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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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27 Apr, 2003

Is It Time to Give Video Vending a Look?

Is it time to add video vending machines to the list of options retailers have to growing their business? Well, perhaps it's too early to tell, but there has been a recent flurry of activity in the space, as chronicled in this week's issue of Video Store Magazine. DVD has spurred interest in video vending by specialty and non-specialty retailers alike.

“It's a continuation of the channel blur,” Jeff Lenard, spokesman for the National Association of Convenience Stores told senior editor Holly Wagner.

The variety of systems and services being developed for sale, lease and franchise in the video vending category and the number of locations where something like this might work could be both an interesting opportunity for established rentailers as well as a competitive threat from other retail sectors.

There is no analysis yet available as to whether or not the video vending model is generally successful, but Blockbuster, as one example, has been active with video vending in Europe for a number of years in locations such as gas stations and grocery markets, and in Israel with machines placed outside some of their stores to extend their hours of business.

Indeed, the idea of using vending machines to extend one's business is an attractive possible alternative to, say, opening another store to reach into another market. By seeking out locations that combine foot traffic and the convenience factor, specialty retailers can also compete with their retail brethren in supermarkets, for instance, who have those attributes built into their business who are in the rental business now.

I also like the idea of the machine extending one's business hours, particularly in the morning. Many video stores open their doors at 10 am or later, and perhaps by having a vending machine outside their store, people on their way to work may take a moment to grab a video for that evening, instead of having to take the trouble to stop after work to rent a video when they'd rather be heading right home.

Video vending has been around for a while, but perhaps with DVD's size (and selthrough pricing) making it possible for these machines to have a larger inventory, the financial model for vending has improved. It's worth considering. We'll have to see how this concept progresses.


22 Apr, 2003

A Tradeoff Doesn't Have to Be A Bad Thing

Our Editor-in-Chief, Kurt Indvik, made some interesting points about used disc trade this week, but I think he only told half of the story.

This is another case of retail lines blurring, like Wal-mart getting into the disc rental business and supermarkets edging back into selling video. It's a retail free-for-all out there and any product as successful as DVD is going to be a prime target in a market where Wal-mart steals grocery market share from grocers and convenience store margins on gas and cigarettes are drying up, sending those chains in search of new revenue streams.

It seems to me that most video specialty dealers have been slow to catch on to the used disc trade, viewing it only as a way to sell off retired rental copies, not a thriving model of its own.

It's been the music retailers – on the ropes since music downloads burst onto the scene (coincidentally at about the same time as DVD got to market) – who have pioneered the used exchange model.

Chains like Wherehouse and Django's, which have bankruptcy in common, had no choice but to push into this model, one they perfected years ago with used CDs and defended in court when artists like Garth Brooks and Metallica made a stink about it.

Maybe the greatest lesson from music retailers is not the used trade model itself, but how long it took for them to embrace it.


21 Apr, 2003

Here&#39;s Hoping the Next Extended <I>Lord of the Rings</I> Gets Its Due

Retailers were caught a bit off guard by the two-release strategy for The Lord of the Rings: The Fellowship of the Ring. Many didn't order enough of the extended version – wrongly thinking it was merely a director's cut of the movie and wouldn't have much appeal. But the extended version actually turned out to be what I would consider the definitive cut of the film – the version that would have flown in theaters if people could keep their butts in the seats for four hours.

On DVD, a four-hour cut proves less of a problem. Viewers are more apt to watch the longer version in the living room, with the ability to pause for breaks. In fact, when I view or show others Fellowship, I always recommend the extended cut on DVD. It's a more complete vision of the story, I think.

Unfortunately, retailers were slow to warm to this new strategy. On a year-end visit to Wal-Mart, I talked to a clerk who said she had run out of the extended version and had to reorder. I wonder how many sales were lost during the interim.

Here's hoping retailers catch on to New Line's strategy this time around. If the quality of the first Lord of the Rings extended edition is any indication, we're in for a great product in November.


20 Apr, 2003

The Growing Impact of Previously Viewed Sales

The burgeoning business of selling used DVDs, VHS cassettes and video games continues to have an ever-growing impact on many parts of the industry.

It's impacting the way retailers buy and merchandise their products. For specialty rentailers, it's their way of battling for the sellthrough dollar against the mass merchants. The timing of when to bring rental product down from the rack to sell is being fine-tuned, not only to how mass merchants adjust their pricing and when, but whether or not local rentailer competitors have revenue-sharing selloff stipulations for their product and when those expire.

Previously viewed sales are impacting the way studios are structuring their DVD revenue-sharing deals and the previously viewed business is also a major factor in why units shipped into the rental marketplace have tripled over the past five years.

And, of course, previously viewed sales are having a significant effect on retailers' revenue over all. Consider that in 2002, Blockbuster scored some $365 million in previously viewed product sales in the United States, about 8 percent of its domestic gross dollar volume, according to Video Store Magazine market research estimates. Hollywood Video took in more than $100 million (7.6 percent of its gross) and Movie Gallery about $46 million (9.5 percent of its gross). A million here and a million there and we're talking real money.

For many smaller rentailers, sales from used product make up anywhere between 15 percent and 20 percent of their dollar volume and that number is growing.The fact is, as one retailer told senior editor Joan Villa, customers are learning that video specialty stores are no longer just rentailers, but retailers. Everything they see in the store is, or will be, for sale.

Not surprsingly, DVD can be seen as the cause for this fast-growing business segment. While VHS still outsells DVD at the previously viewed tables, DVD is growing by double and triple digits in unit and dollar sales at retailers around the country, while VHS continues to decline, according to a variety of market research.

DVD has transformed so many aspects of the home video industry. This is the latest evidence of the format's elevated perceived value in the mind of the consumer. Certainly its value as a “used” product is much higher than the lowly cassette and the reason that retailers are seeing exponential growth in sales.


17 Apr, 2003

Bringing Down the DVD House

I was cleaning out my office the other day when I came across an ad-filled supplement to Billboard magazine from the middle 1970s, honoring the many advances and surefire success of 8-track tape.

It's one of many notable failures to dot our checkered technological past, along with Quad sound, the Dynaflex LP, the Beta videocassette and, most recently, Divx.

If the next-generation DVD camps don't get their you-know-what together and either work out a compromise or agree to back one of the three competing formats, membership in this elite club — already preparing a seat for Super CD or DVD-Audio or perhaps both — could swell even more.

Here we are, several years after the concept of a next-generation, high-definition-ready DVD was first floated, and we've still got three banner-wavers vying to be the standard.

Two of them use a blue laser, while a third uses the tried-and-proven red laser, just like the current generation of DVD players.

Mucking things up is that unlike in the days leading up to the launch of first-generation DVD, there is no outspoken leader who can hammer away at all sides until someone caves and we have one format that all clearly champion.

To paraphrase the old Chicago song, “Harry Truman”: America needs you, Warren Lieberfarb — or at least a man like you with vision and a big, powerful clenched fist to drive that vision home to those who can't, or won't, see.

Hopefully that vacuum of leadership will soon be filled. Word has it that Ben Feingold, who was a half-step behind Lieberfarb in advocacy of DVD, is getting ready to step out as the poster boy for the Blu-ray camp, backed by mighty Sony, parent company of his studio, Columbia TriStar.

If he does, the Blu-ray folks will have a decided advantage in the hype arena, where format battles are typically fought. Feingold is intelligent, articulate and savvy, and if he does assume the role of Blu-ray champion the smart money would likely follow him.

Just picture it: Warren Lieberfarb as the architect of DVD, and Ben Feingold as the guy behind its remodel.

I like it already.


15 Apr, 2003

Promise her anything...

If there is anything besides equipment cost standing between me and a full-on home theater system, it is the device created to make our entertainment more convenient: the remote control.

Last week the Wall Street Journal's technology columnist, Walter Mossberg, had a column comparing two high-end multi-device remotes. These little controllers can operate a host of devices. They do pretty much everything but tuck you in and kiss you goodnight.

Of course, either one also costs more than both of my DVD players put together. And, no joke, Mossberg also recommended paying a professional to come to the home and program the remote. Apparently journalists in Manhattan make a lot more than they do in Santa Ana.

Now, video rentailers have had a longstanding joke about the Joe Sixpacks of the world, who could never figure out how to program the VCR. (Kinda funny, in a perverse way, that some people will figure that out just as tape gasps its last.) But that was different. Those machines did what they were supposed to, once you figured it out.

This is just another in a long line of technological red herrings, the kind of oversophistication that makes terms like “cable ready” and “universal remote” oxymorons.

I remember the hope of a better world to come. I have a TV that I bought cable ready, for 108 channels. Eighteen years ago.

Cable ready? File that one along with “the check is in the mail.” The equipment manufacturers and programming vendors could never get together on that. The manufacturers and cable companies make too much money selling and renting set-top receivers and now personal video recorders to ever let “cable ready” happen.

The new big lie in home entertainment is the Universal Remote. I have three of them and they are anything but universal. The only one that can operate my satellite system is the one that came with it. The convenient program guide sensor in the TV only works for broadcast and cable systems, so I had to disable it. (Note to R&D at RCA: You would think a company that makes satellite receivers would also make their TV programming guides compatible with them.) The remote that came with my Samsung DVD player has more switches and buttons than a 747 cockpit – just forget about operating any of those features with anything that purports to be universal.

Don't get me wrong, I love my DVDs. I just wish it was easier to operate the little daisy chain of devices involved in watching them. Some days, it's enough to make you (shudder) get up and change channels manually. Or even read a book.


14 Apr, 2003

&lsquo;Chamber of Secrets&#39; a True World Premiere

Warner Home Video's DVD premiere gala for Harry Potter and the Chamber of Secrets kicked off not in Hollywood, but in London last week and the event, attended by journalists from around the world, is indicative of the growing importance of the international market to the studio and of a coordinated worldwide launch.

I met journalists reporting in Brazil and Japan, among other countries. During an interesting conversation between journalists and Warner EVP of worldwide marketing Mark Horak, it became clear that Warner hopes to spread the studio's sellthrough DVD philosophy around the world. Japan is a most difficult nut to crack, he said, as the Japanese are trained to rent because the country's hardware and software prices are high. Chamber is priced about half as much as other major studio releases in that country, Horak noted.

Coordinated international launches are of interest to Warner because the practice cuts down on piracy, but also because the international business has “enormous” growth potential, Horak said.

DVD penetration in the United States is heading to the halfway mark and it won't be too long before the sellthrough market for DVD reaches maturity domestically. But penetration across the globe offers a new area of growth for studios interested in turning movie fans into DVD collectors. As the Chamber premiere attests, Warner in particular is eyeing business beyond our borders, and journalists from around the world are hungry for entertainment news from the home video realm.


13 Apr, 2003

The VOD Puzzle and Retailers Piece

The announcement last week at NAB of Disney CEO Michael Eisner's new video-on-demand venture, Videobeam (see cover story), comes close to finishing, at least for now, the VOD puzzle.

Besides Disney, other studio pieces of that puzzle include Sony/Columbia TriStar, Warner Bros., Paramount, Universal and MGM, which have joined to launch Movielink, and Fox, which is looking to CinemaNow to distribute its movies. Mini-major Lions Gate has a financial stake in CinemaNow.

No one is yet setting the world on fire with VOD, and most studio execs and analysts agree that VOD is years away from any potential of mirroring the rental market. But certainly, as public companies, the studios have to be seen as taking steps forward to the future of the business, even if it's arguable just how big a role VOD will play in the future.

So while studios search for other more short-term solutions to improving their return on the rental business, nevertheless the digital download option must be pursued.

There is another piece of the puzzle yet to be placed, however, and that's the retail element. One option that strikes me as intriguing would be to, er, echo the Echo consortium of major music retailers who have banded together to offer digital music downloads. There was a lot of excitement generated going into this year's NARM that the major music chains were going to join the digital download business and give the music publishers and their online ventures a run for their money. The thinking here is that who knows the customer better than retailers? Who has a better brand to develop an online retailing business?

The same could be argued for the video retailers. That Netflix attracted the competitive attention of Wal-Mart and Blockbuster, no less, in pursuing the online rental business, seems to me the same sort of statement. There are all sorts of competitive, legal, financial and technical issues that make a comparable VOD service run by home video retail chains a challenge, I am sure.

But, why not? I'd be interested in your thoughts.


10 Apr, 2003

Secondary product is a primary lifeline

As the home video business goes increasingly to sellthrough, the fate of secondary titles is becoming the $64,000 question. With the nation's consumers focused on the hits and now able to buy them as well as rent them, many analysts and observers have written off direct-to-video titles as a victim of the times. And yet ‘B' movies are showing remarkable resiliency, even as independent suppliers like Xenon Entertainment, York Entertainment and Ground Zero Entertainment say their business, was almost exclusively rental, is joining the transformation to sellthrough.

Tony Perez of Ground Zero summed it up neatly: Hip young men who put all their discretionary dollars into their cars are snapping up his low-budget urban flicks. Souped-up Hondas and Toyotas are being equipped with $2,500 DVD players, and those little shiny discs have become as much a part of bling-bling as thick gold rings and chains.

The big studios are also bent on keeping secondary titles alive, albeit in a different way. If the indies are playing to their target audience with increasingly narrow niche fare, the big boys are busy cobbling together revenue-sharing deals whose primary focus is no longer to increase copy depth on the hits, but to move units of ‘B' movies. Ironically, that's how the revenue-sharing game began in the first place, with Rentrak Corp. founder Ron Berger proposing the idea of sharing revenue on rental titles as a way to increase breadth rather than depth.

It's been nearly 10 years since Bill Mechanic, then head of the Walt Disney Co.'s home video division, said that without home video 85 percent of what Hollywood made would be snuff.

Obviously his words still ring true today. A decade later, you can still get loads of entertainment on both free and pay TV, but virtually all of it is big-box office stuff — some of it new, most of it old, but all of it with a successful theatrical track record.

The secondary stuff, well, that belongs to home video. And hopefully that won't change, because otherwise we will be in a cultural morass. As one pundit recently observed, “There's not that much difference between a ‘B' movie and a so-called art film. It all comes down to whether the critics have seen it on the festival circuit.”

That may be an oversimplification, but there's a fair amount of truth in what he says. If the secondary-title market goes away, I'm afraid we'd be throwing out an awful lot of wheat with the chaff.


8 Apr, 2003

VSDA's Problems Start At the Top

Last week Video Software Dealers Association (VSDA) board chairman and candidate Tom Warren posted on the VSDA discussion board a call for the membership's collective gray matter, seeking solutions to the organization's cash burn.

That was Warren's top priority from a list of three items he made in 2000. The other two were protecting the rental industry and expanding communication among members.

I'm sure his statement that “Goal I has proved most illusive” was just a Freudian spelling slip, even if it's true. He went on to say that “I have appointed committees, task forces and consulted numerous retailers but no new vigorous and viable revenue source has emerged. We have substantially reduced the burn rate by eliminating staff and cutting underutilized programs. However, cost reduction is not enough!…We have some of the best minds in retailing here. Let's look at your ideas.”

Tom, I have a few truths for you that may not solve VSDA's budget problems but could help facilitate the process. (Not coincidentally, a few VSDA members are calling for many of the same actions.)


    1) Drag the VSDA board's meetings out into the sunlight. Secret board meetings are antithetical to the American notion of open government – and elitist besides. Shame on you for calling on members to be more involved when you and your colleagues steadfastly insist upon slamming the boardroom doors in their faces, reporting out only what you choose. That practice has been common among corporate entities that, like VSDA, are bleeding red ink: Enron, Worldcom, AOL Time Warner, the list goes on and on. If you folks want to act like they do, don't come whining to the stakeholders when you meet the same fate. Maybe we could call a few Marines back from Iraq to open the meetings. That's a large part of what we sent them to defend.

    2) Just forget the idea of consumer shows. On its face the plan shows a bias toward suppliers – many of whom, it's worth noting, would just as soon see your members go belly up. This was a misbegotten idea to begin with. What consumer would go downtown to a hotel or convention center for information about the video store around the corner? What could VSDA possibly offer to consumers that would support member businesses better than they do themselves? Maybe if the boardroom had been open when this idea came up some of those “best minds in retailing” you mentioned would have pointed that out and saved you all the embarrassment of demonstrating to members how completely out of touch their board is.

    3) Perk up the VSDA show schedule with new seminars that offer some hope of helping your members do better, smarter business. Seminars about crime and loss prevention, store layout, release date strategies to compete with sellthrough, used disc trade, subscription models and anything big chains are testing.

    4) Start campaigning for your next board seat by soliciting members' opinions the day after you win an election, not two months before the next election.

    5) Look to the future. No matter how many times you click your heels together, it will never be 1984 again.