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.
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.
Electronics retailers Circuit City and Best Buy reported financial woes last week and each blamed the war, the economy and various restructuring problems, namely Circuit City's exit of the appliance business and Best Buy's “discontinued operation” albatross Musicland, which it is trying to sell.
The problem for both wasn't revenue, but profit. Basically, the chains sold a lot but didn't make much on the sales. Why?
It's increasingly a Wal-Mart world.
David Campbell, retail analyst for Davenport & Co. in Richmond, Va., said pressure on gross margins has contributed to bringing down the chains' bottom line. Circuit City's CEO Alan McCollough said as much. That pressure is coming from discounters like Wal-Mart, who sell DVDs and hardware at below-cost prices to sell other stuff, like tires and lawn furniture.
This trend is disturbing for these DVD players. Having entered the disc business early on, Best Buy got a jump on the competition and reaped rewards for it; now it may have seen its best days in the business. Circuit City was a little late to the party, and may be suffering for it. Wal-Mart was also late to the DVD party, but the mass merchant jumped in with both feet — and with one simple message — low price.
No other retailer has such a simple message and that is why many have lost in competing with Wal-Mart. Bankrupt Kmart with its murky mission and not-so-low pricing is an example of what can happen to chains that don't pay heed to the Wal-Mart world.
Best Buy and Circuit City sell electronics in addition to DVD and other software — but so does Wal-Mart. The question is what do they have to offer the buying public that Wal-Mart doesn't? Selection, service and a more pleasant shopping atmosphere may give the chains a leg up. But can they really compete in an increasingly Wal-Mart world?
The crafting of a top tier DVD these days shows just how far the disc has propelled the home video industry into the mainstream Hollywood filmmaking community.
Just five years ago, movies were slapped onto VHS with, perhaps, some trailers for other upcoming videos and, maybe, some contest or other promotion. Now the process of crafting a DVD can begin even before the first day of shooting the movie itself. The fact that DVDs are a new form of entertainment, not just a new platform to deliver a movie, is something I think retailers need to convey both to their employees and, in turn, to their customers. Studios, too, need to make more of an effort, I think, to highlight the elements of this new form of entertainment in their marketing.
Video Store Magazine has embarked on a regular series of articles focusing on the DVD producer; what he or she does and how they are developing this craft. This week's issue features Mark Rowen, DreamWorks head of DVD production. For Rowen the work often begins the minute the studio gives the greenlight to a project. That meant, in the case of Catch Me If You Can (streeting May 6), going through the script even before shooting starts to learn the story and plan DVD content. From there he deploys a variety of talented people, like documentarian Laurent Bouzereau and others, to create the content that enhances the film's impact and fits the director's artistic vision.
More and more, DVD producers are being brought in before a film begins production because the director and the studio understand that the DVD is a creative extension of the film itself and can add value to the overall “brand” extension of the film. It's not just that home video has become a major financial element in a film's success — often outperforming the theatrical take — that's pretty much a given. But that financial reality, combined with the technological capabilities of DVD, have propelled the DVD producer and the resulting home video product to a new stature in the Hollywood community.
I think one area where studios could do more to educate consumers as to the extra value of DVD is to use some of their marketing efforts to highlight DVD extras. For instance, one of the great things about the Spirit: Stallion of the Cimarron DVD was the very cool “Learn to Draw” feature, and the make-your-own-movie application. These were terrific and unique extras that, I think, were great selling points, but I don't recall DreamWorks highlighting these in their advertising. There is no arguing that home video is still all about the movie, but the skill and effort going into many DVDs these days needs to be given some extra exposure so that consumers place a greater value on the extras one finds on DVDs.
This will only serve to keep the perceived value of DVDs high in consumers' minds even as they see prices falling on catalog product.
By: Kurt Indvik
Pundits traditionally say the Canadian video market is virtually identical to the U.S. video market, just slightly behind.
But the order may be changing. In Canada, mass merchants — specifically, Wal-Mart — are in the lead when it comes to DVD sellthrough, just as they are here in the United States. Grocers, however, are a strong No. 2, led by chains like Loblaw and Safeway.
Here in the United States, grocers never really got into video as a primary product line. Sales were limited to small merchandisers for select hit new releases, positioned at endcaps or at the front of the store. Rental was big at some chains, nonexistent at others — and when revenue-sharing came into play, even some of the more aggressive supermarket players in video dropped the ball, figuring it simply wasn't worth the hassle.
But DVD may be changing the equation. Grocers live and breathe by impulse buys, and while in the VHS-only days grocers could only count on a handful of sellthrough-priced new releases, chiefly children's product, nowadays every new release is priced for sellthrough and that makes the concept of a regular video sales section all the more viable.
Meanwhile, on the catalog end, the fact that DVDs take up so much less space than videocassettes is also an enticing proposition to establishing a regular DVD section — particularly since studios are putting out more and better catalog product, much of it surprisingly current, than they did with VHS.
Already, the Vons near my house has a row of low-priced catalog titles in the front, under the photo counter, just like the nearby Target and Wal-Mart. And down by the liquor section is a cabinet with hot new releases. In the past, there were no videos to speak of in the store, aside from an occasional Disney title for the kids.
The change is no accident, as a recent grocery industry survey pointed out: mass merchants are grabbing grocers' traditional turf with food sales, so grocers are looking for ways to make up the difference.
Grocers may also be driven, at least in part, by the vulture mentality. It's no secret that music stores are suffering, with many big chains, including Wherehouse, shuttering a good chunk of their stores. And savvy supermarkets with outlets near these closed music stores may have a natural audience, as long as they get the word out.
It's funny — home video observers have frequently said the end goal of DVD is to become a commodity business. And getting copies of Spy Kids 2 and Road to Perdition inches away from the milk cooler and the Spam rack certainly brings that concept one giant step closer to reality.
By: Thomas K. Arnold
Games are a revenue stream that's picking up steam in the home video industry. Game sales figures already best the annual box office revenue that Hollywood movies take in.
For a long time game prices were prohibitive, making margins low and putting off a lot of rentailers. But now more of the game publishers seem open to revenue-sharing or other deals that make games a more viable rental option.
This morning Jupiter Research released a study that found video games are more popular among low income households than more affluent homes.
That may make sense of why games like Vice City, which tend to offend some folks' sensibilities (including mine), do so well: parents of a 12-year-old in the suburbs are more likely to find the game offensive, but in some low income neighborhoods -– at least in the Los Angeles market – what's going on outside the house makes Vice City look tame. If you ask me, that's a sad way for kids to grow up whether it's a real or CG world.
But the draw for games is that, unlike movies and even most DVDs, they have so many possible outcomes. It's cheap, repeatable entertainment that takes a lot longer than a movie to get stale because even though it's the same game, player behavior changes it each time.
Teen girls were also identified as an “underserved” game market. Jupiter's analyst found that girls play more video games than anyone suspected, and would play still more if the content was geared more to their tastes.
I'm a little afraid of what the game publishers will get out of that, although I take hope from a summit for female game developers held last year. I think the name of it was even “Beyond Breasts” or something like that, and the core topic was how female game developers are influencing the industry by creating things that appeal to more than pubescent male fantasies.
But I digress. The message for rentailers is to take a good look at your store's demographics and reevaluate whether it's time to get into game rentals or even sales. Come up with creative approaches to renting multiple titles so customers can try them out before buying.
I know from experience that most people with low incomes watch their pennies more closely than most folks who have plenty of money. The opportunity to try before buying is a good lure for the demographic that's most likely to spend a lot of time playing video games, if you believe the Jupiter study.
This weekend, I watched several episodes of HBO's hit “Six Feet Under” and without DVD, I probably never would have seen this excellent series. It would have come and gone without my ever having sampled its quirky pleasures.
First of all, I don't subscribe to HBO. Second of all, even if I did, there would be little chance that I would catch all the episodes in this serial, which requires a viewer to know what happened in previous episodes to fully understand subsequent installments. Likely, I never would have tried. I just don't have the patience or the fortitude to follow through on the type of ongoing stories television writers produce these days. I can follow one or two storylines (“Buffy the Vampire Slayer” is a favorite), but I can't keep up with the plots in numerous series on a weekly basis. I turn on something like “Alias” and am immediately lost.
But on DVD, these series are laid out nicely in sequence, and when I get a large block of time, I can watch a large chunk of the series without commercials. A time-strapped viewer can catch up with or discover the series at any time, even years after the show disappears from the television lineup. I look forward to perusing “The Sopranos” at some future date, and “Alias” as well. Television is producing a legacy of classics that will last on DVD for years and will continually find new audiences never tapped on cable or the airwaves.
These are not mere reruns, sliced and diced by syndicated stations. They are better than the original viewing, in pristine condition, uninterrupted. I've heard one colleague say the older “Star Trek” episodes look better on DVD than they have ever looked -- even in their original 1960s airing. They've never been crisper, she said.
DVD offers a permanent home for television content. It's a medium that allows series to age gracefully, waiting for new audiences to discover them in their own time -- not tied to a television schedule – and in excellent condition. Like classic films, many will be discovered by viewers long after their prime time days are over.
We're in the midst of another round of retail consolidation, but this time it's not Blockbuster and the other big rental chains swallowing up the independent rental stores. Rather, we're seeing big chains take some pretty hard hits in the gut, while the mass merchants appear to be gaining clout — and market share — in what is increasingly becoming a DVD sales market.
Granted, the struggling retailers of today — The Wiz and Wherehouse Music are at the top of the list, with the former shutting down and the latter liquidating many of its stores — are in their fix largely due to slumping CD sales. But that's hardly the sole reason for their troubles. The mass merchants are clearly determined to triumph in both music and video software and, while downloadmania has certainly triggered an overall decline in music sales the remaining market share is tilting toward the big chains and their rampant and often below-cost discounting.
That's why I believe further hardships are on the horizon for other home entertainment specialists, Blockbuster included. Already, Big Blue and its peers are realizing the future of home video is in sales, but that's a whole different ballgame from rental. Even if Blockbuster and the other big rental chains successfully transition from a rental to a sellthrough environment, they're going to be hard-pressed to make money, given that the big discount chains routinely lose $1 to $3 on every hot new release they sell for less than $15.
What's more, the specialists are under fire from the rear, as well. Rental's salvation, in an increasingly sellthrough universe, has always been breadth of copy and selection, with catalog playing an important role. But not only are the mass merchants devoting more and more shelf space to DVD, they are pressing the studios for more, and cheaper, catalog product.
Their strategy is to make up for their losses on the new-release front by pumping out huge quantities of catalog “filler” to DVD buyers. And if they sell enough to impulse buyers attracted by the huge dump bins in high-traffic aisles, they just might succeed. It might not seem there's a lot of money to be made by selling DVDs for $5.88, but if the wholesale cost is $4.50 or $5 the margins are a whole lot better than on new releases — particularly if those new releases, which wholesale in the$16 to $17.75 range, are priced below $15, as they inevitably are their first week in stores.
But I digress. The bottom line is the mass merchants are aggressively shoring up their home entertainment software inventories, music as well as video, and they're determined to snatch more and more market share in both industries. Music retailers will suffer the most, since losing market share in a slumping industry is a recipe for failure.
But even video retailers need to look over their shoulders. The high growth rates we're experiencing are bound to level off and if the mass merchants continue to gobble up market share, there's not going to be much business left.
By: Thomas K. Arnold
After a weekend of drenching rain two weeks ago that left the southern third of California housebound, I was itching to get back out in the sun last weekend.
Sure, the rest of the country sees the Rose Parade on TV on New Year's Day and thinks we are all a bunch of wimps. But nobody really beams back the satellite shots of the flash-flooding later in the year, when the area gets its entire annual rainfall total in one weekend. Such was our Ides of March this year.
Anyway around here, it wasn't just the war broadcasts keeping folks out of stores last weekend. Some of us fled, blinking, into the sunlight to ride bikes, walk pets or pursue other activities. Flea markets and garage sales are a pastime for me, so my excursion was cruising yard sales.
It has been a few months since we had really good yard sale weather so there were several neighborhood or tract joint efforts, 20 or more families in an area dragging their castoffs to the curb.
Being voluntarily childless, I almost always pass on sales where you can tell from your car that most of the stuff is outgrown baby clothes and toys. But with a neighborhood sale you get out of your car and walk, so I got a closer look at what was getting sold.
It was immediately apparent that in the few months since the last round of neighborhood sales, VHS has been migrating from the family room to the garage and, finally, to the curb. Virtually every sale, regardless of neighborhood economy or breadth of merchandise, had at least a few tapes out for sale, cheap. At the more affluent homes there were entire bins of tapes, often factory issues offered at $1 or even 50 cents each.
We all know that the number of DVD players in American homes nearly doubled from January 2002 to January 2003. The sheer volume of used cassettes for sale is only further proof that VHS is on the fast track to 8-track tape status: a clumsy curiosity that nobody misses and that will soon be recalled with the same nostalgia as tube TVs, manual typewriters and treadle sewing machines.
Last month, when Netflix made a splash by announcing it had reached the million-subscriber milestone, Wall Street swooned. But it was a recent conversation with my neighbor that solidified my opinion that the online rental pioneer has something.
We were talking DVD during a suburban get together. (I often do a little informal market research at the neighborhood block parties.) One neighbor mentioned that she and her husband were anxiously watching their Netflix rental queue for a certain hit title, and were hoping they would get it soon. Like a kid anticipating Christmas, this neighbor described how she would visit her list and watch her favorite films' progress to her door. It reminded me of the early days of video, when folks would visit the local video store and pick up a second- or third-choice title when the hit they were looking for wasn't in stock. To my neighbor, these online visits were like browsing without the hassle of getting into the car.
Mind you, we don't live in the sticks. If my neighbor were to get in her car, a five-minute drive in almost any direction would bring her to a video store where she could go home happy with her desired title. But she seemed content to watch its progress in the Netflix rental queue, seemingly more interested in browsing patiently, taking second and third choices and waiting for her most-desired DVD to arrive than in instant gratification.
In a country where people shop for fun, Netflix has found a strong niche. Like the video store of yore, the service has made picking out a video an enjoyable experience. Through Netflix, folks are once again going to the video store to see what looks interesting, they're just doing it in a virtual store, and it only take a few seconds to arrive.
A reader poll in this space last week asked retailers how long they wait before beginning to put out previously-viewed titles from the rental rack for sale.
The choices were two weeks, three weeks, four weeks or more than four weeks and the results showed that each received about a quarter of the total votes cast. In short, about half of the respondents said they put out videos for sale after two to three weeks on the rental shelf, while another quarter said they put out videos in week four and the remainder wait more than four weeks.
This serves to drive home the fact that the previously viewed business is, indeed, a key element of a retailer's business and increasingly so. It also, I think, indicates that the selloff period restriction may be the most important element in any DVD revenue-sharing deal studios craft with rentailers.
There is no doubt that DVD revenue-sharing is well on its way. Studios are faced with mass merchants' growing reluctance to buy significant quantities of second-tier titles, thus the rental component for these titles becomes ever more important. However, even at sellthrough pricing for DVDs, many rentailers are only going to pick up so many of some of these secondary titles and thus studios, looking to maximize their take on the rental business, must do all they can to sell as deeply as they can into the rental pipeline.
Revenue-sharing, that is reducing the upfront out-of-pocket investment, will be the only way studios can get rentailers big and small to expand their depth, especially in second-tier titles.
Yet, retailers report that, for the most part, current revenue-share deals have significantly long selloff period restrictions. MGM, always rated one of the most favorable in this category, reportedly has a 30-day restriction before selloff can begin. Other studios average 45 to 60 days! That, it would appear, is nowhere near the reality of previously viewed sales practice of the majority of rentailers.
Now some of this might be mitigated by what a studio requires for a buyout, but from what retailers are saying, current buyout rates do not come close to making a 45- to 60-day restriction attractive on DVD.
As shelf space for non “A” title product gets squeezed at the mass merchant level, and as studios return to a rental priced/revenue-sharing model for the second tier of their product line, it will be interesting to see if they can craft revenue-sharing deals that are attractive to rentailers, especially smaller chains. I don't see anything more than 30 days as a selloff restriction working.
By: Kurt Indvik