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We have spent a good deal of column inches in Video Store Magazine on the subject of the burgeoning previously viewed and used trade-in economy in home video over the past year, and with good reason. It continues to have a major and beneficial impact on the video specialty business.
In this week's issue, we have several related items, not the least of which is our annual Top 100 report, which includes data on the top retail leaders in the sales of previously viewed DVD and VHS.
Of course, one of the big news stories of last week was Blockbuster's announcement that it would offer a DVD trade-in program, offering store credit for DVDs brought in, in about 2,000 stores by the end of the year. CEO John Antioco believes the business could turn out to be one of the chain's most profitable business lines, and, of course, is a great way to drive traffic into the store.
Blockbuster, meanwhile, generated some $222 million in the sale of previously viewed DVDs and VHS in 2003 to lead the pack, followed by Hollywood Video with $139 million and Movie Gallery with $57 million, according to Video Store Magazine Market Research. Check out this section of the Top 100 for the other seven retailers in this category.
It was also interesting to note that the previously viewed business has become significant enough that most specialty retailers are balking at DVD revenue-sharing deals because it would put limitations on their ability for quick turnaround of rental copies headed for the previously viewed bin, according to distributors meeting last week at the NAVD conference in Santa Monica, Calif. Coverage of that meeting is also in this week's issue of Video Store Magazine.
Earlier this year, the Video Buying Group released data that showed that its members were enjoying higher returns on their rental inventory investment when they put rental copies out for sale at about $9.99 - $12.00 after the copy's sixth to eighth rental turn.
Previously viewed sales are expected to top $1 billion in 2004. This year's Top 10 in this category saw previously viewed account for anywhere from 5 percent (Blockbuster) up to 16 percent (Easy Video) of their total annual revenue. How the business will fare in the future is anyone's guess, but it appears that the concept of trade-ins will fuel more product for sale, which ought to potentially change the dynamic of this side of the business. How will used (previously owned) prices compare with previously viewed (rented) prices, and what impact will that have on overall ROI for Blockbuster and other chains that try the concept?
I'd welcome an e-mail with your thoughts on this.
By: Kurt Indvik
The drive to come to market with a high-definition optical disc is accelerating as the deadline for HDTV draws nearer. At this point, it's looking like a two-horse race, with one camp pushing for a technological revolution and the other, more of an evolution.
Blu-ray uses a whole new technology that employs a blue laser rather than a red. HD-DVD, on the other hand, favors maxing out existing DVD technology in the belief that letting manufacturers keep the same plant and equipment to replicate the new high-def discs will keep costs down — and at the same time minimize consumer confusion by retaining the “DVD” tag, which Blu-ray won't.
The big challenge, at this point, is for both sides to come to the table and work out a compromise, much like the competing DVD camps did in 1996, a year before DVD's launch. This is a must — if two competing next-gen formats come to market, consumers will thumb their noses at both, and the launch will be a disaster, a train wreck every bit as devastating as the music industry's ill-fated push for a next-generation CD with two incompatible formats: DVD-Audio and SACD.
I'm assuming this won't happen on the video side — after all, look how neatly a compromise was brokered for DVD, and how successful the resultant hybrid has been.But even if all goes well and the first high-definition product hits stores in time for the 2005 holidays, I wonder how this rollout will compare to DVD.
Of course, both DVD and its high-def successor will coexist for some time, much like DVD and VHS. In each case, the new format required a new player, but in the DVD-vs.-VHS case, the differences in picture quality, sound quality and capacity were so great that despite a somewhat rocky launch DVD's success really was never in question.
But to notice the difference between DVD and a high-definition optical disc, consumers won't just need a new player, but also a new TV — a high-definition TV.And this, really, is where the next-generation product's fate lies.
There are two schools of thought here. One is that because ordinary DVD is still relatively young, you won't see the maddening rush to convert that you did with VHS. Keep in mind that when DVD arrived on the scene, the home video industry was in trouble — VHS penetration was north of 90 percent, and the novelty had long ago worn off.
DVD still excites people — and with the extra hardware purchase required to experience the benefits of high-def, the transition curve to Blu-ray or HD-DVD or whatever they call the compromise that will surely be hammered out (BVD? Sorry!) might be a lot less pronounced.
And yet there are those who believe the high-def disc will catch fire with the public even more rapidly than DVD. They note that HDTV isn't even going to be an option two or three years down the pike — broadcasts will be in high-def, and that's going to make consumers want everything in high-def. Furthermore, the rise of DVD saw a similar ascension of elaborate home theater systems, many already equipped with high-definition TVs.
“We'll have a waiting audience,” said a top executive with one of the rival camps. “They won't think twice about buying a player, so what I think you'll see is a faster adoption rate than DVD.”
Interesting point. We'll just have to wait and see.
But first, let's get a standard. Otherwise, I can tell you right now how fast the new format will catch on.
By: Thomas K. Arnold
When you work in the video industry, it’s easy to get in a rut of waiting for the DVD to see a film. I know my actual theatrical movie attendance has diminished quite a bit as of late.
I can count on one hand the number of times I’ve gone to see a movie in the theater in the past six months (including two press screenings just last week) — and I love going to the movie theater (yes, part of it is for the popcorn).
I’ve had interesting experiences during the exhaustingly long preview reels for two of the films I’ve caught in theaters lately.
The first was at the midnight screening the day The Lord of the Rings: The Return of the King hit theaters. There was a sense of camaraderie in the air — after all, we’d been sitting there together waiting for several hours.
The previews finally started to roll, launched by that antipiracy PSA that’s been cropping up so often these days. In it, an everyman Hollywood crew guy spoke very endearingly about his work and what movies mean to him, pointing out that they are his livelihood. Now he’s not rich or famous, but he relies on movies to pay his bills, he reminded the audience. The PSA ends with a phrase that goes something like this “Stop illegal downloading and keep everyone working — movies….they’re worth it.”
OK fine, on with the rest of the previews, one a sci-fi action sequel that shall remain nameless. In the seconds of silence following it, one audience member let out a loud guffaw and said “Yeah, that’s a download.”
Snickers came from the rest of the theater along with a loud, sarcastic retort from a moviegoer across the room. “Aww, but think of the lighting guy.”The rest of the theater erupted in laughter.
Now I’m not judging, and I’m actually hopeful that the MPAA or other groups can inspire a strong enough sense of integrity or even shame to curb illegal downloading of films, after all my livelihood kind of depends on it, too. But more importantly, it’s illegal, it’s thievery, and it’s just plain wrong.
However, I don’t think many people like to feel like they are being emotionally manipulated, which was how that PSA came across that day.
Another anecdote made me think about how reliant the studios are on DVD revenue. That’s an obvious statement, but one that hit home while I was watching the previews before Kill Bill Vol. 2 last weekend.
To not embarrass the studio, I won’t mention the name of the movie, but let’s just say it’s an action thriller sequel with no major stars, not the highest level of special effects — basically a direct-to-video hit.
The audience actually laughed at the preview in all its hyperdramatic previewness.Now maybe it’s a good movie, maybe the preview just didn’t play well, but judging by how much of the plot it gave away (I hate that) it’s pretty safe to say this flick won’t be in theaters long.
It seems to me that the supplier for this (let’s face it) ‘B’ movie is banking on the idea that a splash of awareness that will come from a theatrical burst will boost DVD sales and rental revenue.
Music DVD suppliers have learned lately that a theatrical “premiere” can do a lot for the all-important first-week sales, and I think that’s what’s happening with this particular feature, and others.
Around the watercooler at Video Store Magazine we often discuss how a theatrical run can serve as a marketing tool — granted an expensive one — for the eventual DVD release, if the window is small enough. And it will likely work.
I’m willing to bet that a press release for the preview I saw last weekend will slither across my desk fairly quickly.
By: Jessica Wolf
DVDStreamer.com's entrepreneurs, who earlier created a free software-based media player called Flashdust and are testing their new online rental business concept, believe their new model is covered by the First Sale doctrine. Others believe the service, which charges a $15-a-month subscription fee to stream DVDs to viewers over the Internet, falls afoul of the Digital Millennium Copyright Act (DMCA).
To the entrepreneurs, their business is no different than a brick-and-mortar video store, except that their movies get returned a lot faster because they are considered back on the shelf whenever a viewer finishes the stream. First Sale protects the business, they contend, because they maintain a 1:1 ratio — that is, they will only serve a title to as many viewers at one time as they have copies of that title on legally purchased DVDs. They don't crack the copy protection or region codes to offer the service, and they don't advocate copying, they say.
That may sound like enough in theory, but the DMCA goes beyond earlier copyright law. The mere act of recompressing the data from a DVD to transmit it over the Internet may well be enough to persuade a court to shut the service down.
These things get fuzzy — pixilated, perhaps — in the digital world. If there were no DMCA, or if it was differently written, would the DVDStreamer people be on firmer ground? Possibly. Or not.
Several companies are in courts fighting to define what Fair Use means in the post-DMCA world. First Sale may well be the next battleground, especially as the used-disc trade gains steam. Like book publishers, studios will not be happy about others profiting from reselling studio products without paying the vig. Before video retailers get their knickers in a twist about a service that's experimenting with a new delivery system, it's important to look at the big picture.
You can't fault people for innovating, but maybe a little more legal homework was in order for DVDStreamer. Or maybe this company will end up fighting the battle to preserve First Sale for everyone.
By: Holly J. Wagner
With Miramax Films' successful $25 million box office theatrical launch of Kill Bill Vol. 2 coming just days after the DVD launch of Kill Bill Vol. 1, the relationship between DVD and theatrical releases is closer than ever.
Miramax executives have even attributed the bigger bow of the theatrical sequel to the availability of the first volume on DVD, and the studio launched the week's festivities with a gala party at the Playboy Mansion in Los Angeles — not for the film, but for the first volume's DVD. With this new strategy, it's hard to determine whether the DVD is piggybacking on the film or vice versa.
As DVD has grown in stature in the creative and theatrical community, so has its strategic value in the box office arena. We've seen several free movie ticket offers packaged in DVDs, with accompanying friends helping to boost initial weeks' box office tally. The “Lord of the Rings” franchise boosted box office in this way. Most recently, Warner Home Video's direct-to-video DVD release of an animated “Scooby-Doo” title included a free child's admission to see the theatrical release Scooby-Doo 2. Certainly, each child brought along at least one parent or friend to increase the take for that film.
Still, the strategy employed by Miramax and Buena Vista Home Entertainment for Kill Bill appears to have taken the relationship to a new level. Could we soon see films waiting to piggyback on a DVD?
There has been a consistent and ongoing legislative effort across the country to “do something” about violence in video games.
The most recent example we're reporting on in this week's issue (see page 8) is the set of bills presented to committee in the California state legislature that attempts to restrict and control the rental, sale and merchandising of some violent video games and ‘M'-rated games.
There have been similar efforts in states, counties and cities across the United States in the past couple of years, many of which have either failed to pass or, once passed, have been rejected in federal and state courts of appeals, or are still hung up in the appeals process. There are dozens more bills and local laws pending in state and local governments in New York, Florida, Washington, New Jersey and Delaware, and I may be missing some.
But despite the apparent Constitutional problems with attempting to restrict what the courts have judged on several occasions to be material covered under free- speech provisions, we're seeing a record number of efforts to make it a criminal offense to sell or rent these games to persons under 18.
Why are video games garnering this obsessive attention? Why not violent movies on home video, for instance?
It's simple. In a violent movie, you may watch some guy burying a hatchet into an unfortunate victim's head. But in the video game, you may very well be the guy wielding the hatchet! That visceral experience, even on a computer screen, to digitally shoot, stab, maim and kill one's “enemy” is, I think, the reason we may not see an end to these legislative efforts anytime soon. Production quality is only improving, and the reality of the gore and characters that producers are able to create is technically impressive.
The ability to wreak virtual mayhem is unsettling enough that otherwise rational people are ignoring the First Amendment and judicial precedent in these issues and pressing ahead with their bills and local business codes.
No one is questioning their concern about what impact such games might have on young, malleable minds, although their political motives to make hay over an issue they know to be legally unsound might be questioned. But they also seem to ignore the fact that the retail industry, including the Video Software Dealers Association, is well aware of parental concerns over these games, and have taken stringent (and successful) steps to ensure that ‘M'-rated games cannot be rented or sold to minors unless the parents deem that it's alright for their children, just as a parent can accompany a child to a film that's rated more appropriate for an older age.
Perhaps the video game industry just seems like a safer target than Hollywood for most legislators.
The VSDA and partner associations are going to have their hands full for the forseeable future defending themselves against what some feel may be part of a growing and disturbing trend to legislate and control media around the country.
By: Kurt Indvik
I remember years ago, shortly before DVD came to market, I sat down with Warren Lieberfarb, then president of Warner Home Video and the format's chief architect, for a rather heated one-on-one.
I had been writing a series of columns in which I expressed the opinion that DVD would and should become available for rental as well as sale, because some consumers would rather rent than own and even those likely to buy would probably want to try it first.
Warren gave me one of his famous stare-downs and challenged my wisdom as only he can do. He politely informed me that the whole concept behind DVD was to generate incremental revenue for Hollywood, and if rental became significant, we were in danger of merely having DVD become a replacement technology for VHS.
In retrospect, we were both right. DVD has become a hot sellthrough commodity generating huge wads of incremental dough for the studios — money they never would have had if DVD hadn't come along. Just yesterday I spoke with the head of a small independent supplier that specializes in obscure arthouse and performing arts videos. He was jubilant — his company had just taken its first significant order from Wal-Mart. Whereas in the VHS era a high-profile theatrical was lucky to sell 500,000 units, now the same-caliber of film can easily move 3 million units — more than enough to compensate for the price differential between a sellthrough-priced DVD and a rental cassette, particularly after studio-direct revenue-sharing came into being.
And yet I'm not quite the idiot Warren made me out to be, either. Instead of 25 percent of the movie-consuming populace buying movies and the other 75 percent renting movies through pay-per-view, as Warren had predicted, we're seeing a viable rental market coexist with a booming sales market. The rental market hasn't tanked, as many had predicted; despite the death of rental pricing — and those six-month rental windows — the rental business is still with us. Sure, consumers can buy virtually any hot movie for less than $15 the first week it comes out, but many still prefer to rent for a couple of bucks — and they prefer to rent something physical that they can handle and touch and slip into their machines whenever they wish, even though the mechanism may be electronic (Netflix).
What we've gotten, with DVD, truly is the best of both worlds — two worlds that eight years ago, when I was sitting across a table from a steely-eyed Warren Lieberfarb, neither of us would have thought could ever thrive in the same universe.
By: Thomas K. Arnold
In one of myriad articles published recently in regards to this week's separate DVD and theatrical releases of Kill Bill: Vol. 1 and Vol. 2 — director Quentin Tarantino's two-part ode to relationships, revenge and kung fu movies, among other idiosyncrasies — it was remarked that the DVD possessed only minimal extras: a making-of featurette, a music video and trailers.
Never mind that such bonus material is de rigueur on the average DVD. More importantly, any snapshot — however minimal — into the mind of Tarantino is to stumble upon a torrent of non-stop eccentricities that are best digested in digital bits and pieces.
Spending time with the creator of such cinematic triumphs as Pulp Fiction, Reservoir Dogs and Jackie Brown was recently described by Los Angeles Times writer Rachel Abramowitz as a bit “like entering a one-man hothouse of movies and memories of movies, of imaginary characters who are more real and vivid than living ones.”
If there was ever a format best-suited to quantify, qualify — and control — Tarantino's over-the-top energy and exuberance, it is DVD.
Instead of the usual behind-the-camera banter found in most special features, the apparently maligned bonus material in Vol. 1 underscores the former Manhattan Beach, Calif., video-store-clerk-turned-cult-film-director's enthusiasm and respect for the mainland Chinese studio, crew and cast used during the grueling eight-week filming of “The Showdown of the House of Blue Leaves,” a 20-minute climactic samurai sword battle between Uma Thurman's character The Bride and the minions of killer-turned-yakuza-boss O-Ren Ishii, played by Lucy Liu.
The bonus feature displays Tarantino's equal affinity for the film's soundtrack, which at times superceded completion of the film.
For example, the Japanese female surfer trio, “The 188.8.131.52's,” whose act and music appear as window dressing in the “Blue Leaves” fight sequence, was discovered. Tarantino procured a copy with some difficulty while perusing a Japanese record store. Ditto for the ultra-obscure German neo-lounge band “Neu!”
“Once I got going, I just wrote and rewrote for a whole year,” Tarantino said. “If I hit a snag, I would just stop and go watch a martial arts movie. I basically watched at least one Hong Kong movie a day, and sometimes two or three a day. I also watched Japanese samurai movies and anime. So images from these movies just filled my head until they were second nature, and that became the raw material for Kill Bill.
Tarantino said his devotion to writing and creating the multi-chapter Kill Bill was so complete he knew absolutely nothing about any of the Hollywood movies that had been released during that time period.
“When you get to the end of Vol. 1 you're exhausted,” he said. “You're ready to take a break.”
Luckily, the DVD format allows this viewer — relatively new to Tarantino's hyperbole — to digest his “killing as a metaphor for human relationships” in metered doses.
We knew it would happen, but like much of DVD adoption, the saturation point is arriving faster than anyone predicted.
I'm not saying DVD sales will be flat from now on — or even this year — but face it, folks, there are some things you can't expand. People's budgets may get bigger, but they still only have so much time for entertainment and just so much space to store video.
Yet DVD has gotten so ubiquitous, so cheap, that people are finding more ways to share their libraries. How cheap? Wal-Mart has been offering catalog titles for $5.44 for ages. Last week, Wherehouse Music's circular offered a progressive-scan DVD player for $20 after a $20 mail-in rebate. That brings the cost of a player and a DVD well under the cost of a movie date. No wonder theatrical ticket sales are down!
Several factors have combined to push prices down. Among them: the studios themselves, pre-viewed sales, and the durability that lets people share their DVDs with reasonable certainty that they will be returned in good condition.
So it was not that surprising to see an article in Stanford University's student newspaper a week or so ago saying the student-run campus video store was shutting down. Not only because of downloads, but also because students had begun sharing their DVD libraries. Anyone who put themselves through college can recall how scarce money was during those years. Even if each person in a dorm or student community only lent one disc, it would decrease rentals and sales on that title in the group.
It's not even a small stretch to think that neighborhoods will come up with their own DVD lending and viewing clubs. Soccer moms gathering on the sidelines may lament how much of their DVD budget goes to kidvid and discover they can share and swap to meet their own needs, which unlike their kids' preferences, in most cases don't include watching a title until they have memorized every word.
Something like this must already have begun, because the Web site DVDJones.com lets users keep track of what they have lent to whom, and invite more friends to join.
Then there is the social DVD experience, dubbed “movieoke.” This mutation is a welcome addition for those of us who can't carry a tune in a bucket. Fans project a movie onto a big screen, then get up and act out parts a la Rocky Horror Picture Show. It's just one more way consumers have found to share their entertainment.
So DVD still has time on the heavy sales meter, but even that clock is ticking. The market will reach a saturation point. It might send some folks back to rentals, especially when they can rent by subscription, but in the end the sales will flatten out as people learn that sharing gives them more bang for their entertainment bucks.
By: Holly J. Wagner
I hate to use pay-per-view. Frankly, I'm always a little worried they'll charge me twice or the picture will cut off in the middle and I'll have to haggle with the cable company over getting a refund.
It seems to me, downloading a movie, unless it's on a subscription model of some kind, would pose similar problems. Granted, it would be more convenient than PPV, but there's still that same worry of the disconnect between the purchase and the viewing.
Admittedly, I'm not exactly a technophile. When my computer breaks down or I have to redirect the music system from the DVD player to the CD player in my own house, the frustration with technology can send me into a tizzy. I don't know how many times my husband has walked into the room and switched the settings after telling me in exasperation, “You've got the settings all wrong!”
Recently I asked Netflix CEO Reed Hastings, a knowledgeable tech industry video source, how long he thought it would be before half his business would come from downloads. He said eight years — and that was coming from a member of the tech community, which is most gung-ho about the VOD future.
I'm inclined to agree that it will take a long time for consumers to get comfortable with VOD, but no doubt it will happen. After initial trepidation, I've begun to purchase things with a credit card over the Internet.
See? You can teach an old technophobe new tricks.