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.
Fasten your seatbelts. And then tighten them, because I think this holiday season is going to be a bumpy ride.
Already analysts are making predictions that range from wild optimism to utter doom for retailers this holiday season.
The National Retail Federation released an optimistic 5.7 percent growth projection in mid-September, but said it would probably revise that forecast down as consumer confidence and debt reports are telling a different story. Forrester Research predicts a 42 percent increase in online spending, but that may just mean shifting sales from malls to computers.
I don't have answers or analysis as much as gut instinct, but my gut instinct is usually pretty good in these matters, so I'm going with that.
My gut instinct says spending this year, with a few possible exceptions, will be dismal, because pretty much everyone whose job title isn't initials starting with a ‘C' is in pretty dire straits these days.
Some people, victims of the longest “jobless recovery” ever, have no job titles at all. Chances that they will be blowing wads of cash on robotic pets or high-end video game consoles seem pretty slim; I expect a lot of those folks to spend their unemployment checks on the family holiday dinner, new winter clothes and maybe one or two special gifts.
For the rest of consumerdom, worries about the economy in general, credit debt and job stability are likely to cool spending. We've all heard how home refinancing has propped up the economy during this recession, but by now that cash has to be running out for a lot of people, and mounting interest rates have stopped others from refinancing at all.
That could be good for game and video rentals, because people who are counting their pennies are more likely to opt for the incremental expense of renting as opposed to the outlay of a purchase. It could be really good for rental subscriptions, which offer a real value in tight economic times.
Or maybe the quantity and quality of bonus features will make some folks buy discs instead of renting them, figuring they will get more bang for the buck by getting several hours more of entertainment for their money. It could add up to a “buy the disc, rent the game” mentality, partly because game prices tend to be stable and higher, while mass merchants make discs accessible with discounts in their first week or two of release.
For now it's anyone's guess, but I'll try to keep you posted.
In a decade in this industry, I've never seen Michael Eisner in person – until he showed up Friday night to introduce the new digitally remastered Lion King Special Edition at Hollywood's El Capitan, which pointed up the increasing importance of DVD in the studio ledger.
Disney also brought out Elton John to perform two songs from the beloved animated hit: “Can You Feel the Love Tonight,” which won an Oscar, and “Circle of Life,” which the singer said he thought should have won the Oscar.
While Disney is known for its galas, I haven't seen such high star wattage for a Disney video release in a long time – if ever. The Robin Williams appearance during the 1996 VSDA convention to promote Aladdin and the King of Thieves comes to mind, but I've never before seen Eisner.
Much of it can be chalked up to the increasing importance of event marketing with the advent of sellthrough DVD, but I also think Disney has a lot riding on the Lion King release. Heretofore the highest-selling video of all time, with 25 million units sold, The Lion King has some strong competition this year from Pixar's Finding Nemo, due on video less than a month later, also from Disney. It's also probably no coincidence that Eisner, et al, is renegotiating the Pixar distribution deal. The Lion King this summer lost its animated box office title to Finding Nemo. It will most likely hold onto its title as the biggest-selling video of all time, but Disney doesn't appear to be taking any chances. The studio has a lot riding on this classic, which marked the apex of its animated hit parade under Eisner as well as a high point in traditional animation. While CGI hits like Nemo and DreamWorks' Shrek are pushing aside the old guard in more ways than one, Disney is out to prove it's still the King of the video jungle.
A number of areas of opportunity for business and profit growth for rentailers were discussed during last week's East Coast Video Show, including ways that smaller retailers can expand their Web sites into more transactional vehicles. The simplest and most obvious was raising rental rates.
The just-released benchmarking study by the Video Software Dealers Association shows that average rental rates in 2002 rose to $3.29, up from $3.05 in 2001. Combine that with the lower cost of goods in the DVD era, and effective operational cost controls in employee salaries and rent, and it helps to explain why, according to the study, the average “contributing margin” (gross margin minus operating expenses) of those retailers surveyed rose 44 percent in 2002 over 2001.
It seems like a simple concept, yet many retailers at the show said they have been hesitant to raise rates because of the competitive nature of the business. However, it's the nature of things in retail that prices always tend to grow at least some every year due to the inexorable rising cost of doing business. Add to this the fairly stable higher perceived value of DVD over VHS, and it's plain that, for many retailers, there is room to grow their bottom line through judicious rate hikes.
“I have never had anyone complain about rate changes,” said Halsey Blake Scott of C'Ville Video, during one session.
“Don't sweat it, just do it,” added Ken McLeer of Video Headquarters.
Some retailers in other panels also talked of how they have kept their catalog rate pricing the same as that of new releases. The thinking there is that when someone comes into the store looking for a specific title, they are not going to quibble over the fact that it's priced the same as a new release, although typically, catalog pricing is almost universally priced lower. The benchmarking study also reported that between 2001 and 2002, average adult rental rates rose from $3.50 to $3.98.
To be sure, not every retailer in every market has room to raise rates, and most everyone at ECVS agreed independent retailers have to be competitive with the big chains when it comes to rates. But the message was clear: If you haven't increased your rates in some time, you're probably leaving some money on the table. If that's the case, and you're looking to improve your bottom line (as you should always be), then, in the words of Mr. McLeer …
“Don't sweat it, just do it.”
By: Kurt Indvik
Two unconnected events happened this week that got my mind a-thinkin'.
Earlier this week, the Motion Picture Association of America, the mouth of the Seven Major Studios, announced it would no longer be sending out screeners of films to awards voters because of concerns over piracy. In recent years, these so-called “Oscar screeners” — which contain only the movie, no extras, but typically come out long before most films make it to consumer DVD — have popped up with surprisingly regularity on eBay, the online auction house.
This morning, I checked my e-mail and found a promotional message from eBay, saying some of its most popular categories may now be instantly accessed via keywords. At the top of the list: DVD.
Now, I'm not saying that eBay condones piracy — they've actually been quite good in shutting down suspicious auctions once they're alerted by the studios.
But DVD has become so ingrained in popular culture that everyone wants a piece of it, and the bigger it gets the more vulnerable it is to mischief. Growing the number of DVD households is a good thing, but it also widens the audience for DVD bootlegs. And the nature of the digital technology is such that pirates can make beautiful copies virtually indistinguishable by the real thing. If there's a lag, it's in packaging, but even there we've made tremendous progress in recent years.
I was talking to a source the other day who told me a key catalyst in the studios' decision to stop sending Oscar screeners was an earlier event in China. No sooner had Harry Potter and the Chamber of Secrets hit the big screen than bootleg DVDs appeared throughout Asia, mostly grainy and wavy — the result of handheld camcorders smuggled into movie theaters, for years the preferred modus operandi of pirates.
But some DVD bootlegs were remarkably clear. Watching them, studio executives who had been given the contraband scratched their heads — until they saw the telltale disclaimer float across the screen.
It's great that eBay is embracing DVD. It's only natural, too, given their appearance at home video trade events to proselytize selling previously viewed DVDs on their site.
But the question remains, how many of these previously viewed DVDs really are previously viewed?
And, more importantly, who did the viewing?
The auctions eBay has shuttered are all for movies not yet issued on DVD. I wonder how many other bootlegs are being sold, without anyone knowing?
By: Thomas K. Arnold
All of life is a series of transitions and tradeoffs.As real estate has propped up the sagging economy over the past couple of years, we have all heard ad nauseum about those transitions – growing families moving into bigger homes and empty-nesters moving into city lofts.
The same is true in an industry's life cycle. A couple of transitions that made headlines last week were the battle over the federal “do-not-call” registry and the deathwatch for the Hollywood stunt industry.
A couple of commentators on CNN last week brought up the 2 million call center jobs that would be lost if the do-not-call law survives. Anyone who's ever had that forkful of fettuccine stopped halfway between plate and mouth because of a telemarketing call pretty much hates telemarketers, so the CNN commentators were reminding the audience that a lot of single mothers and other people in difficult circumstances hold those call center jobs. Real people just like us would get hurt.
Same with stuntwork and screen extras. As computer animation improves, Hollywood is able to animate stunts and crowds instead of hiring them. But in the bigger picture, these are transitions. Just as moving to digital technology, with all its perils, is a transition.
What I didn't hear reported is how, a couple of years ago, Verizon shut down a number of its call centers in the northeast to move to greener (cheaper) pastures. Or how Amazon.com got into PR hot water for shutting down a 400-seat unionized call center in the Seattle area to send those jobs to India. I also didn't hear how many stunt jobs are getting replaced with CGI animation jobs.
So I get pretty sick of Jack Valenti and his gang at the Motion Picture Association crying crocodile tears over how Internet piracy will ruin the motion picture industry and destroy American jobs. Their antipiracy campaign is built on ads featuring makeup artists and set painters pleading for their jobs, pointing out that they are regular folks just like us, not superstars like almost-governor Ahhnold, who probably won't miss a few pennies per download.
I don't download, I don't have kids who download and my dogs don't have opposable thumbs so they are at a serious disadvantage operating my computer to download when I'm not looking. I absolutely do not advocate piracy. But I do think the laws we have in place are enough to prosecute it without paying off the government to track Hollywood's errant digital files.
I also think that if the studios were so concerned about keeping American jobs, they would insist on replicating DVDs in the United States and monitoring the security of replication facilities, creating jobs in both arenas. Instead, we hear about expanding facilities in Southeast Asia, where pirates burn DVDs to order, and, most recently, Poland. (Incidentally, wasn't that Jack who released that report a few months ago claiming that DVD piracy in Eastern Europe was funding terrorism and organized crime?)
So when the Hollywood machine puts those sympathetic images up on the screen to make us all feel solidarity with the makeup artists and set painters, don't you believe it. The only reason those people still have jobs in the United States is because Hollywood hasn't figured out how to have some $2-a-day worker in Malaysia or Poland apply makeup to the high-dollar stars sitting in their dressing rooms over here. As soon as they do, I'm sure the studios will have no more compunction about sending those jobs overseas than they have about sending their replication jobs into the piracy capitals of the known universe.
Like everything in Hollywood, it's an act -- rehearsed and played for maximum pathos. Don't download. But don't fall for the hyperbole designed to bamboozle a bunch of blue-haired, technophobic politicians into extending copyrights into the next millennium, either.
For anyone who missed last week's column (I can't imagine who would), I mentioned that both of our VCRs are broken, and I can't decide what type of hardware to replace them with.
This weekend we went to Wal-Mart, and I saw a VCR/DVD combo player – a likely replacement –- for only about $100. I almost purchased it. I say almost because I thought of another wrinkle. My husband would really like a PlayStation 2, a piece of hardware that is coming down in price and plays both games and DVDs. Why would we need another DVD player if we eventually got a PS2? I find it practically inconceivable that we would need four DVD players.
We could buy a PS2 and a cheap VCR – say about $40 – and get more bang for our hardware space.
So did we buy anything? No. I'm the type that can always find a reason to wait. I'm the classic late adopter –- always looking for a better option or a better price. Mostly, though, I think I'm looking for an all-in-one device that hasn't been invented yet; that convergence box that plays what I want, when I want, without taking up much space. That's why I'm so interested in those flat TVs that hang like picture frames.
While game fans may find other reasons, I think one of the downfalls of the Nintendo GameCube is its inability to play DVDs. Even at the new $99 price ($80 below PlayStation 2 and Xbox) it doesn't offer the same value as competing consoles that can play DVDs as well.
While electronics geeks may salivate over the myriad digital devices on the market, piling box upon box with cords hanging down like snakes, I'd really prefer something simple, elegant and utilitarian in my hardware –- like the classic black dress, a box that can go anywhere and fit in.
Whatever happened to cutting-edge retailing? Music sales are in a definite tailspin, with three consecutive years of down CD action.
And yet I haven't seen any of big retailers appreciably cut back on their CD inventories and pump up the volume in regard to DVD, which for more than a year now has been the hottest consumer good on the planet.
Even Best Buy, which helped launch DVD with its early, and visible, support of the digital format, still has row after row of CDs up in front, better merchandised (read: face out) and occupying a much bigger footprint than DVD, which is in the back of most stores.
Wal-Mart has DVD filed library-style, along a tall row, while CDs are face-out and waist-high.
Barnes & Noble and Borders also have significantly more “friendly” CD sections, laid out invitingly, while DVDs are displayed more as an afterthought.
Target Stores has probably gone the furthest in at least putting DVD on an equal footing with CDs, at least in its reconfigured stores, but that's not the point.
DVD is outselling the bejesus out of music, while CD sales are now a fraction of what they were three years ago — with the Recording Industry Association of America reporting a drop in CD shipments of more than 15 percent, just in the first half of this year, on top of an 8.9 percent drop in 2002 and a 6.4 percent decline in 2001. Since 2000, annual CD sales have fallen from an all-time high of 942.5 million to 803.3 million, and, based on first-half trends, this year promises to be even worse.
A lot worse.
Virgin Megastores has the right idea. What was once the nation's biggest music store (in terms of average store size) is now a veritable DVD emporium.
When are the others going to follow?
The retail side of this industry is changing so fast these days you can't tell the players without a program anymore.
A lot of observers have said the home entertainment retailing industry is due for a shakeout, especially with the music side imploding in the face of downloads. But there are a lot of conflicting opinions out there about what's going on.
Recent announcements that TransWorld Entertainment would buy bankrupt Wherehouse and CD World look like just the leading edge of a trend that will snowball smaller companies into larger concerns that have a better chance of survival. In particular, Tower Records and Djangos look like low-hanging fruit. Djangos is in bankruptcy, and Tower's foundations appear to be crumbling. The trend looks a little more startling when you realize that TransWorld, Tower and Wherehouse ranked 4, 6 and 9, respectively, in video revenue generated at music and consumer electronics chains, according to Video Store Magazine market research's Top 100 for 2002.
DVDPlanet.com, while a respected brand online, has been a cash drain on parent Image Entertainment for some time. Maybe the lesson there is that content providers are not the best retailers. Now, DVDPlanet will join Infinity Resources' stable of e-tailers, which include DeepDiscountDVD.com and digitaleyes.net. Hopefully, combining the infrastructure and distribution will get DVDPlanet into a stable orbit.
Blockbuster Video, long viewed as one of the stronger players in the video industry, got a rude awakening last year when rentals dropped after Thanksgiving. Analysts wondered if sellthrough had the chain on the ropes. Not letting any grass grow under its feet, Blockbuster has quietly invested in online ventures, including rental and video-on-demand, as well as a small brick-and-mortar chain that buys and sells used DVDs. Now Big Blue reportedly has the urge to merge with Time Warner's Columbia House, which would give Blockbuster a footing in direct mail and online sellthrough, and give Columbia House a … well … house.
It's starting to look like what space scientists call a Cascade Effect, in which one piece of space debris impacts another and each impact sets off a giant, cosmic game of billiards. In that scenario, even the bigger targets are likely to take a few hits as the smaller ones spin out of control.
It will be at least January before we know if the industry is in for a deep impact or a gentle splashdown.
I've got two broken VCRs in my house, and I don't know what to do. One has been broken for at least a year, and another has had a tape stuck in it for about three months. For the price of fixing either of them, we could buy a new VCR. But it seems silly to buy a new one — sort of like investing in an eight-track tape player after the CD has taken over.
There are numerous other recording options either just available or on the horizon. I could make the leap to a personal video recorder, like a TiVo. I could buy a DVD recorder. Yeah, those old VCRs are looking more like dinosaurs all the time.
And yet … I just can't seem to get rid of them. We've still got lots of children's tapes that the kids might want to watch someday (though I must admit they've been doing just fine without them for three months, and they take up more than twice the space of DVDs). And there are a few classic kids' titles that we haven't yet replaced on DVD.
But is it worth the trouble? Keeping all this dead hardware reminds me of Jeff Foxworthy's “You Might Be a Redneck” gag about stacking the working TV on top of the broken one. As it is, the things are just taking up space, holding a place for their eventual replacement — I just wish I knew what it was.
Sometimes in business the best thing to do is when everyone zigs, you zag.
Call me a little crazy if you want, but you have to wonder if maybe the music retailing business hasn't hit bottom, and the acquisition of struggling music/video chains such as Musicland and, this week, Wherehouse Entertainment and CD World (see our cover story in this week's issue of Video Store Magazine) at bargain-basement prices is going to turn out to be a very prescient thing to have done. Is Tower, also fishing for a suitor, next?
For as much as the file-sharing of music seems to have undone the music industry, the combination of a variety of market forces may — just may — bring music buyers back to these music/video chains and regain at least a portion of the magic that has kept them at the center of home entertainment retailing for decades. Meanwhile, these chains and anyone else retailing home entertainment software have to be busily, and continuously, transforming themselves as digital entertainment software brings the spectrum of entertainment media eve r closer together.
I am not privy to the details of recent transactions, but Sun Capital picked up 1,100-store chain Musicland in an all-stock deal that included assumption of liabilities, and that struck a fairly resounding note that the valuation of music chains had reached epic lows. Just last week, Trans World Entertainment picked up Wherehouse Entertainment's 148 stores for a reported $41 million total consideration that includes cash and assumed liabilities. On the face of it, those look like pretty rock-bottom deals for what have been major franchises in a multibillion-dollar industry.
Musicland had been draining money from Best Buy since it acquired full ownership of the company in January 2001, and Wherehouse had assets of $228 million against $222.5 million in debts when it filed for bankruptcy at the beginning of this year. Meanwhile, Tower lost $13.8 million in its most recent quarter. So there is no arguing that the picture is not pretty for these companies. But as the old saying goes, there has to be a puppy somewhere under that large pile of bad financial news.
Recently, things have been moving in a direction that could help these chains. Most importantly, Universal Music Group will dramatically cut the price of its CDs to a range that makes it a reasonably priced entertainment product. There has been a growing chorus within the industry to bring back the single, and scuttlebutt is that its return is not far away. The music industry is recognizing the growing interest of DVD music, and embracing both DVD music and DVD-Audio, along with exploring the so-called flip-disc CD/DVD-Audio combo. Add to this the continued and growing role of music stars in movies, not to mention the various public relations and legal efforts by the RIAA to, er, encourage file-sharing abusers to stop their bad habits and buy their music, and you have the makings of a possible comeback by the music business that can only serve to help these embattled chains.
By: Kurt Indvik