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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 Jan, 2003

Welcome to the Wild, Wild West

A few months ago Stephanie Prange wrote a column about how what's old is new again. She was right (but don't tell her I said so).

I suppose everything runs in cycles. I saw this when my second cousin opened his birthday presents recently at a family gathering: among other gifts he got a fortune-telling eightball and a box of Sea Monkeys. I thought I was having a bad flashback until he opened the robodog.

Now AOL Time Warner is getting ready to launch a six-week summer test of a new variety show that incorporates the ad pitches right into the content. That may be a new phenomenon for anyone who doesn't remember vinyl records, but folks whose memories stretch back to the dawn of television will recognize this as a throwback to the days of “Texaco Star Theater” and “Howdy Doody Time.”

What is new is that it's a response to the rapid uptake of Personal Video Recorders (PVRs) like TiVo and ReplayTV. The ad-skipping feature in these hard-drive recorders is so popular with users that broadcasters and advertisers are scrambling to find new ways to reach viewers.

I guess Pepsi and Nokia will find out if this approach still works, or works again. But I'd say it's safe to assume we will start seeing more prominent product placement – like the truckload of Go-Video (Sonicblue's brand) VCRs a petty crook admitted he stole from Circuit City on a recent episode of Fox Network's “The Shield.”

It's just one more area in which Hollywood is going to look like Dodge City this year. I think we are in for a year of the Wild West, complete with dueling formats, technology showdowns and new sheriffs in town.

What do you think?


13 Jan, 2003

The Blockbuster Road Show

Blockbuster Inc. chairman and CEO John Antioco tried to allay analysts' fears about the chain's recent stock slump in a presentation last week during the Salomon Smith Barney Entertainment, Media and Telecommunications conference in La Quinta, Calif.

Addressing the stock-punishing cut in Blockbuster's 2002 profit estimate, Antioco blamed a unique business environment in the fourth quarter for the unexpected slowdown in the chain's business. Among the unique circumstances he listed were the release of a large number of highly collectible titles in the fourth quarter, below-cost DVD pricing, a shorter shopping season and new DVD adopters building their libraries. The shorter season and new DVD adopters may be unique, short-term problems, but the other circumstances could prove longer-term dilemmas.

Looking ahead, Antioco said the first quarter includes more releases with rental, rather than sellthrough appeal and that, nevertheless, Blockbuster can make its way in the sellthrough arena with higher margins by offering selection and convenience. “We have no intention of competing on price,” Antioco told analysts.

How the tables have turned. I don't remember how many independent retailers I've talked to who declared they would compete with Blockbuster on selection and service. Many of them went out of business trying. Also, many retailers have had a hard time selling at a higher profit margin and competing with Wal-Mart. High-margin music retailers have taken it on the chin as discounters such as Wal-Mart drew away customers with lower pricing.

Antioco may have a point on convenience. Finding the video section among the apparel, food items and car tires can be a definite inconvenience at the nation's discount king.

But Big Blue's crystal ball seems murky.

At the same conference, Antioco's boss, Viacom chief Sumner Redstone, voiced support for the Blockbuster chief, telling analysts the chain had the strongest rental day in its history on New Year's day, suggesting the fourth quarter revenue shortfall was a blip. "Business has been strong since and John ... says we are going to have a great 2003," Redstone said. "We changed an industry with revenue-sharing, so don't blame me for having confidence in this man."

The road show appears to have had some effect. Blockbuster stock has edged a bit higher, but Wall Street seems in a wait-and-see mode. Despite executive assurances that things are back on track, all eyes are on those post-holiday numbers, which should tell us much about the future of the chain and of the business.


12 Jan, 2003

Will Blockbuster's ‘Statement of Frustration' Work?

Blockbuster's decision a little more than a week ago to violate street date on Buena Vista Home Entertainment's Signs on a national scale sent shockwaves through the industry.

First, let's get past the idea that this action is one way that Blockbuster is responding to the recent lawsuit brought against it by Buena Vista, in which the studio alleges improprieties and discrepancies involving the now-cancelled VHS revenue-sharing agreement between the two companies.

Yes, the timing of Blockbuster's action and the choice of a title with which to make its “statement” have raised eyebrows. But there is no indication that street date violations for Signs were any more severe than any other hit title of late. Retailers responding to VSM articles on the topic and posting messages on the VSDA's discussion board, by and large, reported they saw very few violations. However, a few did report early, er, signs of Signs in some stores, and VSM staff caught at least one drugstore with Signs out on the floor almost a week early.

Blockbuster, though, is adamant that its action has no relation to the suit, and there's no point in wasting time and print space in refuting that. Blockbuster president Nigel Travis has stated he ordered the one-time action as a response to what the retailer saw as significant reports of street date violations for Signs, and as a way for Big Blue to make a major statement of frustration with what it sees as the continuous and pandemic practice by retailers of all sorts who choose to ignore the street date, and the studios' lack of resolve to aggressively punish offenders.

The street date issue has been with us for years. Indies point the finger at mass merchants as regular culprits (though indies, too, are sometimes caught in the act), mass merchants say offenses are sporadic and often the result of an ill-informed stock clerk; and studios say they deal with it appropriately on a case-by-case basis.

While I'm glad that Travis, who co-chairs the VSDA's Retail Advisory Committee, plans on bringing the issue front and center of the association later this month, I wonder if it was necessary for Blockbuster to choose such drastic means to make its point.

I agree with Mick Blanken, a former VSDA board member himself, who sent me a note the other day expressing his dismay over Blockbuster's move. While he said Blockbuster is not responsible for opening this Pandora's box, its action “risks tearing the lid completely off and creating chaos where the demons can no longer be contained at all.”

Let's hope this radical “statement” causes more good than harm in the long run.


10 Jan, 2003

Where have all the presidents gone?

Shock and sadness accompany the surprising announcement Thursday that yet another veteran home video president, Eric Doctorow, is leaving.

Doctorow, the third studio video president to exit his post in the last month, is a smart business executive and a gifted marketing executive. While he's kept a low profile in recent years in keeping with the tone of what industry observers call "The [Jonathan] Dolgen Doctrine," Doctorow has assembled a remarkable track record in his 20-year stint at Paramount, the last 10 as president.

It was on Doctorow's watch that Paramount rang in the sellthrough era with below-$40 pricing of Wrath of Khan. It was on Doctorow's watch that Paramount shipped 30 million units of Titanic, setting a new VHS ship record. It was on Doctorow's watch that Paramount introduced virtually every price point in the sellthrough ladder, all the way down to $14.99. It was under Doctorow that Paramount entered the DVD arena (and promptly chalked up the

first million-selling disc with Titanic) and adopted VHS revenue-sharing with key retail accounts.

Personally, Doctorow is known for his great relationships, both with his staff and with retailers and distributors. He is an extremely talented marketer as well, with a long history of ambitious, cutting-edge and enormously successful catalog campaigns.

Under Doctorow, Paramount also became the first studio to abandon suggested retail prices in favor of minimum advertised prices. Doctorow ran a lean ship, with sharp cost controls and a heavy eye on profitability and margins.

And the successful joint venture with Universal Studios to distribute product internationally -- an area in which costs were also reduced through a seamless move of the joint venture's base of operations from overseas to Los Angeles -- underscored his savvy in global matters.

Doctorow also gets plaudits for Paramount's successful distribution of MTV, CBS and, in particular, Nickelodeon product in the home video arena. On his watch, Paramount elevated Nickeloeon product into a viable and popular brand at the mass merchant level -- something previous video distributors failed to even come close to achieving.

I should also say that Eric Doctorow is a long and dear friend of mine, dating back to the days when I was the rock critic at the Daily Aztec newspaper at San Diego State University and Eric was my college rep for Epic Records.

Take it from me, this is one smart, classy guy. Wherever he lands, his new employer will get a winner.
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How do you think the recent top home video management changes at several major studios will affect the business?Talk About it Here!


7 Jan, 2003

Shadowing the Underground DVD Economy

This holiday season taught me a few things about the shadow DVD economy, not the least of which is how much DVD traffic can't be quantified.

Online rental, with Netflix in the lead and a half-dozen other sites following the model, flies pretty much under the radar. We know how many subscribers Netflix has, but not how much they are renting. Since the online rentailers don't report their rental data to anyone outside, we can't tell how much business traditional rentailers are losing to that model, as opposed to sellthrough.

As far as I know, nobody is yet attempting to measure sales of used DVDs (those consumers buy and then sell or trade off to a merchant, as distinguished from “previously viewed” rental copies). That's a brisk business, especially online. In fact, just yesterday a site called skinnyguy.com announced its new barter program, in which the customer sells his or her discs online and uses the credit to buy discs from the site. The site sends the customer the order with instructions on how to use the same box and prepaid shipping label to send back the discs he or she is selling. Wherehouse has operated similarly on its site for some time. I'm sure these merchants know just how much business they are doing this way, but they aren't telling.

Another segment nobody can plumb is what Blockbuster CEO John Antioco calls the video “sharing” economy. Because DVD emerged on sellthrough pricing, consumers started owning it a lot sooner in its technology life cycle than VHS. The next natural step is for neighbors to borrow DVDs along with that cup of sugar or tray of ice they borrow over the fence. Mine do. One copy, several users.

Which, incidentally, leads to another unquantifiable aspect of the industry: Hollywood moguls spent an inordinate amount of time on Capitol Hill last year complaining about how online movie piracy is decimating the industry's profits, citing declining sales. But in an industry that relies, as the cable and broadcast folks put it, on eyeballs, nobody in Hollywood can tell how many people didn't buy or rent a title because they watched their neighbor's copy, as opposed to who didn't buy or rent it because they watched a pirated copy online. Why spend two hours (at best) downloading (plus $3.99 if you want to do it legally) what I can borrow from next door and be watching in five minutes?

Now here comes the next wave in the share economy, one I suspect never took hold on any serious level with VHS: A friend I spoke with after Christmas talked about how nice her family's celebration was. They had a nice dinner and exchanged gifts and then, to round out the evening, everyone labeled the discs they were tired of with Post-Its and they sat around trading. Everyone got “new” movies and extras without shelling out another cent. My brothers used to do the same thing with baseball cards.

I believe DVD has made the pie bigger, as most new entertainment technologies do. But it has also splintered the portions, scattering them to places nobody measures. This means many of the traditional measures no longer apply because they overlook sharing, trade in used copies, online rentals and other subscription rental models that make statistics like turns per copy more or less irrelevant.

And who really knows what else we aren't counting?


6 Jan, 2003

The Battle of the 800-Pound Gorillas

Buena Vista is suing Blockbuster over abuse of its revenue-sharing deals with the No. 1 U.S. rentailer. Who would've thunk it?

Not so long ago it seemed as if Blockbuster and the studios were comrades in arms with direct deals that sent many an independent rentailer out of business. Blockbuster gained market share and the studios seemed all too happy to assist in that endeavor.

Now, it appears the studios aren't so delighted with this 800-pound gorilla they've created. Even before the Buena Vista lawsuit, studio execs noted in public and in private that Blockbuster had too much power, that the chain called too many shots. Using sellthrough pricing on DVD as the club, the studios have tried to beat down the monster they helped create with competition from the mass merchants, most notably Wal-Mart, and the strategy seems to be having an effect. Blockbuster's stock has taken a hit on the realization that video sales are cannibalizing rental. Such influential publications as Forbes and Business Week are wondering if Blockbuster has the right stuff to take on the sellthrough goliaths, if Big Blue can compete on Wal-Mart's sellthrough turf as rentals flatten and fall.

The next financial report from Blockbuster will tell us whether the rental dip is an anomaly or a sea change in Big Blue's business, but one thing seems certain – the studio–Blockbuster relationship is on rocky ground. The studios have found a new retail star in Wal-Mart. But like your typical Hollywood marriage, this union seems shaky, The studios don't like any retailer calling the shots. They still yearn for the days when they controlled distribution of their content. Manipulating the retail customer is the next best thing.

How will they contain this new goliath? Video-on-demand and a rental window come to mind. In any case, it promises to be a wild ride in the years to come.


5 Jan, 2003

Recordable DVD's Breakout Year

This is CES week in Las Vegas, and DVD will, once again, be in the spotlight. This time, however, it will be recordable DVD machines breaking some new price ground and not DVD players. It's pretty much accepted that there isn't much room left for price cutting on entry-level players, at least.

Analysts expect some of the first sub $400 recordable DVD players to make their appearance at CES, which may presage the beginning of the major consumer push for recordable machines that could see, even, some sub $300 machines by Christmas 2003. Of course, as we saw with the DVD player, the real mass-market adoption begins when you start to see sub $200 machines and that's not a likely scenario until the fall of 2004, industry watchers say.

“We expect 2003 to become the breakout year for recordable DVD, with demand fueled especially by consumers who want to back up their videotaped memories on the more durable DVD discs,” Robert Greenberg, VP of brand marketing at Panasonic told Video Store Magazine in an article running in this week's issue.

I suspect that there will, indeed, be a whole generation of baby boomer parents for whom the idea of taking that unsightly pile of taped home videos and cramming them all onto thin little discs will be well worth the money. And, they'll tell themselves, they have a ton of kids videos on VHS (the ones their children couldn't live without), some of which they can also find a way to copy over to DVDs, thus adding to the justification of being an early adopter to the recordable DVD player.

Just what the impact the recordable DVD player will have on home video when it begins to make a mass market push in 2004 is anyone's guess. But one might assume that the recent surge in TV fare on DVD may hit something of a bump in the road once (and if) the mass market of recordable DVD owners start recording their favorite shows. And those studios with classic kids fare that saw huge VHS sellthrough might be well advised to issue their DVD versions sooner than later in the recordable DVD player's evolution. Though I'm not suggesting a connection here, it's a good bet (and good timing on Disney's part) that with the theatrical appearance of The Lion King on IMAX early this year we'll see its DVD special edition version coming later in the fall, following last year's Beauty and the Beast rollout model.

Though standards issues remain on the recordable front, it's time is fast approaching and 2003 will, indeed, be the year recordable DVD breaks barriers on a variety of fronts and sets itself up for a major year in 2004.


3 Jan, 2003

The Unbearable Lightness of Warren

I think we're all still reeling a bit over Warren Lieberfarb's abrupt dismissal from his longtime post as president of Warner Home Video. I know I am. Of all the executives in home video, he always seemed to be Warren the Invincible, Warren the Indispensable, Warren the Untouchable. In his long tenure at the helm, he certainly angered many people. He could be gruff, he could be obstinate, he could be condescending. It was his way or the highway and, were it not for the fact that Warren was almost always right, he likely would have been shown the door a long time ago.

But that's just it — Warren was right, about so many things, in so many ways, on so many occasions. And because of his inherent rightness, Warren's peccadilloes would be overlooked, as they were for so long. He ruled Warner with the might of a Middle East dictator. He had a lot of clout, and he made sure everyone knew it. I still remember when the forces behind Divx, the failed pay-per-play DVD variant, confronted the Japanese consumer electronics companies about their initial failure to support their technology. Their hesitation, they stated, owed to a dire warning from “the most powerful man in Hollywood” that the studios would never back Divx. And who, pray tell, was this “most powerful man in Hollywood?” “Warren Lieberfarb,” came the response. When asked who had branded him so, the response was the same: “Warren Lieberfarb.”

This story is bound to elicit a chuckle from those who know him. It's so Warren. We're talking about a man who, when he went to Las Vegas for the annual Video Software Dealers Association convention, would not only stay at the ritziest hotel in town (the Bellagio), but also bring his own limousine — and driver — from Los Angeles because he didn't care for the Vegas cars and drivers.

Now the unthinkable, the inconceivable, has happened. Warren has been toppled, apparently done in by the Hollywood politics he so detested — and so frequently railed against. I have no doubt that Warner Home Video will continue to perform ably and adeptly under Lieberfarb's second-in-command, Jim Cardwell, heir apparent to the top spot.

But the home entertainment industry has suffered a tremendous loss, because Lieberfarb is one of the few true visionaries our industry has known. In a world of packaged-goods salesmen and marketers, he was a leader, a dynamo, a seer. He was a master strategist, but he was a lot more than that — a whole lot more. I would go so far as to say that it was Lieberfarb's zeal and perseverance in pushing DVD that singledhandedly saved home video from certain death, because if all we had in this high-tech digital era was the blasted videocassette, we'd be in deep doo-doo. Video retailers would be hawking stereos or hardware; studio salesmen would be selling refrigerators or cars, and our marketing gurus would be concocting grand plans to build awareness for Chia Pets or Nestle's Quik.

As for me, I'd be writing about pay-per-view, because if it wasn't for DVD, that's what home entertainment would be.

I know this sounds like a eulogy, and Lieberfarb is certainly not dead. But our industry has just as certainly suffered a little death. The father of DVD has been deposed; the captain of our industry is gone. I can only pray that Warren will either surface somewhere else in a position where he may continue to guide us, or that some other leader with similar qualities and vision will arise to take his place.

I hold out little hope for the latter, so Warren, if you're reading this -- please come back!
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How do you think the recent top home video management changes at several major studios will affect the business?Talk About it Here!


1 Jan, 2003

The Perils of Box-Jumping in Hollywood

The industry has been abuzz for the last week or two about a couple of unexpected developments: Blockbuster's admission that sellthrough is cannibalizing rental; and the terse surprise announcement that Warren Lieberfarb would be departing his post as president of Warner Home Video.

The Warner announcement was only more shocking on the heels of Blockbuster's stock tailspin, which seemed to prove Lieberfarb right: make sellthrough DVD cheap enough and it will grow into a big, fat can of Rental-B-Gone.
Lieberfarb acknowledged to The Wall Street Journal that his unceremonious departure from Warner was the result of “policy differences on organization and structure,” but nobody was confirming or denying rumors that he was making a play for control of the entire movie marketing process from theatrical to broadcast.

The sad thing is that most industry observers who would talk off the record believe Warner will probably execute Lieberfarb's end-to-end strategy without him, a backhanded compliment if ever there was one. Anyone who doubts the soundness of the approach need look no further than Warner-distributed New Line's Lord of the Rings trilogy. It seems only logical the division that generates most of the profits for movies should be setting their course.

The lesson in this, it seems, is something I've written about before: that release windows are not merely a profit structure, but the foundation of the entire Hollywood economy and power structure.

The reason Hollywood moguls are mad at the movie masking services for editing out potentially offensive content, I think, is less that they are changing a filmmaker's vision and more that they are shifting eyeballs back several months from the broadcast-sanitized TV version to home video rental. Studio broadcast executives must be quaking in their boots knowing that, played out to its ultimate conclusion, that means today's VP of Broadcast Placement is tomorrow's VP of Bupkis – even if the industry wins on digital broadcast flags.

Lieberfarb's fate is yet another example of how Hollywood institutions hold back potentially profitable technology. It's obvious that DVD and Lieberfarb's strategy for it have begun shifting profits from rental back to studios.

The fact that he's typing “Godfather of DVD” onto a resume this week is a glaring illustration that a few fat cats guarding personal profits, not movie or even studio profits, are in the driver's seat.


30 Dec, 2002

Report From Enron Country

Over the holidays I visited family and friends in Houston, otherwise notoriously known as Enron country.

On the front page of the Houston Chronicle Dec. 29 was a story outlining a fraud investigation of Enron's broadband business. A grand jury is investigating whether Enron executives' broadband cheerleading, including their claims about the company's deal with Blockbuster, constituted fraud.

Some of the evidence outlined in the case is eye-opening. According to the Chronicle story, the deal with Blockbuster was inked before it was determined whether delivery of movies on demand under the plan was technologically feasable. Tests took place after the deal and included such mishaps as set-top boxes that occasionally caught fire! The cost of the service was also a problem as the company had trouble getting the price of the boxes under $1,000 apiece -- and that was on top of a $150-per-month charge for the service!

Another hangup, according to the article, was Blockbuster didn't have digital rights to films, and, unbeknownst to Enron, was a pariah among the studios.

"Blockbuster was widely hated by the studios, so they weren't the best partners," according to a Chronicle quote from a former Enron Broadband Services finance employee.

As was many a strategic move during the late technology craze, much of the Enron-Blockbuster deal was smoke (sometimes fire!) and mirrors designed to boost stock and impress analysts.

Following the fad of the moment, Blockbuster struck what proved to be a silly deal. I only hope the chain isn't taking a short-term, fad-of-the-moment view about the DVD business, putting too many eggs in the sellthrough basket. Blockbuster abandoning the rental business would be like -- well, it would be like a water company buying a studio.