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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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24 Oct, 2002

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

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

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

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

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

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

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

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

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

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


22 Oct, 2002

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

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

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

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

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

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

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

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

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

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

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

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


21 Oct, 2002

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

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

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

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

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

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

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


20 Oct, 2002

THE MORNING BUZZ: Special Series Will Chart Watershed Sellthrough Quarter

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

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

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

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

But it'll be big.

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

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

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

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

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


17 Oct, 2002

THE MORNING BUZZ: Bigger Fish Hope to Fry Netflix

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

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

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

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

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

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

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

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

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

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


16 Oct, 2002

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


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

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

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

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

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

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

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

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

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

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

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

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


15 Oct, 2002

THE MORNING BUZZ: The Next Big Thing That Wasn't

I finally broke down over the weekend and bought a second DVD player. I was thinking about doing it and waiting for the special holiday pricing I think will be inevitable this year. But I was in a Best Buy and spied a special clearance price on a Samsung Nuon DVD player, which intrigued me despite the paucity of Nuon discs.

Samsung came to America as a budget line but has steadily ramped itself up to providing much higher quality equipment and serving a higher-end market than it once did (witness the company's home-networked refrigerator I dubbed the "digifridge" -- it has a screen in the door for Internet or component player viewing). The little Nuon player met my specifications otherwise so I thought, what the heck, it plays all discs.

Since the remaining boxed models had sold out and all that was left was the floor model, I talked a salesman (who, incidentally, didn't know I noticed him clutching a management sales sheet with the hand-scrawled message "Don't Let the Numbers Slip!") down from $99.50 to $79.60. A bargain, even for a floor model, since it was in good shape. It was light, compact, stylish and provides quite a nice picture.

The downside was that it had long since parted with its manual; that's not a tragedy for installation but it sure makes this remote a challenge. It's fairly dripping with bells and whistles -- so many I put my nephew the video game jockey to work on figuring it out.

I was already happy with the price and performance even under those conditions, but Samsung won my loyalty with amazing, yet intuituve service. I e-mailed the company about getting a manual and was directed to a Web site where I could download a PDF copy for free. In my experience most American companies charge a minimum of $10 to send a new one by mail.

During my information search I found Amazon.com selling the same player for $189.99. I also checked out the customer reviews, which were mixed. There I learned that some people had had problems with the unit skipping after using it for a while. Never fear, Samsung has a Web site where customers can go to download a firmware patch that can be burned to a CD-ROM disc and uploaded directly into the player's hard drive. Zip-zip, no more skip.

It's that kind of service that will burn a preference for Samsung gear into my mind. Next time I need anything electronic, I'll find out if Samsung makes it before looking elsewhere.

There's been a lot of speculation about whether price or service will win the retail war this holiday season. Both will present intense pressures in a highly competitive market. I shopped carefully, got lucky and got both, which adds up to genuine value.


14 Oct, 2002

THE MORNING BUZZ: File Trading Is Like Fair Use to Many

Recently, one of the local progressive rock stations in the Los Angeles area, KROQ, interviewed a lawyer who represented artists in their case against Napster. Likened jokingly to Darth Vader and other nefarious characters by the hosts, the attorney defended his court action against a sea of file-trading aficionados that included not only listeners who called in, but one of the show hosts as well. Mind you, this is the same station that exhorts listeners in CD give-away promotions to "win it before you can steal it."

What increasingly became clear in listening to the interview is that many young listeners consider file-trading fair use. That's the fancy legal term that much of this business is based on. It's also what allows viewers to record shows off television and make mix music tapes and CDs for themselves.

While the attorney only half-jokingly called listeners "thieves" and "file-stealers," kids who file trade don't think they are anything of the sort. Many made the argument that what they are doing doesn't affect CD sales at all - that, in fact, they buy more CDs because file-trading has piqued their interest in new music. They blamed the record labels and their overpriced, lousy product for the slowdown in audio sales. They also noted that the music companies have been slow to offer a pay alternative to free file-trading. The attorney rather eloquently rebutted that it's hard to compete with free.

Whether or not any of this is true is somewhat beside my point. What is interesting to me is the perception among many is that file-trading is not stealing. They consider it harmless, and several studies have in fact backed that up, finding that file-trading has minimal, no effect or even a positive effect on music buying habits. File-trading, to them, is like taping a show off television or making a mix tape. To them, it's fair use.


13 Oct, 2002

THE MORNING BUZZ: The Growing Phenom That Is Used DVD

Our online reader poll this week on the volume of previously viewed DVD sales underscores an important factor in the equation retailers must solve in determining how much to spend on deepening their DVD copies.

It is heartening to see that about 21 percent of the readers that responded to the poll bring in 26 percent or more of their revenues from the sale of previously viewed DVDs. Almost 25 percent of IVRs get between 11 percent and 25 percent of their revenues from-previously viewed sales. But there is still significant growth to be had, as more than 54 percent of respondents claimed they generate 10 percent or less of their revenue from used DVD sales.

At last week's East Coast Video Show in Atlantic City, several of the seminars centered on the issue of previously viewed as a factor in how to balance one's DVD -to-VHS ratio. Some made the point that retailers need to consider the quick turnaround of DVDs from the rental shelf to the sales bin in their copy-depth calculations. Tom Hannah, owner of Video Quest in Joliet, Ill., calls this a "one-way rental," considering it an extension of the value of his rental inventory.

Blockbuster has spent a lot of marketing dollars educating consumers on the availability of the used DVD as a viable alternative to rushing out to the mass merchants to buy the latest hit when it streets. There will always be those consumers that have to have the product right away and there will always be the blockbuster title that commands that sort of reaction (if priced correctly).

But the "new" vs. "used" decision for consumers can be made easier by the perceived value of the used product and its timely availability, which is why retailers should be buying deeper in DVD and moving a portion of their rental inventory over within a few weeks of debut to the sales bin and repackaging the used product for sale.

It's fair to say that consumers still have a high perceived value of DVD relative to its current suggested retail price, but the growing realization that if they can just wait for two weeks they can buy it for almost 50 percent off is going to continue to fuel this side of the business.

So to those retailers who are still more or less dipping their toes in the previously viewed business with less than 10 percent of their revenues generated from this model, I'd say jump in, the water is fine and getting warmer all the time.


10 Oct, 2002

THE MORNING BUZZ: Welcome to the Party



The fourth-quarter selling season has officially begun, and yet the barrage of press releases that greeted each “milestone” DVD release last year at this time is conspicuously absent.

One supplier who has already scored a big success says he considered issuing a press release boasting of his title's strong first-week sales, but thought better of it because he didn't want journalists to start drawing comparisons with last year.

“It's a completely different market,” he said.

It certainly is — which is why I'm going to make a conscious effort to stay away from comparing initial sales of this quarter's big hits with the fourth quarter of 2001's big hits.

Case in point: Much has already been written about how Monsters, Inc. handily outsold Shrek its first week in stores. But that's like comparing apples and oranges; the DVD market is a lot bigger than it was last year at this time (about 35 percent household penetration, as opposed to 23 percent), and study after study has shown us that DVD households have a voracious appetite not just to rent, but also (and especially) to own.

So of course the Monsters, Inc. DVD outsold the Shrek DVD. The market has expanded. Shrek still did incredibly well last year, considering the size of the potential market, and I'm sure if it had come out this quarter instead sales would have been significantly higher.

I think the real phenomenon we're seeing is that the consumer's appetite for home entertainment is increasing and that our ingrained habit of collecting entertainment is truly shifting from music to movies. I just completed the arduous task of alphabetizing all 1,400 or so of my DVDs — something I never did with VHS. In fact, I never accumulated that many videocassettes — they just weren't something I wanted to hold onto.

Smart rentailers are recognizing this major shift in the public's attitude toward collecting movies and are using their rental prowess as an incentive to get consumers to purchase. Blockbuster is giving away free rentals to anyone who buys a DVD, among several incentives; other savvy rentailers are using similar tactics.

Total Movies & Entertainment magazine includes an MGM feature film disc in every issue – about $7 on the newsstands – and is working on deals with other studios. Columbia Tristar has a deal with General Mills that will soon have kids getting a free DVD in boxes of Cheerios and Lucky Charms. DVD has become a party favor.

The future of this business is clearly in sales. Rentals are becoming a loss leader. “Try before you buy” has become the mantra of the DVD retail industry.

And to lift a quote from those great pop culture philosophers Bachman-Turner Overdrive, “you ain't seen nothing yet.”

Once the household penetration rate for DVD players reaches 40 percent, the doors to the studio vaults will fall open. If you think you've seen a lot of catalog product debut on DVD these past five years, just wait until you see what's coming down the pike.

I see a banner couple of years ahead for DVD sales. Eventually, of course, the bubble will burst — there are only so many collectable movies consumers will buy. After that sales will shift to new releases, simply because everything worth releasing has already been released.

But in the meantime, it is incumbent upon retailers and rentailers alike to capitalize on the DVD purchase boom—however and whenever they can.