like 5:1. For every set I could find on Buy and Circuit City. Best Buy and Amazon listed four or five more.

For shopping experience, in terms of navigation and site design, Circuit City came in second. The selection just wasn't there but, as you'll learn momentarily, that did not cost them the sale).

What kept taking me back to BestBuy.com was the depth of information on each product. I would see something on another site but be unable to check the product dimensions (yes, in the postage-stamp sized apartment I can afford, size does matter!) or something about the features. On BestBuy.com the information was not only detailed, but the product comparison feature let me check off seven sets, push a button and look at the features side by side, in spreadsheet fashion.

Circuit City.com has a comparison engine, but it was less helpful because there was less data to compare in the first place.

Still, Circuit City got the sale because availability in Best Buy stores looked dicey from the site. Which leads us to the other conclusion I reached: Amazon.com and BestBuy.com appear to be feeling the strain of port labor issues.

I've gotten some good deals on Amazon.com, their selection is usually the largest, there's no sales tax and free shipping, so I thought I would be buying there. Instead, about 2/3 of the televisions listed on the site were unavailable new (the official message reads “This item is not stocked or has been discontinued”). Sure, if I had $3,000 or $4,000 to spend I could get a nice, flat panel, high definition set. But in my price range, there was very little available new. The site did have several used options, but that wouldn't do.

Just to verify and to take a reading for our industry, I also searched the DVD player category. The cupboard appeared similarly bare (no comment yet from Amazon, but I've asked).

The problem was less pervasive at Best Buy but the item I wanted was not available for delivery, I had to go get it. Which meant I bought from Circuit City, because the price was the same and Circuit City was closer. For a 90-pound TV set that obstructs the rear view, a shorter trip was important to me.

Just one problem: the set appears to be defective (it has purple tint bleeding into the picure from the lower right corner) and I'll have to return it for another one. So expect to read next week about why Circuit City kept or lost a customer, because when I go to exchange this set, the customer service experience will be the determining factor.


27 Oct, 2002

THE MORNING BUZZ: Just What Can an “Expiring' DVD Be Used For?

I am curious to see how Flexplay Technologies' new “expiring” DVD ends up being used in the marketplace. You might recall reading here about how the new technology differs from conventional DVD only in that it has a limited viewing window following removal from its packaging. After the allotted time the disc's content becomes unreadable on DVD players. The expiring DVD was introduced at the MTV Video Music Awards Latin America, inserted into the awards show program. The DVD contained music videos and other content from five of the nominated artists.

I am not going to get a brain sprain trying to develop the financial business model as I write this, but the manufacturer is promoting the Flexplay DVD as a rental option, as well as a marketing platform. I wonder about either.

Flexplay, on its Web site, promotes itself as a competitor to the rental market at the same time it makes an effort to distance itself from the old Divx technology that, as we all know, applied some of the same principles but failed because of technological limitations. Flexplay discs can play on any DVD player and will not have the limited distribution system Divx had.

But be that as it may, can retailers and studios make money with this technology? Perhaps there can be a decent margin created on a one-time-use product, but wouldn't it necessitate a huge volume of discs and transactions? I'm not sure mass merchants are interested in getting into even this form of quasi-rental business, notwithstanding Wal-Mart's test of the online rental business. It all comes down to the cost structure of these deals and I look forward to talking with Flexplay in the near future to have them share some of their ideas in this area.

There is some sense to using a self-erasing DVD to promote such things as new music artists or a new TV show. Offering a sampling of new artist singles from a label with a music video or other graphics that can be sampled one or several times is a great marketing tool to entice users to go out and buy a new album. Seeing parts of a new pilot episode might entice new viewers (although why make this erasable?). But I am not sure there will be a model there to entice people to buy (rent, really) such discs for even nominal fees when they can “own” the music by downloading it online, though Flexplay says its technology may help to dissuade piracy.

I am curious to hear any ideas you might have to the use of “expiring” DVDs. Email me.


24 Oct, 2002

THE MORNING BUZZ: Rental is Dead. Long Live Rental!

I'm going to make a bold prediction here: the rental industry as we know it is on its last legs.

Sorry, independents, but Blockbuster is as much a bellwether as it is your Public Enemy No. 1. And Blockbuster is doing two things that I believe are a harbinger of things to come: focusing more and more on sellthrough (something I've written about in past columns) and instituting a monthly “subscription” rental model that I firmly believe will become the future model for the entire rental industry —to the detriment of independents.

Blockbuster has already raised the ire of indies with its extended rental periods — three days, five days, it doesn't matter. What Blockbuster was striving to do (in addition to putting as many of its competitors out of business as it could, thus gobbling up market share) was to minimize the inconvenience to its customers of having to come back to the video store the very next day or incur steep late fees.

This is the next logical progression — keep your videos an entire week, an entire month, as long as you want — rent as often, as much, as you wish — with the simple rule that you never have more than three videos out at any one time. All this for just 20 bucks a month.

I believe Blockbuster's Freedom Pass is not just another option. I believe that eventually this will be the only way consumers can rent videos at Blockbuster.

Of course, Blockbuster is going to have to buy even deeper than before to not run out of the hits, but no matter — DVDs, which are rapidly becoming the preferred medium of choice, wholesale for a lot less than videocassettes, even under the most optimal copy-depth program. And does anyone really believe we're not going to see Blockbuster and the other big chains start to revenue-share on DVD, just as they did with VHS? It worked once — Blockbuster's market share climbed significantly — and if the studios play along I see no reason why it's not going to work again.

On top of that, any money the chain might lose in late fees it will more than make up for in used DVD sales — certainly a growth category as the video industry shifts from a rental to a retail economy.

Ultimately, of course, I believe Blockbuster wants to become a leader in sellthrough, but in the meantime, this model will help keep its rental business afloat. Industrywide, rentals are down, and I believe Blockbuster has seen the proverbial writing on the wall and will be focusing more and more on selling videos than on renting them.

In the meantime, this is one more way for the chain to differentiate itself from other rental stores that don't have the luxury of letting their customers keep the latest red-hot hit out as long as they like.


22 Oct, 2002

THE MORNING BUZZ: One Man's Disaster is Another's Opportunity

While the short-lived (at least for now) West Coast port lockout isn't expected to have a huge effect on home video product availablilty this holiday season, I'm not ready to concede that it won't affect our market.

In fact, I'm actively advocating that video retailers and rentailers make sure the lockout has an effect on their businesses – a positive one. How, you muse to yourself?

I'm glad you asked. Because we are a nation built on mercenary capitalism and the holiday season, far from an exception, exemplifies the rule. The response to the port situation should follow in that mode.

Recent news reports have focused on the idea that toy retailers will be hardest hit because “just-in-time ordering” means the lockout will keep some toys from getting to some shelves.

Most of the hottest toys of the year listed in several reports this week, including the most prominent from research group PlayDate, have some kind of video tie-in. In fact, the top of the list is Barbie as Rapunzel, the doll co-marketed with the red-hot direct-to-video Artisan title Barbie in Rapunzel. Other video-related toys include items in the Yu-Gi-Oh!, Spongebob Squarepants, Spider-Man, Star Wars, The Lord of the Rings, Power Rangers and Scooby Doo.

This offers video retailers a great opportunity to capitalize on toy-video pairings as well as on toy shortages. A parent who can't find Yu-Gi-Oh trading cards would surely rather wrap up the DVD and promise the game later than be the sad sack who has to see disappointment on his or her child's face on Christmas day. And the parent who has no problem finding the Barbie Rapunzel doll could look like a star if they give it along with the video.

Smart retailers would do well to look at those hot toy lists and see what opportunities the list creates. Can your store afford to give a purchase discount or perhaps a free rental on Artisan's Barbie in Rapunzel to anyone who shows a receipt from purchasing the doll?

And monitor the shortages in your community. If your local toy stores are depleted of Star Wars toys, offer incentives to rent or buy the video as a stopgap gift until the light sabers and battle cruisers are back on the shelves.

Here's one more possibility: I lived in Denver for a couple of years. In such snowy climes, people may not be able to get to a distant mall or department store to fill holiday gift requests. When snow prevented my household from shopping, the answer was to cut pictures out of a catalog and wrap them in boxes sized appropriately for the real item. That way there are packages to unwrap even if the family is housebound.

Why not go a step further? Encourage snowbound customers to rent the video for a few days and wrap it as a gift with a note promising,”We'll get the toy when we return the video.” In this economy that idea could be extended to other climes, where parents may wish to buy at after-Christmas sale prices without disappointing their cherubs on the actual day.

I don't wish any misfortune on toy dealers or other retailers. But if it happens, we'd be fools not to turn it to our advantage.


21 Oct, 2002

THE MORNING BUZZ: As the Rental Business Wanes, Retailers Will Have to Look Elsewhere for Growth

The industry is beginning to see what may be the leading edge of video sales cannibalizing rental. Video Store Magazine market research first predicted in September that rental revenue for the year would fall short compared to last year. While other analysts aren't yet ready to go out on that limb, many do say sellthrough growth could have a negative effect on rentals. Analyst Bob Alexander of Alexander & Associates told Video Store Magazine, “There are some anecdotal rules of thumb that one purchase displaces three rentals.” If that rule proves true, things will have to change significantly in this industry as sellthrough grows.

The big rental chains will have to alter their business model if their mainstay – video rentals – takes a dive. Even if rentals don't die, but merely swoon, public chains such as Blockbuster, Hollywood and Movie Gallery will have to look elsewhere for the growth Wall Street demands. The chains have already put numerous indies out of business to gain market share, so that avenue seems somewhat tapped. These retailers will have to look for some other source of growth outside the rental model to take them into an increasingly sellthrough future.

In a way, they're already in the sellthrough business, garnering a good chunk of money from used video and especially used DVD sales. Notably, the most prevalent Blockbuster advertisement that comes to mind isn't a spot promoting rental, but one offering previously viewed DVDs for under $10.

Ironically, as Wal-Mart enters the online DVD rental business, the big chains are looking to enter sellthrough. Both Blockbuster and Movie Gallery have said as much in calls with Wall Street. “There are about 25 to 30 movies out of the 800 or so released each year that consumers have an intent to own,” said CEO Joe Malugen in August. “We recognize and intend to address that.” Antioco in July said Blockbuster plans to triple its share of sellthrough by 2006. Can the big rental chains compete on Wal-Mart's sellthrough turf?

Another avenue for possible rental chain growth is games. Hollywood Video has jumped into that market with both feet, expanding the number of Game Crazy game sections. Movie Gallery also is shelling out more for game rental inventory. Game spending – which now rivals box office spending – could be a lift as movie rentals taper off.

We'll know more about Hollywood and Blockbuster's plans this week when they announce quarterly financials. But, if there is anything that seems certain in this business, it's that it changes at a remarkable pace. Chains that aren't looking down the road are likely to crash.


20 Oct, 2002

THE MORNING BUZZ: Special Series Will Chart Watershed Sellthrough Quarter

If the fourth quarter of 2001 was the breakout for the adoption of the DVD format by the mass market, then this fourth quarter may be the one that truly propels the sellthrough business to new levels.

The momentum for DVD software and hardware units shipped has continued unabated this year since the fourth quarter of 2001, if you consider the numbers released by the DVD Entertainment Group last week.

In this year's third quarter, suppliers shipped 153.3 million DVDs, more than doubling the 75.9 million shipped the same quarter a year ago. It's been that way each quarter all year. Through the third quarter, 425.6 million DVDs were shipped, overwhelming the 364.4 million shipped in all of 2001. According to the DEG, more than 1.1 billion DVDs have been shipped since the format's inception.

If the fourth quarter of this year were to stay on track, we'd be seeing shipment numbers of about 275 million (!), which I'm not suggesting will happen.

But it'll be big.

And, of course, DVD has been the driving force in the fast-growing sellthrough business that promises to continue to grow as the majority of revenue for the industry at large.

Given that, we at Video Store Magazine this week start a series of articles under the banner “Fourth Quarter Unwrapped,” which will look at a broad variety of issues related to the current and future sellthrough business and DVD's impact going forward. These articles will run throughout this pivotal, and maybe historic, fourth quarter.

One talks of units shipped, but the important measure is what's sold through to consumers, so this week Video Store Magazine market research unveils our report on the Top 25 DVD Sellers of All Time (based on units sold through). The recent phenomenon Monsters, Inc. leads the way with 9.2 million units sold through to date. Shrek follows very closely with 9 million units, followed again very closely by Harry Potter and the Sorcerer's Stone with 8.9 million. The Matrix is the earliest DVD release (9/21/1999) to make it to the list (No. 6), clocking in with an impressive 7.5 million DVDs sold through to consumers. In total, the Top 25 have sold more than 126 million DVDs into U.S. homes.

Our market research team used a variety of data, including POS reports from Nielsen VideoScan, supplier shipment and sellthrough figures, and other data to establish these numbers.

Forecasts of a depressed economy and holiday retail slump notwithstanding, DVD should leap that hurdle and enjoy unprecedented success this quarter.


17 Oct, 2002

THE MORNING BUZZ: Bigger Fish Hope to Fry Netflix

The problem with having a good idea is that invariably someone will steal it.

And when the someone who steals your idea also has a lot more money than you do, and is thus in a position to take the proverbial ball and (proverbially, again) run with it, you might just find yourself in deep do-do.

That's the position Netflix, the pioneering online DVD rental house, is finding itself in with word that Wal-Mart, the mightiest retailer in the world, has entered the lucrative subscription rental market with a model that's eerily similar to Netflix's.

Netflix charges $19.95 a month and lets subscribers check out up to three movies at any one time. No deadlines, no late fees — just send it back when you're done and they'll send you another one.

Wal-Mart charges $18.86 a month and lets subscribers check out up to three movies at any one time. No deadlines, no late fees — just send it back when you're done and they'll send you another one.

Wal-Mart is still in the test phase, saying it wants to fine tune the concept with a limited number of customers before offering it to everyone next year.

But with the chain's famous resolve and a base of more than 2,800 physical stores that smart money says will somehow get involved in this venture, Wal-Mart could be a formidable spoiler in what has thus far been Netflix's game alone.

It is interesting to speculate where a predatory chain such as Wal-Mart will strike next. My hunch: Look for this “subscription model” to take root in physical Wal-Mart stores in an attempt to launch a full-on assault against — yes, you heard it here first — Blockbuster.

It makes sense. Wal-Mart has already said its most profitable stores are its supercenters that sell just about everything, including groceries. And as more and more regular Wal-Marts (and Sam's Clubs) are converted to supercenters, it only makes sense that video rental will be part of the mix, since Wal-Mart will then have the in-and-out daily traffic that supermarkets have—and that made grocers a key player in video rental before the copy-depth morass soured them on the whole concept.

With DVD, there is no copy-depth — just one low price. I predict we'll see a big surge in grocers returning to video rental, and Wal-Mart will be among them.


16 Oct, 2002

THE MORNING BUZZ: Score One for Jessica the Remote Control Slayer


I admit it. I am woefully Flinstonian when it comes to home entertainment technology.

I have a DVD player — but I didn't get it until after nearly a year of working for a video magazine.

I have surround sound — but since my boyfriend moved out I don't know how to make it work with the DVD player so I never use it.

And up until recently, the DVD remote often perplexed me. I would push the arrow buttons and watch with increasing frustration as the little blinky thing moved to menu selections all over the screen, but almost never the one I wanted. And then there's that red Ghostbusters circle-and-slash thingie. It actually took me a while to figure out that was the equivalent of my DVD remote yelling “No you dummy! You can't do that now!” I know, I know it's pathetic.

I have Monsters, Inc. and “Buffy the Vampire Slayer” to thank for teaching me how to use my DVD remote.

On a lazy Sunday afternoon a few weeks ago, my 5-year-old neighbor and I had some fun with the Monsters, Inc. DVD special features and played “Boo's Door Game” until my eyes were burning. But, while searching the same screens for the same clues hidden in the same places over and over, I started to figure out how those directional arrows really work. I got into their freaky warped mindset.

Then a few days later, felled by the flu, I began to indulge in my first taste of episodic DVD with the “Buffy” complete season one and season two DVD sets. (I am a recent initiate to the legion of the Buffy-obsessed. A friend loaned me these sets to get me caught up on the backstory. I've been dreaming of either killing or kissing vampires every night ever since.)

After about 10 or 15 episodes I figured out if I hit the double arrow button with a line under it, I could skip the opening credits sequence all together instead of hitting the fat single arrow and fast forwarding through it.

A beautiful thing about the Buffy season two discs is that the episode menus are circular, just like the arrow key configuration on my DVD remote. Finally, the arrows made sense. By the end of season two I was so quick on those buttons I didn't have to wait more than 30 seconds between Buffy doses.

It went something like this: Click “back to disc menu,” pick episode, hit “OK” button (that means play), episode menu loads, hit ”OK” again for “play episode” watch first few minutes of show, hit double arrow thingie to skip opening credits, relax, watch entire episode, as soon as Joss Whedon's name on end credits appears push “menu” key on remote, repeat process. Disc over, push “open” button, scramble up from couch, get next disc, curse at low-end DVD player as it takes 45 excrutiating seconds to read the disc, begin pushing “menu” button wildly in attempt to skip proprietary information, breathe sigh of relief when main menu screen finally appears, start the process all over again.

Whew. At least I can call myself a bona fide DVD user now.

Unfortunately, since my week of living only for Buffy on DVD, I can think about only two things: It is so UNFAIR that Buffy and Angel can't be together, and hey Fox, hurry up with season three. My DVD remote skills may lapse in the waiting.