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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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6 Oct, 2002

THE MORNING BUZZ: New Business Development More Important Than Ever

At this week's East Coast Video Show in Atlantic City, the focus will be on managing the core video retailing business efficiently and expanding into new ancillary business as a hedge against the uncertain rental future in a growing sellthrough world.

The Delaware Valley Chapter of the VSDA will host a half-day seminar titled “More Than Just Video.” Attendees will explore a full range of possibilities to add a significant second line of business to their core video rental business.

Interestingly enough, one of the featured presenters at the seminar is eBay, which has a very high profile at this year's show. In a nutshell, eBay is offering its significant e-commerce platform as a way to help specialty retailers participate more fully in the sellthrough business (both with used and new video). At first blush it seems an elegant idea. Rentailers can use the Web to compete in the sellthrough arena, I would guess most effectively in the previously viewed market. It's a great way to extend their businesses in a real transactional Web environment at little cost.

Another ancillary business is the newer iterations of video vending machines being exhibited at this show. With DVD sellthrough pricing (and even lower used pricing), rentailers could use these machines to extend their sellthrough businesses to local colleges and other sensible locations for some revenue-sharing or a fee-based deal with the host location.

Yours truly is moderating a panel on video games as a growth business. It's long been a moderate staple of many speciality retailers -- Video Store Magazine market research puts the percentage of speciality retailers participating in video game rentals and sales at between 65 percent and 70 percent. The VSM Top 100 average pegs video game revenue as accounting for about 7 percent of total rentailer revenue. And it's a business that's on the rise, as more than 50 percent of the Top 100 said they plan on increasing their purchases of video games to rent in 2002. Add to this the growing realization by video game companies that rentals drive sales (Ziff Davis research noted 86 percent of those who consider themselves to be “core gamers” say they have purchased a game after renting it), and the growing prospects for possible revenue-sharing deals for games with suppliers -- a plan Rentrak has promised for the near future -- makes this a potentially very viable and significant business model for speciality retailers.

Rentailers must maximize margins on DVD rentals (even as VHS continues to plummet), extend their sellthrough business and aggressively develop another complementary business to thrive in this changing industry.


4 Oct, 2002

THE MORNING BUZZ: Who-a Culpa?

I'm glad to see that the record companies and big music chains settled the price-fixing suit against them, but I really wish there had been at least some whispers of “mea culpa.”

Instead, the parties deny there was anything fishy about what they did — a denial no one believes because what happened here is as obvious as can be.

Sometime around the late 1990s, people stopped buying CDs. The record companies had foolishly propelled album prices to higher and higher levels; killed the single, also through inane pricing; and then, when digital downloading arrived on the scene, they tried to kill it and raised CD prices even higher.

So what's a poor record company to do? Get in bed with the music retailers — the specialists who were already losing business to the mass merchants — and implement strict policies designed to curtail their deep-discounting.

No matter that retail analysts pretty much agree that big-box discounters are the future and high-priced specialists are the past. No matter that the video industry, with DVD, embraced the mass merchants and realized soaring sales while the music industry decided to fight them and is limping along.

I'm all for a competitive retail environment, but I'm dead-set against propping things up unnaturally. I don't like farm subsidies, I don't like tariffs, I don't like pouring tons of money into Amtrak just because some bureaucrat thinks the notion of trains is romantic.

I don't really have any strong feelings about Wal-Mart or Target or Kmart or any of the other discount houses. But if they can sell me something for less than someone else charges, I'm going to buy there.

I'm not the only one who feels that way. And by getting mass merchants firmly behind DVD, the video industry has broadened distribution and seen revenues surge.

The music industry has gone the opposite route. And we all know how well they're doing, don't we?


2 Oct, 2002

THE MORNING BUZZ: In and Out the Window

The digital age has been generating some interesting debates in our industry recently. One I find most interesting right now is the filmmaking community vs. the movie maskers -- folks who offer various home video editing services on Hollywood movies.

Most of these services sprung from the Mormon community. The edits often reflect those values, but some of the services offer tiers of editing (censor nudity, allow swearing) with controls in the consumer's hands. That, I believe, gives their product much more appeal.

The Directors Guild of America (DGA) has responded to this new type of service with a lawsuit claiming they are illegally corrupting the directors' creative vision in violation of copyrights. Actually one of the services, Clean Flicks, first sought a court order declaring its activities legal. Then DGA countersued and named all the similar services it could find.

Which I think is a huge gamble for the DGA. I think Solomon is going to have to split the baby in two on this one because the editing services are in two distinct categories: those that slice and dice existing product and those like ClearPlay that merely offer a digital fig leaf.

One kind of service buys Hollywood VHS and DVD product, physically alters it to remove or block certain images or sounds, then lets members check out edited copies. The legal issues would be substantially different for a company like ClearPlay, which offers an external home editing system that filters content somewhere between the player and the monitor. The consumer buys or rents any legal studio product and chooses which content the ClearPlay box should nix. That's no different from a V-chip or AOL's Parental Controls on the Internet.

As I watched a debate between ClearPlay CEO Bill Aho and a DGA attorney on CNN the other day, the real issue suddenly became clear to me. Aho pointed out that the industry controls similar edits for broadcast television without complaint, so the creative vision can't be that big of an issue. The DGA attorney countered that sensitive consumers could wait for the broadcast TV version.

And there it is. Hollywood is organized around release windows. It counts on a certain amount of revenue from each window. One of those windows is broadcast television, which carries the bulk of paid advertising. So the guilds are ticked off because these devices reduce the incentive to watch broadcast television. It moves the abridged cut back to the rental window and potentially diluting the TV broadcast audience a few months down the road, when sponsors will pay for it.

Hollywood is all about personal advancement and where you are on the food chain. It's no secret that climbing is about money, fame and juice. Every waiter with a screenplay in Los Angeles wants to be able to fax advice to Dick Gephart like Barbra Streisand does and live in her fancy house.

The food chain is built around windows and the digital age is rearranging them faster than Hollywood can keep up. The system is springing leaks all over the place -- from movies on the Internet before theatrical release to editing services that leapfrog a title and audience back months.

It's causing chaos in a panic-stricken executive network that depends on consistency and can no longer predict consumer behavior. One CEO even made the desperate statement that viewers are stealing if they run to the bathroom or refrigerator during commercials.

It gets more complicated because home video rental is already a thorn in the studios' side. Studios would love to eliminate any middlemen and deal directly with consumers. The home editing devices in particular threaten to shift even more power to home video, which is already 60 percent of most films' income, by drawing in a new audience that formerly waited for commercial TV.

The entertainment industry is on the verge of a critical mass that will change the way business is done. Technology will force it. It's just going to take longer because the people resisting technology in Hollywood aren't doing it because of the technology itself, but because that technology threatens their personal niches on the food chain.


1 Oct, 2002

THE MORNING BUZZ: Is the VOD Threat Another Case of Crying Wolf or Is the Wolf Finally at the Door?

Yet another VOD provider took a potshot at the rentailer yesterday. This time it was Starz Encore chairman and CEO John J. Sie, who called VOD the “killer app to repatriate the $8-plus-billion-per-year that consumers still spend renting videos and DVDs.”

“SVOD will break through the clutter, reach consumers, and give them the power to select movies and other programming on demand with DVD-like control with no per-transaction fees and no trips to the video store,” he said.

The VOD proponents' new scheme is the subscription model, rather than pay-per-view. “People will pay the cost of having broadband at their home if broadband offers rich entertainment content they control and enhances their television enjoyment,” he said.

Ah, but how much would that subscription cost? Between my cable bill (which costs a pretty penny even at the semi-basic level), the cable broadband bill for quick Internet access (on top of that cable bill), magazine and newspaper subscriptions and Web site hosting costs from Earthlink (for our family Web site), that subscription bill is getting pretty darn big. I'd much prefer a $3 to $4 cash “on demand” transaction at my video store to paying oodles for access to movies I might not even have time to watch.

On the other hand, my husband might be a good target, Unlike me, he loves new technology. He falls into that “early adopter” group we often talk about in relation to DVD. But even for him, the devil is in the details. If that VOD service had great movies and TiVo-like functionality at a decent price — say at most $50 a month — he might be interested. But $50 is about as much as even he's willing to pay.

Are the studios willing to give away their first-run films at that subscription price?

An ace in the hole rentailers have is the roughly $10 billion (by Video Store Magazine estimates) consumers spend on renting videos every year. It's a powerful market, although not all of that money goes back to the studios; it's split with retailers. Sie makes it clear he would like to take those billions away.

If the rental market weakens, as recent numbers indicate it might, it will be a much easier target. Studios might choose to gamble on VOD once again. But now, it's probably still a case of crying wolf. My first week at the magazine in 1993, Bell Atlantic chairman and CEO and VOD proponent Raymond Smith said in our pages that the video store model was “no longer viable.” In 2002, his multibillion-dollar merger with TCI is dead, and the video rental market is still here.


30 Sep, 2002

THE MORNING BUZZ: Poll Shows Retailers Grabbing Hold of Used DVD Opportunity

In our current online poll (off to the right of this very column), it seems that a fair number of retailers are definitely grabbing hold of the brass ring (or maybe it's a life raft for some) of selling off their used DVDs.

The poll may have changed since I posted this column, but as of last Friday the results showed almost 90 percent of the respondents are generating revenue from the sale of previously viewed DVDs. While the majority of retailers say that they generate between 1 and 10 percent of their revenues in this category, I was also heartened to see about 20 percent of the respondents reporting between 11 and 25 percent of their revenues are coming from used DVD sales.

If any of you have been reading these columns and the columns in Video Store Magazine, you are no doubt aware that rental revenues have been dropping by double digits in the past several months, even as DVD rentals grow by triple digits, and our market research group predicts a drop of some 7 percent in rental revenues this year from last when it's all said and done.

Certainly one way to regain some of those lost revenues, if you happen to be experiencing this very same trend, is to find a way to join the sellthrough business that is transforming home video as a result of DVD. Our 2001 Top 100 research showed that retailers were selling off nearly one quarter of their new release inventory (both DVD and VHS) after two months, and I'll bet that when the next Top 100 rolls around that time span will have shortened.

Anecdotally we hear that some retailers are aggressively buying deeper in certain hit titles, getting several turns out of each DVD copy and then selling off significant portions of those titles after several weeks, not months. The fact is, the shelf life of home video may well be squeezed with an ever-larger wave of releases hitting the streets and you have to be there with the product (and even earlier with the message of its availability) when your customer is thinking about buying it.

It's all about "training" your customers to think about you when they think about buying home video. The major specialty chains are taking sellthrough seriously. The smaller operators must find their niche in this evolving marketplace by looking for models that allow them to capture their share of the sellthrough dollar.


26 Sep, 2002

THE MORNING BUZZ: VHS Is Going the Way of the Dinosaurs

Despite studio protests that it's still a “viable format,” and despite IRMA's pathetic attempts to revive the VHS market through an awareness campaign and grandiose statements about how great tape is, the videocassette is dying -- fast.

Let's just compare sales for two “monster” hits, less than a year ago. Last November, DreamWorks reported sales of 7 million units of Shrek in the title's first three days of release. Of that total, the majority (4.5 million) was VHS.

Last week, Disney reported first-week sales of 11 million units of Monsters, Inc. The breakdown: 7 million DVDs, only 4 million cassettes.

The balance of power has shifted dramatically this year, and it's going to continue until VHS sales are polarized far in the minority. The studios are more than happy to accommodate this transition, with Disney offering consumers $5 rebates if they buy a film on DVD that they already own on cassette.

DVDs are cheaper for the studios to produce, and cooler for the consumer to own, thanks to a variety of factors -- not the least of which are all the special features and kid-oriented games and other “interactive play” elements suppliers are incorporating on discs to get people hooked on the DVD experience at a very early age.

Already, as Video Store Magazine has reported, several anime suppliers have given up completely on VHS. And while studio executives still go out of their way to stress the continued importance of VHS, wait until the DVD penetration rate passes 50 percent (it's now around 30 percent) and I bet you're going to see an abrupt change in their rhetoric.

The fact is, the VHS cassette is antiquated, a flawed technology that has no place in today's digital world. I understand Hollywood's reluctance to drive in the stake, just yet -- but it has less to do with genuine belief in VHS' durability than it has to do with avoiding the fate that befell the humble 8-track what now appears to be ages ago.

The market for 8-tracks fell so swiftly that K-Tel, one of the largest suppliers, unceremoniously dumped millions of new cartridges in landfill.

Video suppliers clearly realize VHS' days are numbered, but they don't want to be stuck holding the proverbial bag. Even though cassette sales are spiraling downward, they haven't bottomed out just yet.

It'll be a few more months, but quite honestly, I don't see VHS lasting more than a year.

Then again, Sony only now pulled the plug on Beta.


24 Sep, 2002

THE MORNING BUZZ: Get Ready for the Media Mafia

Most of the big media mergers haven't lived up to the sales pitch, which was "synergy across the enterprise." That was supposed to deliver multidimensional exposure to advertisers, who could one-stop shop for all their media buys.

I instinctively distrust catch-all babble like "synergy". It's one of those words that means anything the salesperson wants it to mean. Which, I think, is why the mergers have been dismal failures. Disney and AOL Time Warner stocks are down and Vivendi Universal is going supernova, not just because of 9/11 or the tech crash or the advertising slump. The companies just haven't been able to synergize. The way the Wall Street Journal tells it, that means the various units can't play nice together, especially in a tight advertising market. It's arguable that the plans were too ambitious to start with.

The decline led AOL Time Warner to clean house in recent months, unseating the AOL Internet oligarchy and replacing the bigwigs with executives from the media side. I don't really know how that's working out for the advertising side, but I find the effect on the news publishing organizations quite disturbing.

Of course, there are no better marketers than those at media companies. Their living is getting people to suspend their disbelief in entertainment content, so it's not much of a stretch to get them to do it with the truth as well. The New & Improved AOL Time Warner is an example. While there's no movement in the market, the entertainment tentacles have started to poke through the news delivery like never before. I think it could lead the news arms to a crisis of trust.

A couple of weeks ago the conglomerate's Sports Illustrated published a story on how women's tennis is as much a fashion show as a sport. The article focused on a blonde player named Simona who seeemed more fluff than player. Readers had to get to the very last sentence of the article to learn that "Simona" wasn't real; the photos were computer generated.

And they looked suspiciously like Simone, the virtual media darling in New Line Cinema's eponymous film about a guy (Al Pacino) who computer generates a woman and makes her a media star without her ever doing the impossible personal appearance.

Now, it's one thing to use one of your properties to advertise and market another. Even product placement in shows is a sort of benign force. But I think it's quite another to start weaving those free entertainment plugs into supposedly factual news items. The only company getting any advertising synergy out of this as far as I can tell is AOL Time Warner.

But I wouldn't be ranting to you folks if this was just a one-time event. I'm starting to see it as a trend. Because just this week -- not coincidentally right after The Sopranos opened the season with mob wife Carmela fretting about estate planning with mattress money (in case capo Tony gets whacked or sent to the slammer) -- AOL Time Warner's CNN Web site and its financial news channel on satellite and cable had a "news" story using Carmela as an example. It was an advice piece about what someone in financial circumstances that are similarly unpredictable might do to maximize financial resources in this crummy market.

The channel also made big hay yesterday of a news story; apparently the HBO series is a victim of its own success. According to that story, HBO is taking legal action against primarily Italian restaurants, most of them in New York, that host Soprano nights. They pipe in the show and no doubt serve tons of pasta. HBO says that's an unfair use of its programming and they should fuhgeddaboudit.

They don't say the company's marketing executives have so generously created a line of Sopranos pasta and sauces, which they told wire services is just because they thought it would be fun for fans. They said they'll never make any money off the stuff, it's just a gimmick.

But now with this going on, I smell another trade interference angle for the lawsuit: marinara piracy. Those pesky restaurants are out there doing peer-to-peer pasta trading and now we'll never get people to buy the sauce and stay home to watch.

Never mind that the show's audience is wider than ever and a few freeloaded episodes this season probably generates major sales for HBO subscriptions and past season Sopranos boxed sets.

It's interesting to note that the early Sicilian Mafiosi became powerful by controlling the olive oil and semolina trade to the U.S. (it's true, you can look it up); while AOL became the dominant ISP by giving away free hours by the hundreds of thousands. (Betcha can get 1,000 or more free hours right now on a shareware disc at your neighborhood electronics store.) Maybe the people running HBO should review what one might call an interesting choice of business models.

I guess pasta and synergy have a couple of things in common: they're both cheesy and maybe too much of either isn't such a good thing.


23 Sep, 2002

THE MORNING BUZZ: VIAAC Visionary Honors — A True Industry Affair

Each year, the Video Industry AIDS Action Committee Visionary Honors event is an industry reunion of sorts, where we see faces new and old, even some who are no longer in the video business, but retain an interest in the cause and the industry.

The 2002 event honored New Line Home Entertainment president and COO Stephen Einhorn, a video veteran from the Vestron days who inaugurated New Line Cinema's video division 12 years ago. Einhorn picked up his award from our own Don Rosenberg, Video Store Magazine publisher, who read a gracious letter from former trade paper editor Bruce Apar. Eloquent as always, Bruce's puns drew several titters from a crowd who knew him, and his famous wit, well.

Also honored was indie retail veteran Ray Jewell, who left the business a little more than a year ago, but returned recently with Mister Video in Athens, Tenn. A passionate voice for the embattled independent retailer, Jewell lauded his fellow indies for supporting the cause. Longtime Rhino Home Video exec Arny Schorr used his time in the Visionary spotlight to mention there's still work to be done and thanked his wife Joyce for all her support..

And Maria LaMagra — aptly described as having a mouth as big as her heart — proved the point by getting choked up over the honor and the many friends who have embraced her in the industry. I spotted LaMagra chatting with former boss and honorary event chairman Louis Feola, who now heads up Universal's made-for-video effort.

Having been in the business nearly a decade myself, I've shared many moments with this crew and last week's event proved one of my fondest. Congratulations to all the winners.


22 Sep, 2002

THE MORNING BUZZ: Looking for Equilibrium

Video Store Magazine market research this week makes the call that combined home video rental spending for 2002 will fall short of the 2001 level, generating about $9.5 billion at the rental counter, or a drop of about 7 percent from 2001's $10.03 billion.

That's back to 2000 levels, when combined video rentals rang up $9.46 billion, according to VSM market research. Of course, the big difference now is that DVD's share of the rental pie for all of 2002 will certainly end up being somewhere between the 23 percent it started with at the end of January and the 40 percent it garnered for all August transactions. DVD's share of rental spending jumped from 6.5 percent of rental spending in 2000 to 15 percent of rental spending in 2001 and should be someplace north of that in 2002.

Even DVD's triple-digit growth in rental activity so far this year is not enough to halt the slide of VHS rental activity. As you can read in this week's report (see page 22), VHS rentals for August were down more than 40 percent from a year ago. When you consider that in 2001 VHS accounted for 85 percent of the total rental market, you understand the significant loss of dollars this drop reveals.

The year 2001 was a telling one, where the trajectory of VHS and DVD, sellthrough and rental, intersected. First, sellthrough pretty much matched rental in dollar volume for the first time in the industry's history at about $10 billion each, according to VSM market research. Second, DVD sellthrough dollars pretty much matched VHS sellthrough (or exceeded, depending on whose numbers you looked at) for the first time. Third, because while VHS rental activity managed to remain fairly constant, losing only 4 percent from 2000, to $8.83 billion, DVD rental surged more than 140 percent, to $1.5 billion, more than making up for the difference.

DVD has overtaken VHS in sellthrough; the disc garnered 64 percent of July units sold, according to VideoScan, compared to 37 percent of units in the same month in 2001. Take last week's Monsters, Inc. for example. Buena Vista sold 5 million units of the title and by the day after street was claiming record-breaking sales (including pre-sales). Monsters, Inc.'s first-day popularity is just one example of the overwhelming consumer response to the sellthrough nature of this business. The balance has shifted, and the scales now begin tipping ever more toward sellthrough and DVD -- perhaps in part at rental's expense.

Yes, there is an argument that the sellthrough (and rental) economics of DVD have caused the premature decline of VHS.

The questions I have are: A) where will the equilibrium between rental and sales end up being; and B) will the total home video pie grow as a result?


19 Sep, 2002

LETTER TO THE EDITOR: Blanken on His Resignation

The following is an editorial letter from recently resigned VSDA board member Mick Blanken, in response to an article about the organization by Kurt Indvik.

It is with great dismay that I must respond to your editorial of September 16 -- "VSDA Won't Be Caught Between Indies & Chains". I cannot speak on behalf of any other specific retailer, independent or otherwise. However, the inference that my resignation from the VSDA Board of Directors is a result of the collective issues stated in your article is largely inaccurate. And, while I do have issues with VSDA, it is not fair to VSDA to have those issues or thoughts misstated, improperly characterized, or used simply to perpetuate a conflict between the association and its membership.

IVRs vs. Big Chains
I have never been a proponent of the idea that the VSDA should arbitrarily "...take the side of the IVR against the big chains". In fact, I have always contended, and openly stated, that VSDA should serve ALL video retailers. Furthermore, I have never stated that the major reason for the existence of VSDA should be to help the IVR compete against their major chain competition.

VSDA's Strategic Plan
You are correct that the new strategic plan calls for a great emphasis on legislative affairs and research...just as it should. Not only do I have no objection to that, but I agree with it. But, even given that great emphasis, the strategic plan still allows for programs and benefits for all retailers, including IVRs. There are legislative battles looming that might prove to be potentially more damaging to video retailers than any past challenge...including the initial battle over first sale. VSDA should continue to protect the legal rights of all retailers, and should work hard to make sure that it can continue to be in a position to do so when necessary.

VSDA'S Financial Ability To Provide Services And Benefits To IVRs
It is obvious that VSDA is in a situation that requires it to "tighten its belt". But the real issue has little to do with "what amount" VSDA spends, and more to do with how "efficiently" it spends it.

At its inception, virtually 100% of the revenues generated by VSDA could be attributed to the IVR...if for no other reason than that all video retailers of the time were, in fact, independent. As time passed (and especially over the last several years) the percentage of those revenues attributable to the chains and larger retailers has grown significantly...to the point where those revenues may now be the dominant source of income for the association. In general, I have no resentment over this.

However, as revenues from chains have grown, revenues (both directly and indirectly) realized on behalf of IVRs have declined...primarily as a result of the erosion of the IVR retail and membership base. I believe that much of that base erosion might have been unnecessary.

Your article (among others of late) reminds us that a lot of money has been spent in pursuit of providing benefits primarily of use to IVRs. That is absolutely true, and many of those benefits are very viable. But, there seems to be a lot of focus on the millions of dollars VSDA spent on a couple of large tests over the last few years. In my opinion, there is no reason that VSDA should not continue to allocate funds (based on appropriate availability) for programs and projects PROVIDED that those programs and projects are PROPERLY implemented AND properly represented to the membership. In my opinion, this has not been the case.

It is disappointing to me that VSDA continues to allow the implication that its commitment to spend this money on these initiatives to help IVRs is largely to blame for its current financial situation...that it is VSDA's specific support for its IVR members that is helping to exasperate this problem.

Unfortunately, VSDA may be in a position today where it MUST place greater emphasis on larger retailers and chains, as they have become a dominant source of the association's funding. But, in my opinion, that VSDA finds itself in that position is a result (at least in part) of how it has chosen to conduct business over the last several years.

It is equally disappointing to me that VSDA continues to convey confusion as to what, exactly, IVRs think it should do for them; that VSDA continues to deny their failures, instead of learning from them; and that VSDA's reaction to those failed projects is not to make the necessary adjustments in the future, but rather to simply refrain from undertaking them at all.

As children, our parents taught us that "practice makes perfect". But that is not true..."PROPER practice makes perfect". Practicing IMPROPER implementation only makes us perfect at doing things improperly. VSDA's expectation that IVRs should respect the association just for pursuing a benefit on their behalf is unacceptible. The day that they make an honest commitment to the PROPER pursuit of IVR benefits is the day that more IVRs will offer that respect.

In the future, I would appreciate it if you would contact me prior to making any statement that infers that I have any specific position or opinion in regards to VSDA or my resignation.

Thank you.
Mick Blanken Superhitz