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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 Feb, 2004

Blockbuster's High-Tech Future: Shaken, Stirred or Blended?

Blockbuster Video is preparing for some pretty ambitious initiatives in the coming year. They'll be great if the company can get it all done in enough time to keep the market from passing the chain by, but right now it looks just as likely to me that the promises will be half-fulfilled at best by year's end.

I base that on the degree of difficulty in executing some of the planned improvements. I came to Video Store Magazine from Advanstar's CRM (customer relationship management) magazine, which focused most of its attention on customer service call centers and e-commerce back-end management. A lot of what Blockbuster executives are promising is a lot harder to execute than it looks like it should be on paper.

It's great to be all things to all people, but ask any e-tailer (except Amazon) that tried to have a system up on the Internet in time for the 2000 holiday season and you will learn that it's not that simple. Logistics are difficult at best, even with the simplest model. The Blockbuster plan for “blended commerce” — the CRM term for brick-and-click — is extremely difficult to get working properly. Several companies that tried to race to the Web with simpler systems found out it wasn't that easy and ended up putting out their shingles at Amazon by 2001.

To its credit, Blockbuster has finally caught on to what's growing and what's dying in home entertainment. Efforts to push into games and the used-disc trade — which I distinguish from pre-viewed because PVTs are typically rental selloff, while “used” to me means the consumer trade-in model — are a smart move in tough economic times and a flooded market.

But Big Blue is hardly a first mover in online rental. Although it's only fair to note the chain has been offering “rental by post” in the United Kingdom for some time, CEO John Antioco has repeatedly told analysts that online rental will never be a large portion of the chain's U.S. business. Clearly, moves in that direction indicate that Netflix and other online services present a significant threat, or at least a chunk of market share Blockbuster wants. The little upstart may not be the pushover Blockbuster is hoping.

Like online rental, much of what Blockbuster is trying to do has already been done. But I see two major hurdles in the logistics of integrating online and in-store rentals. As I understand it, Blockbuster plans to let consumers rent online, using stores in the renter's area to ship the product. Then the consumer could return it by mail, at a store or decide to keep it after renting by choosing that option on the Web — an option that would be really cool and a unique selling point if they can make it work.

But I have to have my doubts because of some preliminary steps that are still not in place. First of all, Blockbuster's millions of renters must use their membership cards at the stores where they are obtained; they can't go to another store while on vacation and use the same card. Although CFO Larry Zine told analysts last week that the chain would have that bug worked out by the end of the year, integrating that many customer records in a chainwide POS system is a massive undertaking in itself. Then integrating that with Web functionality and providing customer service support is a whole other can of worms.

Finally, it may seem great in theory to let customers rent from one channel and return at another, but this is not as simple as Best Buy routing an online order to a store for pickup. The transaction has to go full circle. It's less like pure-play Netflix and a lot more like U-Haul, which adjusts its rental prices based on where you rent the truck and where you plan to return it. In the same way U-Haul can't have all its trucks from San Diego, Detroit and Nashville all pulling in for return in Cincinnati on the same day, Blockbuster will have to come up with a system that means online rentals get returned somewhere near where they were checked out if it wants to stay competitive. That will be a lot harder with a blended commerce system, assuming the chain can get it blended at all.

Customer service gurus have a rule of thumb: A satisfied customer tells three friends; a dissatisfied customer tells 10. That's some pretty scary math for a mature business that's trying to change to compete with another mature model. If Blockbuster succeeds, it stands to make some important gains. But if it fails, well, the bigger they come, the harder they fall.


23 Feb, 2004

Theatrical Sticker Shock

I took my daughter to see a matinee of Confessions of a Teenage Drama Queen last weekend, and I have a confession of my own. It was an enjoyable flick, but the sticker shock of paying for a matinee what I used to pay for a prime-time viewing provided some additional drama. Add to that the cost of a drink (about $4) and candy (another $4) and I easily spent $20 — for a matinee!

At the risk of sounding like the old geezer talking about shelling out a nickel for the movies, I can't believe going to the movies costs that much! I can't imagine how I would feel if the movie had been really horrendous — one of those flicks that's not worth the two hours of my time. BR>
No wonder DVDs are doing so well. Heck, going to the movies costs a fortune. For $20, I could buy a DVD, get some really good snacks and have something to trade-in or keep for my library afterward. Entertainment is even more economical if you rent a DVD.<

Theater attendance is flat, and I can see why. It's not a very good value anymore. In the past few years, I've only attended matinees, for the most part, because I considered seeing a movie at night too expensive — not worth the money. Now the matinees seem out of reach.

Last year was the first since 1991 that studios saw box office revenue slip — and that's with the higher ticket prices. I'm betting some of that missing revenue went to DVD.


23 Feb, 2004

DVD Recorders Approaching Mass Market Appeal

Only time will tell if DVD recorders have any significant impact on the home video business. Recording programming legally and otherwise will become more and more affordable in the next 12 months, with some analysts expecting DVD recording units to be available for less than $199 by this holiday season.

Research firm In-Stat/MDR has predicted that sales will ratchet up quickly in the next several years so that by 2007 DVD recorder units shipped worldwide will exceed 50 million units.

But whereas the analog generation could never figure out how to convince their VHS machines to record (and gave up trying years ago), things will be different for the digital era we are in now. Users, mostly younger in age, are already burning CDs by the millions, and in general are much more attune to manipulating technology than people were 15 to 25 years ago. Add to this the fact that DVD recording devices are starting to be paired with other media management services, such as personal video recorders, and you have the convergence of technology that could usher in a new era of digital entertainment creation in the home. Some DVD recorders will have electronic program guides and network connections this year.

Industry pundits see the high-definition format as the packaged media industry's response to these developments, but most don't expect high-definition DVD to be a significant factor until about 2007.

I don't think the baby-boom generation, which is still the greatest force in consumer spending and will be for some time, will be the ones jumping on the digital media management bandwagon. This is still a generation with a packaged goods collector's mentality. But the generations to follow will have to be given ample reasons in terms of higher quality and more content if we hope to convince them to choose packaged media over a personalized media program created by the user, for the user.


19 Feb, 2004

TV and PC Will Share Home Media Center Role

Preliminary results from Video Store Magazine's annual Consumer Home Entertainment Survey show an increasingly heated battle between the TV and the PC as the media center of the home. Television's current front-runner status is bolstered by continued strong growth in DVD penetration. Video Store Magazine estimates 66 percent of U.S. households now have a dedicated set-top DVD player, while 40 percent of DVD households have one or more additional players.

But don't count the PC out. Initially pegged as the likely media center when the whole convergence buzz began in the middle 1990s, the home computer's chances have since slimmed due to persistent cries that consumers won't want to watch movies on their PCs — not to mention the rise of cheap set-top DVD players that can be purchased for little more than a DVD.

And yet, with the rise in high-speed Internet connections and the growing availability of movies to download, PCs are playing an increasingly conspicuous role in the home entertainment delivery arena. Consumers might not want to watch movies on their PCs, but they sure don't mind using their computers to fetch their films.

Meanwhile, Web-enabled TVs don't appear to be catching on — yet. I've used a few of the primitive early models that have come out in recent years and found them a) too slow and b) not well suited to Web surfing. When working on our computers, we tend to be up close and personal with our screens, whereas when we watch TV, we keep a respectful distance.

And yet I don't believe the TV and the PC are destined to exist in parallel universes forever. So far, convergence has centered on talk that one will replace the other. Why must it necessarily be this way? I see both the TV and the PC sharing “media center” role. With continued advances in wireless technology, the ultimate home manifestation may one day be computers serving as a portal for movie delivery — the media controller, if you will — and then beam the movies to TV monitors around the home for viewing. Meanwhile, we'll continue to surf the Web on our PCs, with limited uses — sharing e-mail photos, for example — migrating to the TV.

Consider this: According to our survey, 82 percent of DVD households have a PC, and 72 percent of DVD households are able to connect to the Internet. Does anyone really think the proverbial twain shan't meet — or at least share a track?


18 Feb, 2004

Game Ratings Are More Important Than Others to Parents

The recent study by Harvard researchers showing that game ratings aren't as indicative of actual game content as they might be is likely a big worry to parents.

Many parents have had the experience of shielding a child's eyes as something particulary gory or disturbing crossed the television screen. I find the local news can provide some of the most upsetting content. Sept. 11 will forever be etched in my daughter's mind. She wandered into the room as my husband and I were watching the coverage of the burning towers — from which we had until that moment carefully protected her — and somewhat profoundly asked, “When are they going to put that fire out, Mommy?”

Despite that unwitting exposure, broadcast television is the least of my worries. It is fairly easy to protect children from television and movie content that might disturb or distort their perception.

Video games, on the other hand, are another thing. With many levels and hours of play involved, most parents don't have the time (or indeed the skill) to peruse the content to which their kids might be subjected.

As evidenced by the Harvard study, several inappropriate things get past the Entertainment Software Rating Board. In reviewing 81 games, the researchers found 48 percent did not correctly identify that the game contained potentially inappropriate content.

“We identified 51 observations of content that could warrant a content descriptor [i.e. sexual content or violence] in 39 games in which the ESRB had not assigned a content descriptor,” researchers Kevin Haninger and Kimberly Thompson wrote in the Feb. 18 issue of the Journal of the American Medical Association.

The researchers reviewed labels on 396 ‘T'(Teen)-rated games (acceptable for youngsters 13 years and older) available by April 2001, then played a random sample of 81 games for an hour each. The observation of the researchers matched the ESRB content description for violence in 95 percent of the games, for blood in 27 percent, for sexual themes in 20 percent, for profanity in 17 percent and for substances (i.e. drugs) in 1 percent.

All of this is very disturbing if you are a parent. Whereas I feel pretty confident I can monitor the content of the movies and TV shows my children watch, I don't have a clue what the third level of some game might contain.

I count on ratings to tell me.

This, it seems to me, would be a great opportunity for retailers to provide a little customer service. Perhaps clerks might play the games themselves or do a little research and let parents know when content might not match the rating exactly. It would make me a loyal customer.

I'm not advocating the idea that retailers be responsible for my children. That is the parents' job. But, no doubt, parents would appreciate another guide in game content. A knowledgeable clerk can mean all the difference to parents when making such a purchase.


17 Feb, 2004

The Revenge of Copy Depth, and More

Readers assail me and other VSM columnists every time we say VHS is over, but I cite you all to the unanswered questions in Blockbuster's Q4 and full-year financials.

The chain took a $1.3 billion charge “to impair goodwill and other long-lived assets.” In its SEC filing, Big Blue disclosed that only about $900 million of that was goodwill. So where is the other $400 million?

I'm thinking much of it's in the lost value of VHS and the rapid drain of new-release DVD value. We've all acknowledged that mass merchant pricing drives the value of new releases down within a week or two. That can make copy depth an expensive proposition.

Last month I held back making predictions for the year ahead, but now I think it's time. So here are a few things I think will happen this year:

  • All those indies who sued Blockbuster and the studios over rev-share deals they said forced out the little guys can celebrate now, because Blockbuster is paying the price for whatever advantages it may have received in earlier years. The chain will pay for its copy depth in new-release titles.

  • Hard times have already hit the two biggest chains. This will accrue to the benefit of smart indies, who are more agile and able to make changes in a changing market.

  • The rise of the used-disc trade will push new and used DVD prices ever lower. Studios will reprice sooner to keep their products on the shelves at mass merchants.

  • Chain subscriptions will force indies to lower their rental prices. Some may even have to offer subscriptions. Anyone who can't differentiate on title selection will have to rent for cheap.

  • Disposable discs will become even less relevant. Closing the price gap between the full-featured discs and those with bare-bones, expiring content will make EZ-D a more and more difficult sell, especially if used-disc prices track lower with new discs, and chains are forced to offer subscription rentals.

  • Netflix will pick up beau coup subscribers. Blockbuster will try to charge a few bucks more for its subscriptions, but anyone who finds out about Netflix — and by the way, I saw my first Netflix TV ad a couple of weeks ago — will feel foolish paying more than $20 a month for a subscription.

  • VOD, whether delivered by cable or Internet, will start to move to the forefront. Once consumers are paying for a monthly subscription, heavy consumers are likely to shift their $20 or $30 a month to the cable company and save the cost of gas.


  • 15 Feb, 2004

    How Are You Focusing On Indie Product?

    I especially enjoy seminars and panel discussions that put together both the retailer and the supplier on the same stage to talk about an issue. Especially in the packaged goods business, it's a great way to get an instant view of a segment of the business from all sides.

    At the Ventura Distribution summit last week in Santa Barbara, a panel discussion on the future of independent films, and especially as it affects home video, was addressed by a group that included major retailers such as Blockbuster and Tower Records, as well as suppliers such as Showtime and UrbanWorks, along with producers such as Skourus Films and Edward James Olmos, actor, director and producer.

    This has always been a “hits driven business” as has been said a thousand times, but with the rental business slowly being degraded by the retail sales of these hits, perhaps more so than ever, the independent short-run theatrical and direct-to-video titles may be the one area where specialty home entertainment retailers have a chance to build some growth into their business.

    I am not talking about the low-budget, formulaic genre horror or actioner titles. But serious films with good production value and solid story telling that may or may not have a recognizable talent attached to it. The tortuous path many of these films must travel to reach some level of notoriety is hard to believe. Many a serious and worthy film not backed by major studios or with bankable stars may travel a long road of film festivals, and may even win awards, and still get little or no commercial theater exposure.

    If they are lucky enough to reach the home video market they may suffer from poor packaging, non-existent consumer promotion and likely little or no trade promotion. But there are good films being brought to home video by good companies that care about those films and give them as much push as they possibly can.

    I was struck by how important the video retailer becomes, then, as the place where America comes to find cutting edge movies made outside of the Hollywood mill. But consumers have to know these titles exist. Good quality packaging, on the supply-side, and aggressive merchandising, on the retail side are two fairly simple areas that this industry can work on to not only improve their own businesses, but help contribute to ensuring a continuous flow of good films that we all know the public is hungry for.

    How are you getting your customers to focus on the non-hit independent product? I'd like to hear some of your ideas.


    13 Feb, 2004

    Suppliers: DVD Extras Are Not the Place to Cut Corners

    Talk to anyone at the studios and they'll tell you preparing DVDs is a careful balance of cost vs. added value. Bonus materials need to be as compelling as they are cost-effective; if getting, say, Tom Cruise to do a commentary would cost $100,000, it might make sense to let the director do the talking, gratis, and forego Tom and his wry asides completely.

    But lately, there seems to be too much effort being made to drive down the cost, particularly on TV season packages. I've spoken to several stars of classic 1960s sitcoms recently who are wildly excited about their shows appearing on DVD, and yet none of them were even asked to participate in the DVD production.

    Contrast this to Image Entertainment's excellent “Dick Van Dyke Show” complete-season packages, which include commentaries from both Van Dyke and series creator Carl Reiner, and gobs of other extras, including period CBS promo spots producer Paul Brownstein tells me he bought on eBay for $20 apiece.

    TV DVD is red-hot right now, and it's likely to get hotter still, as studios continue to mine the three most lucrative areas: the big contemporary hits, like “Friends” and “West Wing”; cult shows like “Alias” and “24,” where the DVD packages actually help build viewership, and vice versa; and classic television, in which beloved shows from the era when the entire family watched TV together are cleaned up and stylishly packaged for DVD consumption.

    But while the shows themselves are the star attraction, please, please don't forget that DVD has put consumers in the habit of expecting extras — and good extras. Too often, I think, suppliers, fretful of the higher costs inherent to multidisc collections, are looking to cut corners in the bonus materials department to keep the retail price as low as they possibly can.

    To me, that's an unwise strategy. Fans of, say, “My Mother The Car” would gladly pay an extra $10 or even $20 for a cool package that includes Jerry Van Dyke's running commentary and a documentary on the actual car, among other extras. In fact, they'd be more apt to shell out $40 for such a package than $30 or even $20 for a bare-bones set consisting of only the episodes.

    And while I'm on this rant, please take the time and effort to search out the original episodes, and not the shorter edited versions that ran later in syndication. If you're selling nostalgia, you might as well go for the real deal.


    10 Feb, 2004

    This Week&#39;s Score: David 1, Goliath 0

    Netflix CEO Reed Hastings is far too gracious to gloat in public, but I'm betting he's sleeping with a smile on his face these days.

    It must be satisfying to know a little upstart can pressure major chains like Wal-Mart and Blockbuster Video to conform to a model it created. Kind of like giving birth to a genius in a world in which most kids are just average, at best.

    Netflix is in the catbird seat today, positioned to watch Blockbuster and Hollywood Video buckle under the weight of their bricks and mortar as they struggle to jettison the unprofitable (read: rental) parts of their business and stop the bleeding by launching subscription rentals.

    Big Blue has never broken out its previously viewed numbers, but Tuesday's financial report stresses executives see it as a growth area, along with games and subscriptions. But changes in a business model cost money.

    In a January stump to investor analysts, Blockbuster CEO John Antioco cited internal and Kagan Media figures showing “anticipated 50 percent-plus growth in movie and video game rentals and sales through 2007 in the United States.”

    Notice that growth lumps rental and sellthrough together. Kagan showed total U.S. rentals dropping from $8.2 billion in 2003 to $7.4 billion, including subscriptions, in 2007. But gross figures leave out the impact of converting $50- and $60-a-month customers to $25- or $30-a-month subscription customers, as well as the presumable loss of late fees, which analysts say account for an average of 15 percent of Blockbuster's bottom line each year.

    By Tuesday, Antioco was singing a different tune.

    “The first quarter of 2004 will be difficult due to a weak box office and a tough year-over-year comparison,” he said. “Our full-year results will be impacted by an incremental $70 million to $90 million in operating expenses we will be investing in our business to support key growth initiatives,” he said.

    It may sound like the worst is over, or at least out in the open, but analysts at Fulcrum Global Partners don't seem to think so. A Feb. 6 Fulcrum report on Blockbuster is not so optimistic.

    “The search for new comp growth drivers highlights just how fragile the core rental business really is,” the analysts wrote. “In addition, we think the search for growth may lead to earnings missteps this year. Finally, the online model could cost the company as much as $200 million in capital expenditures, according to our estimates, damaging the cash flow story.”

    That means the $70 million to $90 million Blockbuster plans to sink into all of its stated growth areas this year will fall far short of what analysts believe it will cost just to do what Netflix is already doing.

    Happy Father's Day, Reed.


    9 Feb, 2004

    DVD Is a Gift for All Seasons

    I shopped at a local drug store this week for a Valentine's Day gift, as many consumers did. I waded through numerous rows of candy, cards and balloons in various shades of red and pink — your standard stuff. But I was surprised to find some of the shoppers perusing another gift for the season — $5.99 DVDs.

    I buy my husband his favorite box of candy every year for Feb. 14. It costs about $4 and is gone in a few days. If my husband weren't such a Turtles nut, I might spring for the extra $2 and get a DVD that would last for years. And these were good movies. There were selections for sweethearts of all tastes — especially those who like classics. I saw several John Wayne films, some Charlie Chaplin silents and numerous Cary Grant features, including one of my favorites, His Girl Friday.

    In this business, we've talked about videos as gifts for years, especially at Christmastime, but this is the first time it struck me that DVD had expanded into the lesser holidays. Who wouldn't consider giving a $5.99 DVD instead of flowers or chocolates? In many cases, it costs less and the recipient views it as more valuable and lasting. Flowers die. Candy is eaten.

    Much has been written about DVD outvaluing the music, game and theatrical experience — drawing buyers and revenue from these industries. But, for my money, DVD also trumps flowers and candy. Look out, FTD.