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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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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.


8 Oct, 2002

BUZZ: So Much for Branding

Blockbuster Video is aggressively pursuing its competitors in busy markets like mine. The chain is opening stores across the street from its competitors, like the one that opened across the street from my neighborhood Wherehouse a couple of months ago.

So I didn't know whether to be surprised or amused over the weekend when I was in the Wherehouse and a guy went up to the counter to return a rental DVD.

Trouble was, the counter clerk pointed out, the disc was rented across the street and Blockbuster tends to frown on customers returning its discs to competing chains. They're funny that way.

What I got out of this is that no matter how much Blockbuster spends on CGI rodents and sponsoring Christmas parades, this guy was still taking his return where? The Wherehouse. The question is, why?

I can't pin it directly on advertising, having no idea of this man's media consumption habits. But I suspect that straightforward "get it here" advertising does more than warm, fuzzy characters and yippee-skippy event promotion.

I'm sort of assuming another family member checked the disc out and sent Pop to return it. No doubt that led to some confusion. The two stores are directly across the street -- you can look through one's windows and see across the boulevard into the other. He was embarrassed about the mistake.

Another thing I noticed was that the rental box was nondescript. It was generic black and had a computer-generated label that could have been for an Army training video. (Maybe it was a Warner title and had to be put in a plastic case because the Snappers don't hold up).

Somehow, this store was closer to the top of this fellow's mind than the one the rental actually came from. You can get DVD on every corner now -- and that's just the legal outlets. This guy is proof it's getting increasingly difficult to tell the chains apart.

I guess I'm just sharing a reality check, I'm not entirely sure what it means. Except maybe that rentailers should take a step back and ask themselves, "What sets my store apart?"

Better yet, ask your customers and give them what they want.


7 Oct, 2002

THE MORNING BUZZ: DVD's Value Pricing a Particular Plus This Holiday Season

With the holidays bearing down on us, the experts are telling us American consumers are tapped out, having carried the struggling economy as far as their wallets would allow. Entering the important fourth quarter with a spent consumer is a disaster for many businesses, but history tells us home entertainment holds up fairly well in difficult economic times. So far, indications are good. Monsters, Inc., an early entry in the season, scored record sales for Buena Vista. But it wouldn't hurt to remind consumers the value DVD offers, particularly as a gift.

As the mother of a 4-year-old with social schedule that includes at least one birthday party every month, I can testify that gift-giving can really add up. Compared to the $30 pieces of plastic I've purchased for little birthday girls and boys, DVDs — with prices ranging from $15 to $20 — are a great value. I've seen many a feted youngster toss aside the plastic toy in favor of the prized disc.

One of DVD's greatest strengths is its value. Audio market observers have noted as much, saying DVD offers picture, sound and extras for about the same price as (or less than) a CD. Also, unlike other children's gifts, a DVD is a present the whole family can probably enjoy.

As the holidays approach, retailers should encourage shoppers to economize by buying DVDs. Why be coy about it? Acknowledge to consumers that they're tapped out and remind them they get a lot more for their money when they buy a DVD. Since not every child will need another copy of the hits, encourage gift givers to buy niche and classic catalog titles.

While no retailer relishes entering a holiday season in bad economic times, the video business is better off than most. With aggressive marketing, the industry can attract cost-conscious consumers and survive what looks like a lean fourth quarter.


6 Oct, 2002

THE MORNING BUZZ: New Business Development More Important Than Ever

At this week's East Coast Video Show in Atlantic City, the focus will be on managing the core video retailing business efficiently and expanding into new ancillary business as a hedge against the uncertain rental future in a growing sellthrough world.

The Delaware Valley Chapter of the VSDA will host a half-day seminar titled “More Than Just Video.” Attendees will explore a full range of possibilities to add a significant second line of business to their core video rental business.

Interestingly enough, one of the featured presenters at the seminar is eBay, which has a very high profile at this year's show. In a nutshell, eBay is offering its significant e-commerce platform as a way to help specialty retailers participate more fully in the sellthrough business (both with used and new video). At first blush it seems an elegant idea. Rentailers can use the Web to compete in the sellthrough arena, I would guess most effectively in the previously viewed market. It's a great way to extend their businesses in a real transactional Web environment at little cost.

Another ancillary business is the newer iterations of video vending machines being exhibited at this show. With DVD sellthrough pricing (and even lower used pricing), rentailers could use these machines to extend their sellthrough businesses to local colleges and other sensible locations for some revenue-sharing or a fee-based deal with the host location.

Yours truly is moderating a panel on video games as a growth business. It's long been a moderate staple of many speciality retailers -- Video Store Magazine market research puts the percentage of speciality retailers participating in video game rentals and sales at between 65 percent and 70 percent. The VSM Top 100 average pegs video game revenue as accounting for about 7 percent of total rentailer revenue. And it's a business that's on the rise, as more than 50 percent of the Top 100 said they plan on increasing their purchases of video games to rent in 2002. Add to this the growing realization by video game companies that rentals drive sales (Ziff Davis research noted 86 percent of those who consider themselves to be “core gamers” say they have purchased a game after renting it), and the growing prospects for possible revenue-sharing deals for games with suppliers -- a plan Rentrak has promised for the near future -- makes this a potentially very viable and significant business model for speciality retailers.

Rentailers must maximize margins on DVD rentals (even as VHS continues to plummet), extend their sellthrough business and aggressively develop another complementary business to thrive in this changing industry.


4 Oct, 2002

THE MORNING BUZZ: Who-a Culpa?

I'm glad to see that the record companies and big music chains settled the price-fixing suit against them, but I really wish there had been at least some whispers of “mea culpa.”

Instead, the parties deny there was anything fishy about what they did — a denial no one believes because what happened here is as obvious as can be.

Sometime around the late 1990s, people stopped buying CDs. The record companies had foolishly propelled album prices to higher and higher levels; killed the single, also through inane pricing; and then, when digital downloading arrived on the scene, they tried to kill it and raised CD prices even higher.

So what's a poor record company to do? Get in bed with the music retailers — the specialists who were already losing business to the mass merchants — and implement strict policies designed to curtail their deep-discounting.

No matter that retail analysts pretty much agree that big-box discounters are the future and high-priced specialists are the past. No matter that the video industry, with DVD, embraced the mass merchants and realized soaring sales while the music industry decided to fight them and is limping along.

I'm all for a competitive retail environment, but I'm dead-set against propping things up unnaturally. I don't like farm subsidies, I don't like tariffs, I don't like pouring tons of money into Amtrak just because some bureaucrat thinks the notion of trains is romantic.

I don't really have any strong feelings about Wal-Mart or Target or Kmart or any of the other discount houses. But if they can sell me something for less than someone else charges, I'm going to buy there.

I'm not the only one who feels that way. And by getting mass merchants firmly behind DVD, the video industry has broadened distribution and seen revenues surge.

The music industry has gone the opposite route. And we all know how well they're doing, don't we?


2 Oct, 2002

THE MORNING BUZZ: In and Out the Window

The digital age has been generating some interesting debates in our industry recently. One I find most interesting right now is the filmmaking community vs. the movie maskers -- folks who offer various home video editing services on Hollywood movies.

Most of these services sprung from the Mormon community. The edits often reflect those values, but some of the services offer tiers of editing (censor nudity, allow swearing) with controls in the consumer's hands. That, I believe, gives their product much more appeal.

The Directors Guild of America (DGA) has responded to this new type of service with a lawsuit claiming they are illegally corrupting the directors' creative vision in violation of copyrights. Actually one of the services, Clean Flicks, first sought a court order declaring its activities legal. Then DGA countersued and named all the similar services it could find.

Which I think is a huge gamble for the DGA. I think Solomon is going to have to split the baby in two on this one because the editing services are in two distinct categories: those that slice and dice existing product and those like ClearPlay that merely offer a digital fig leaf.

One kind of service buys Hollywood VHS and DVD product, physically alters it to remove or block certain images or sounds, then lets members check out edited copies. The legal issues would be substantially different for a company like ClearPlay, which offers an external home editing system that filters content somewhere between the player and the monitor. The consumer buys or rents any legal studio product and chooses which content the ClearPlay box should nix. That's no different from a V-chip or AOL's Parental Controls on the Internet.

As I watched a debate between ClearPlay CEO Bill Aho and a DGA attorney on CNN the other day, the real issue suddenly became clear to me. Aho pointed out that the industry controls similar edits for broadcast television without complaint, so the creative vision can't be that big of an issue. The DGA attorney countered that sensitive consumers could wait for the broadcast TV version.

And there it is. Hollywood is organized around release windows. It counts on a certain amount of revenue from each window. One of those windows is broadcast television, which carries the bulk of paid advertising. So the guilds are ticked off because these devices reduce the incentive to watch broadcast television. It moves the abridged cut back to the rental window and potentially diluting the TV broadcast audience a few months down the road, when sponsors will pay for it.

Hollywood is all about personal advancement and where you are on the food chain. It's no secret that climbing is about money, fame and juice. Every waiter with a screenplay in Los Angeles wants to be able to fax advice to Dick Gephart like Barbra Streisand does and live in her fancy house.

The food chain is built around windows and the digital age is rearranging them faster than Hollywood can keep up. The system is springing leaks all over the place -- from movies on the Internet before theatrical release to editing services that leapfrog a title and audience back months.

It's causing chaos in a panic-stricken executive network that depends on consistency and can no longer predict consumer behavior. One CEO even made the desperate statement that viewers are stealing if they run to the bathroom or refrigerator during commercials.

It gets more complicated because home video rental is already a thorn in the studios' side. Studios would love to eliminate any middlemen and deal directly with consumers. The home editing devices in particular threaten to shift even more power to home video, which is already 60 percent of most films' income, by drawing in a new audience that formerly waited for commercial TV.

The entertainment industry is on the verge of a critical mass that will change the way business is done. Technology will force it. It's just going to take longer because the people resisting technology in Hollywood aren't doing it because of the technology itself, but because that technology threatens their personal niches on the food chain.


1 Oct, 2002

THE MORNING BUZZ: Is the VOD Threat Another Case of Crying Wolf or Is the Wolf Finally at the Door?

Yet another VOD provider took a potshot at the rentailer yesterday. This time it was Starz Encore chairman and CEO John J. Sie, who called VOD the “killer app to repatriate the $8-plus-billion-per-year that consumers still spend renting videos and DVDs.”

“SVOD will break through the clutter, reach consumers, and give them the power to select movies and other programming on demand with DVD-like control with no per-transaction fees and no trips to the video store,” he said.

The VOD proponents' new scheme is the subscription model, rather than pay-per-view. “People will pay the cost of having broadband at their home if broadband offers rich entertainment content they control and enhances their television enjoyment,” he said.

Ah, but how much would that subscription cost? Between my cable bill (which costs a pretty penny even at the semi-basic level), the cable broadband bill for quick Internet access (on top of that cable bill), magazine and newspaper subscriptions and Web site hosting costs from Earthlink (for our family Web site), that subscription bill is getting pretty darn big. I'd much prefer a $3 to $4 cash “on demand” transaction at my video store to paying oodles for access to movies I might not even have time to watch.

On the other hand, my husband might be a good target, Unlike me, he loves new technology. He falls into that “early adopter” group we often talk about in relation to DVD. But even for him, the devil is in the details. If that VOD service had great movies and TiVo-like functionality at a decent price — say at most $50 a month — he might be interested. But $50 is about as much as even he's willing to pay.

Are the studios willing to give away their first-run films at that subscription price?

An ace in the hole rentailers have is the roughly $10 billion (by Video Store Magazine estimates) consumers spend on renting videos every year. It's a powerful market, although not all of that money goes back to the studios; it's split with retailers. Sie makes it clear he would like to take those billions away.

If the rental market weakens, as recent numbers indicate it might, it will be a much easier target. Studios might choose to gamble on VOD once again. But now, it's probably still a case of crying wolf. My first week at the magazine in 1993, Bell Atlantic chairman and CEO and VOD proponent Raymond Smith said in our pages that the video store model was “no longer viable.” In 2002, his multibillion-dollar merger with TCI is dead, and the video rental market is still here.