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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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13 May, 2004

First-Quarter Results Prove Rental Model is in Serious Trouble

The sharp drop in rental revenue our industry experienced in the first quarter of this year — estimated at 16.5 percent, according to our market research department — is alarming, not just for the sheer magnitude of the decline, but also for the fact that soaring DVD sales couldn't offset an overall 4.3 percent decline in home entertainment consumer spending.

Each year, the home entertainment market has gotten bigger. In year-end stories going back into the late 1990s, we've seen studio executive after studio executive gloat over the public's infatuation with DVD and how sales records continue to fall. Through it all, we've been hearing that rental is flat or slightly down, but that overall spending is way up because consumer just can't stop buying DVDs.

I don't see the first-quarter results as a sign that the DVD boom is fading. After all, consumers spent 12.9 percent more on DVD purchases this quarter than in the first quarter of 2003. But I do see it as an indictment of the rental model, a sure sign that despite Joe Retailer in Podunk's insistence that his store is still doing fine, the rental industry is in serious trouble.

While studios have been so caught up in the euphoria of DVD sellthrough in recent years that they've all but ignored rental (maybe because they don't get a cut), the fact remains that rental was and still is a major component of the home entertainment pie and that we had all better become attuned to the fact that a major part of our business is slip-sliding away.

I must confess, I always thought rental would be second fiddle to sellthrough once DVD became ubiquitous, but I never once imagined this part of the business would get hit so hard, so fast — and that it would actually drag down the overall spending tally.

We know what the big chains are doing about it. Blockbuster is trying to find other ways to make money, like cracking the used-DVD market, while Hollywood is going private, perhaps not wishing to call attention to itself at a time when any company that depends on rental is coming under the microscope of the investment community.

But what are the other retailers doing about it? I'd love to hear from you at the e-mail link above. Just don't write and tell me things aren't really that bad.

Rest assured, they are.


12 May, 2004

Loose Discs Don't Sink Gift Sets

Sorting through Best Buy's stock of Universal Studios Home Video's The Monster Legacy DVD gift sets recently, Todd Brashear, co-owner of Wild and Wooly Video in Louisville, Ky., noticed a customer shaking each uniquely packaged boxed set that features miniatures of horror characters Frankenstein, The Wolf Man and Dracula, looking for errant discs.

According to Brashear, free-floating discs can kill the DVD set's appeal to serious collectors — never mind the potential for defective merchandise.

“They don't want anything to do with them,” said Brashear, whose clientele include connoisseurs of biker/gang, zombie and women in prison videos, among other eclectic fare.

Incredulous to the notion that somebody hawking images of women behind bars would care about free-floating discs, I called Best Buy.

“It's not something we get a lot of calls or complaints about,” Best Buy spokesperson Brian Lucas told me. “And usually I'm the one who gets those kinds of complaints.”

Bruce Herberger, president of Showtime USA Video in Loveland, Colo., and confirmed believer that the studios are out to eliminate independent video retailers, said that if the studio isn't putting the disc in a keepcase, then the product was planned obsolescence.

“There is absolutely no way that disc is going to reach you in any kind of descent shape,” Herberger said.

Most video retailers contacted, however, said the issue of was much ado about nothing.“I've never had anybody mention that to us,” said Russ Homer, president of Instant Replay in Pittsburgh. “You are the first.”

Best Buy's Lucas, who admitted the chain attracts an inordinate number of DVD box set collectors, said the problem might be self-induced.“Maybe if they stopped rattling [the gift sets] so hard,” he deadpanned.

Better yet, don't worry about.


11 May, 2004

Other Formats Gaining Attractive New Features

If you don't feel cable, satellite and video-on-demand breathing down your neck yet, it may just be luck.

The satellite and cable providers are increasingly luring customers with personal video recorders (PVRs) and, regionally, video-on-demand (VOD).

VOD isn't really practical for satellite providers, which must beam a signal to a lot of homes simultaneously. The closest they can get is the 24-hour pay-per-view (PPV) window or a PVR, which they are putting into homes just as fast as they can. I have DirecTV, and they are running a promotion now to get more customers onto TiVo. DISH Network has a similar device for its customers.

DirecTV, by the way, has a new ad featuring a guy on both sides of a split screen talking to himself. He talks all about how late fees and return trips drain the value out of rental. He talks about the space and money it takes to maintain a DVD collection. Make no mistake, these companies are intent on convincing customers they are better than DVD.

Up to now, most video dealers have largely pooh-poohed the impact, but I think it's starting to show. An article last week in the Port Orchard (Wash.) Independent lamented that the Cinema One video store was going out of business after 20 years. The owner, Diane Launius, was quoted as citing the effects of “new technology” and Netflix. In a post on our discussion board this week, one dealer lamented that a couple of young guys were in his store writing down movie titles — just so they could go home and add them to their Netflix queue.

If all that weren't enough, the companies that make set-top boxes are doing all they can to make them even more attractive. If you thought PVRs were the “It” technology for a decade, hang on. At last week's National Cable & Telecommunications Association's National Show, Scientific Atlanta was showing off its in-home video network, which includes a multi-room PVR setup and an HD PVR.

But wait, there's more! Motorola and AgileTV had the new killer app: a broadband set-top that responds to voice commands. No more remote control, just tell the box what you want with phrases like “find The Sopranos” or “find movies with Julia Roberts.” The other day when I was trying to recall the name of one of the better recent werewolf movies, that would have been great. Instead of giving fuzzy scene and plot descriptions to another werewolf movie fan, I could have requested werewolf movies and remembered Dog Soldiers in half the time. And I can hardly wait until I can tell my TV goodnight and have it shut itself off. To keep up with that, someone will have to come up with a DVD player that takes the disc back to the store.


10 May, 2004

‘Shrek' Sequel Positioned to Bring in More Green for DreamWorks, Retailers

The upcoming Shrek 2, due in theaters May 21, promises to be another blockbuster for DreamWorks and its home entertainment arm. In addition to the familiar trio of Donkey, Shrek and Fiona, the story introduces a slew of other memorable characters that are sure to delight kids and adults — all of which should boost the fourth-quarter gift-giving season coffers of retailers.

It's nice to see the summer season get off to a nice start; it often bodes well for the home video holiday season that follows. I recall seeing The Matrix and anticipating the excitement it would bring to the video realm. Shrek 2 should provide a much-anticipated boost.

Van Helsing, too, with its $50 million-plus opening, looks to be a winner for video retailers. It's just the kind of special effects-laden fare DVD enthusiasts clamor for, and it's got the added advantage of boosting sales and rentals of Universal's horror classics.

We've already seen some strong showings from such popcorn teen fare as 13 Going on 30 and Mean Girls. Those, too, should add to video interest in the summer and fourth quarter.

I'd be interested in hearing from retailers on the upcoming theatrical and video slate. Readers?


9 May, 2004

Game Rats

This week we have the Electronic Entertainment Expo (E3) taking over the Los Angeles Convention Center for the annual riotous frenzy of the video game industry. (See this week's issue of Video Store Magazine for a heads up on some of the hotter games making their debut at E3, and then look for post show coverage in a couple of weeks.)

In honor of that event we set up a little video game lab in one of our conference rooms here at VSM so staffers could get their hands on the controls to PS2, Xbox and GameCube systems for some hands-on experience. We tried games built around movie brands like James Bond, Lord of the Rings, Harry Potter and a few others, not to mention a variety of other titles.

Of course, some of us (not yours truly) have a whole lot more experience than others, and it showed. As a group, I'd have to say the majority of us were less than proficient with video games, even some of our younger staff members, which surprised me a bit. Being one of the old geezers in the group, I figured anyone in their mid to early 20's probably had these games wired. Not so. But even those that struggled at first, soon found themselves hooked on one game or another (since I'd wander by and find the same staffer who came back for another try at a particular game that caught their fancy).

As one inexperienced player noted “This would be great for a rainy day,” meaning they could see themselves spending more than a few hours trying to master a game.

Games can be extremely immersive and it's no wonder Hollywood has seen fit to work with game companies to extend a movie's brand lifespan, especially if that movie has sequels in the works. And it's no wonder that games can be a good rental business because for the more casual gamer it may take many rentals before they find a game that suits them enough to decide to fork over the $40 - $50 to buy it.

If you're a video rentailer who rents and sell video games (or is thinking about it) but who isn't particularly game crazy (ok, pun intended) I urge you to make an effort to carve out a few hours every now and then to play some of these games to better understand the customers you serve. Whether they are hard-core gamers, or casual weekend warriors, you can be a better resource for them if you have some working knowledge of what they spend those many hours doing. Who knows, you might just become a hard-core gamer yourself.


6 May, 2004

My Latest DVD Obsession: Low-Budget Horror Flicks from the '50s

I'm having the most wonderful time, wallowing in muck.

While an unopened copy of The Last Samurai and other top-flight blockbusters sit undisturbed in my bookcase, I'm thrilled to the hilt to be watching a succession of low-budget sci-fi and horror films from the 1950s and early 1960s, cult classics from the drive-in era with titles like Carnival of Souls, Beach Babes and the Monster, The Giant Gila Monster and, of course, Ed Wood's own Plan 9 From Outer Space, branded by critics as the worst movie ever made.

I'm as happy as a pig in … well, you catch my drift. I even went to Wal-Mart and picked up one of those Rubbermaid “media boxes” so I could give my precious collection of camp its very own home, away from the mainstream films that line the bookcases in my family room and office.

Thank you to Image Entertainment — and MGM Home Entertainment, with its Midnite Movies line — for bringing to DVD these and other unsung heroes of the “Atomic Age in Cinema,” a peculiar time in the annals of filmmaking when fears of a nuclear holocaust made imaginations run amok. Trashed by critics and dismissed for their amateurish special effects — in Plan 9, nylon thread is clearly visible at the top of each “flying' saucer — these films, upon recent viewing, are far more influential than anyone probably has given them credit for.

George Romero's 1968 Night of the Living Dead gets credit for starting the zombie movie craze, a craze which recently hit another of its periodic peaks with a big-budget remake of Dawn of the Dead and such other theatrical films as House of the Dead and 28 Days Later (all right, so they weren't zombies, per se, but they sure looked and acted dead).

But nearly a decade before Night of the Living Dead, Ed Wood was resurrecting corpses and turning them into vicious killers.Likewise, the inventive monsters in Men In Black are the direct descendents of the black-and-white aliens of the 1950s, and while the “giant Gila monster” in the 1959 frightfest was obviously a regular-size lizard, the shots of the shadowy creature sliding its way through the river bed in search of prey, at least to my eyes, looked a lot more realistic than the charging mechanical dinosaurs in Jurassic Park.

On top of that, the fashions, the hairstyles, the slang and most of all the cars are incredibly amusing and entertaining to watch.

Don't get me wrong. I'll get to The Last Samurai and all the other new stuff. But first, I've got a whole pile of other movies to watch. Starting tonight, with She Demons. Or maybe Bride of the Monster…


5 May, 2004

Legal Music Downloading the Training Ground for the Future of Home Entertainment

I've been talking to a lot of music DVD suppliers lately, and it's been making me think about the nature of the music consumer and what role these folks are going to play in the future of home entertainment.

For example, I think I'm a fairly good example of a music consumer with a healthier than average buying appetite.

Listening to CDs is a natural element of my daily routine, like reading, getting coffee in the morning or brushing my teeth.

I love it when you pop in a CD and you travel back in time to the first time you heard it or to a particular moment in your life.

I was blasting a compilation CD of songs from bands in my college town in my car yesterday. Many of the musicians on it are old friends or acquaintances of the time, and as I sing along, I like to picture them performing in any number of dank Tempe, Ariz., dive bars. Makes whatever particular patch of gnarled L.A. traffic I'm sitting in at the time feel a little bit like home.

I will never part with this particular album, not for a loan of any length of time. I don't know where or if I could ever get a replacement should someone inadvertently swipe it.But as I listened yesterday I thought of how one song on this album would be the perfect opener for a mix CD I making for a friend's birthday.

Now the fact that I even began thinking of making her a mix marks a significant step in my evolution as a music consumer. I don't make mix CDs willy-nilly, I never have. It's just more hassle than I care to endure, I'm a selfish, lazy music lover.

But not anymore, I discovered shortly after I signed up for iTunes, and it was like a bell doinging in my brain: “I can just go to iTunes, download any songs I want, upload any others I may not be able to find online and burn them all to a CD.” Brilliant. Cheap. Fast. You don't even have to wait for the length of a song for it to download. And for around $20, you have a neat little personalized disc. It's perfect.I have to admit. I've never been so excited about making a mixtape (oops, CD).

The music consumer has been getting a bad rap lately, but mediums like iTunes and handheld hardware like the iPod, well, they're getting us excited again. Excited to spend money on music.

And quite frankly, I think the movie industry needs to keep an eye on that excitement. It's inevitable that digital downloading and handheld technology is going to play a major role in the future of home entertainment. And I think what's happening with legal music downloading right now is going to be the training ground for that future market.

Music DVD suppliers are already planning for it, I know, thinking of all the ways they can deliver music videos or concert footage through VOD or downloads in the future.I think it's the music consumer of today who gets excited about purchasing music online or at a kiosk in a coffee shop or record store who will be the most comfortable taking that leap to purchasing downloads of visual content, even feature films, when that market evolves.


4 May, 2004

Entertainment that Reaches for the Skies

Is video headed for an air war?

Maybe. I ask this question because of all the new entertainment options becoming available on airlines. The downtime up in the air is a great place to catch a movie on a laptop or portable player and could also be a great place to advertise the possibilities.

Last week, Delta Airlines announced it had outfitted all 36 planes in its discount Song fleet with a variety of entertainment options, including Dish Network TV channels. By the end of the year, the airline plans to offer video-on-demand and pay-per-view movies as well as video games.

Movielink CEO Jim Ramo has said that the largest percentage of that service's users are business travelers who download movies before they go and watch them literally on the fly.

Vending machine boosters covet airport locations — difficult to get because most jurisdictions don't want a lot of vending machines in their airports, so floor space is unlikely to be available anyplace except where they can convince existing gift shop merchants to give it up.

In that environment it would be more practical to offer EZ-D disposable discs, although the title selection is still quite limited. But air travelers are a captive audience with an immediate need, so the disposable disc could be a good option.

Netflix is also a good choice, because travelers can take the movie from home, watch it on the way to the destination and drop it into the mail wherever they land in the United States. Netflix also has more selection than any of the other options.

All of this would make it seem that in-flight magazines and onboard audio and videocasts are the perfect place to advertise these new approaches. Of course, it would not be feasible for small operations, but Flexplay and Buena Vista, for example, could run spots promoting the disposable discs on routes to and from cities that have them. Ditto for Netflix and Movielink, which have greater selection and cover all U.S. markets.

With the vacation season nearly upon us, it's worth thinking about where your customers, and your business, are going this summer.


3 May, 2004

Many Consumers Engage in Free Movie Trading

Now that Blockbuster is launching into the movie-trading business with abandon, it occurred to me that consumers engage in movie trading amongst themselves all the time — and at no charge.

Just last week, the kids in my neighborhood were asking neighbors if they had a copy of The Haunted Mansion and if they might borrow it. Granted, I live in a particularly clubby and social neighborhood, but this sort of trading no doubt happens between friends, family and neighbors everywhere.

Now, I'm not going to suggest that the studios go after my neighbors, as they are making plenty of money on the sale of DVDs and there's no law against this kind of casual sharing. Certainly, neighbors do and have done the same thing with titles they rent.

But it does make me take notice of its effect on windows. Most rental dealers will tell you that titles die in a matter of weeks, mirroring the theatrical business. Indeed, this phenomenon started with Blockbuster's drive to have consumers “Go home happy” with the hit title they wanted through extreme copy depth. Now, instead of going to Blockbuster, consumers can “rent” from neighbors and friends.

The sellthrough business has shortened legs even more than did the copy-depth drive of the late 1990s. Most studio execs, like their theatrical brethren, say the first-week DVD sales are key. That's when studios realize the majority of a title's income. I see no hope or, indeed, interest in reversing this trend. It is merely a reality of the video business.

Independent retailers will have to adjust, as no doubt many scrappy competitors already have, by turning over inventory more quickly, by merchandising niche product that mass merchants don't, and by engaging in movie trading, heavy sales of previously viewed titles or other new business models.

It's not only the sellthrough business shortening windows. The video-on-demand bogeyman may finally be gaining steam. A recent study found that movies on demand (MOD) orders have surpassed pay-per-view (PPV) movie orders on In Demand Network. According to iND research, December 2003 was the first month in which there were more movie orders via MOD than PPV. Titles with 30-day windows averaged almost double the buy rates of titles with longer release dates.

All indications are that the savvy retailer of the future will have to pay heed to shortened windows and move product more quickly than ever. By next weekend, everyone in my neighborhood will have seen The Haunted Mansion, and they'll be looking for what's next.


2 May, 2004

The Mass Merchant as Distributor

I got a call last week from a single-store retailer who was incredulous about the disparity in pricing between what he pays his distributors for a new release and what he can buy it for at Wal-Mart. “Isn’t this illegal?” he asked. "How can the studios and distributors get away with this?"

Indeed, the VSDA discussion board has been lit up lately with the same sort of discussion, some calling it the studios’ domestic version of the two-tiered pricing they have implemented in the United Kingdom. Retailers, for the most part, don’t seem to be buying the claim by studios and distributors that mass merchants are selling the high-profile hits at a loss to drive traffic into their stores as “loss leaders.” (Although it is interesting to note that the pricing of these titles at mass merchants does tend to rise after the first week or so.)

Over the past several years, it has been the practice of a large percentage of independent retailers to buy copies of new releases from big-box retailers. At first it started out as a way to fill-in copy depth on a title, but it seems that the practice has become a regular part of many retailers’ weekly buying habit. They buy what copies they need of one or two or more new-release titles from mass merchants as opposed to their regular distributor, since they can get those copies for anywhere from $1 to $5 cheaper.

As a matter of fact, Video Store Magazine is looking to find out just how often you buy inventory for your store from a mass merchant. Take a moment while you’re here to participate in our poll. We’re very interested in getting an idea of just how broad (and how deep) this practice has become.

One question that arises is, what is this doing to what is remaining of the industry’s distribution system as retailers question the value of their distributors? Besides getting terms and delivery, distributors have a much broader selection of titles to choose from than the mass merchants. That selection is an important element to every rental dealers’ business. Some retailers argue they have no sympathy for distributors and aren’t interested in buying from them for charity’s sake. But can they truly afford to see further erosion of their industry’s distribution system?

Many retailers have stated they certainly intend to stay with their distributors while continuing to buy from mass merchants either to fill in copy depth or maybe save some money by buying one or two titles at big-box stores as a hedge against what they feel they are losing in price difference for everything else they are buying.

A number of retailers are calling for some action to be taken by the iGroup or some other organization to try to rectify what they see as an injustice. Whatever form that action could take remains unclear. But what is clear is that independent retailers are taking the matter into their own hands to a certain degree, and that may lead to further challenges for the distributors left in this business.