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.
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?
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.
By: Stephanie Prange
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:
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.
By: Kurt Indvik
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.
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.
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.
By: Stephanie Prange
The movie business began the year much like it ended last year, with a slight dip in movie attendance. Only a moderate hike in the average ticket price is keeping revenues level.
But the theatrical business will have to do something else to counter the falling attendance other than raise ticket prices, because it's already obvious that that combo is just going to hasten the downward spiral of movie attendance. While there's no doubt that higher ticket prices have made the “I'll wait for the video” decision even easier — to the benefit of those of us in home video — in the long run, a declining theater audience is not good for home video either.
Declining theatrical attendance and revenue could mean fewer “serious” films get financed in favor of the sure hits targeted at young males (and their dates), and less money spent on marketing those more serious films that are made. This, in turn, could lead to a drying up of both secondary product and consumer awareness of those modest-budget films that traditionally have rented well and sold well in the previously viewed arena.
So what's the solution? How about tiered pricing — not just as a way to get more people in theaters, but also as a way to build a bigger audience for the film's home video release? I know there are a million variables and as many arguments for why it can't happen, but perhaps it's time for Hollywood to run the numbers again.
The concept (if not the execution) is simple: People pay a higher price at the box office for the big-budget blockbusters and a lower price for the smaller films. Theater owners and studios would have to work together to make the financials work on both ends — particularly for the smaller films. A lower ticket price would require a longer run to maximize revenue; studios accustomed to taking the lion's share of ticket sales in the first few weeks a film plays would have to rethink their strategy.
For arguments sake here, I am being very simplistic, but think about it. With ticket prices spiraling upward — not to mention the cost of soda and a tub of popcorn — the theatrical business may be slowly pricing itself out of existence. Families trying to decide between a night at the movies or a DVD at home are doing the math and voting with their feet.
If, on the other hand, there were a range of prices and films, I think you'd not only see more people in theaters, but you'd also find more willingness to take a chance on something other than the big-budget flavor of the week.
Tiered pricing may not make a huge difference, but I think it could benefit both the theatrical and home video businesses enough to justify serious consideration. By maintaining the flow of secondary titles — and increasing consumer awareness of them due to their longer theatrical runs and more attractive ticket pricing — studios could maintain and even grow the flow of independent, genre and other so-called “rentable” films into video stores. And with consumers continuing to transition into movie collectors, it's not implausible to suggest many of these films could sell as well, particularly on the previously viewed front.
It's time Hollywood takes a look at its product offering and begins to price accordingly given the fact that DVD, home theater systems and the coming high-definition era will only continue to usurp that movie-going experience. Tiered pricing could be a win-win situation, not just for studios and theater owners, but also for video retailers. But perhaps the biggest winner would be the consumer — and isn't that who matters most in this whole equation?
By: Kurt Indvik
I came across an interesting USA Today poll recently. Readers were asked, “Has DVD won the day, or is VHS still putting up a creditable fight for your business?”
The majority of the respondents were split between answering, “I'm all-DVD and wouldn't go back on a bet” (44.6 percent) and “I'm buying and renting DVDs from here on out, but I still have important stuff on VHS” (44.13 percent).
Just 11 percent of poll respondents said they're still stuck on VHS.
The death knell has certainly sounded for the videocassette, and I wouldn't be surprised to see studios stop releasing product on VHS before too long — say, by summer. Already, the big anime suppliers have ditched VHS entirely, and Warner Home Video is now releasing all its sports programming exclusively on DVD.
Now, I know there are a lot of people out there who maintain VHS could have lived a little longer had the studios not been so aggressive in pushing DVD. I continue to hear cries that the studios prematurely killed off VHS, primarily from retailers with large VHS inventories who waited too long to dump their cassettes and now can't give them away.
Did the studios kill off VHS, or has it simply been a matter of changing tastes? Hard to say. But I will tell you, if the studios deliberately hastened the demise of the videocassette, I, for one, can't blame them.
It's a matter of simple economics. I just came across a report from Jessica Reif Cohen, the Merrill Lynch analyst who is held in high esteem by much of Hollywood's power structure. She analyzed the cost factor of DVD vs. VHS and found that the gross profit potential of a single DVD unit is nearly twice that of a videocassette.
The breakdown: Videocassettes have an average wholesale cost of $12 vs. total costs of $6.65 ($2.25 for duplication, $2.75 for marketing, 75 cents for packaging and 90 cents for distribution). DVDs, by comparison, have an average wholesale cost of $16 against total costs of $5.45 (a buck for duplication, $2.75 for marketing, 90 cents for packaging and 80 cents for distribution).
Granted, this differential didn't exist in the early days of DVD, when revenue-sharing was just beginning and the rental-priced cassette still ruled the day.
But once the industry began tilting toward a sellthrough model and consumers could buy any movie they wanted on DVD as soon as it came out, rather than having to wait six months for the price to go down as was customary on VHS, the old economics got tossed and the new reality set in.
I remember those turbulent, confusing days. No one knew whether rental pricing was really, truly headed for extinction, and whether pricing everything for sellthrough would put a serious dent in studio profits.
As it turned out, rental pricing did die, but studio profits rose. So did consumer spending on video. The home entertainment pie's individual slices got smaller, but the number of slices proliferated to the point where the pie got bigger than anyone even imagined — heck, it became an entire pie shop.
And in the hustle and bustle that continues to describe the DVD business, the humble old videocassette simply got in the way.
So long ago I hate to admit I remember it, a musician named Gil Scott Heron had a great revolutionary anthem called “The Revolution Will Not Be Televised.”
With the way politics are going in this country right now, I was starting to think that might be wrong. With the eradication of the middle class, corporate corruption and the ongoing export of American jobs, I keep wondering when it will all hit a critical mass that has Americans mustering torches and pitchforks to march on their state and federal capitols. Drama like that would be on every TV channel available.
But it's not going to happen that way, even though more than at any other time in history, we live in a media culture. Anyone who doesn't believe that need look no further than the California governor's office. OK, so that little skirmish in the revolution was televised. But that was more of a revolt than a revolution; Californians got tired of stupid spending and lax oversight (and the jury is still out as to whether Gov. Ahnold will change any of that).
I no longer think the revolution will be televised, at least not in any recognizable form. But it is going on all around us, and in much more insidious ways than public marches.
We are in the midst of what I call the “side-door revolution,” a term I coined after a friend related an incident in which he got a piece of merchandise for about a third of the retail cost by buying it from an employee at the supplier's side door for cash. Free downloading is another part of the side-door revolution. A lot of the people snatching music and movies off the Internet for free are sick of what they perceive as corporate greed and are rebelling in their own quiet way. If you own a business, these things may be costing you money.
Controlling “shrinkage” — that marvelously understated euphemism for employees stealing — is nothing new to retailers. But if things keep going the way they are, I think it's likely to get worse both in scope and dollar value.
One commentator I quoted a few months ago noted that the selling price of a used DVD doubles the hourly wage of most drug store workers. That's onesy-twosy compared to the Target loss control manager in Michigan who was charged for allegedly taking DVDs and games out the store's back door and selling them at a Game Station store a few miles away. I'm sure the motivators range from people stealing a little on the side to make ends meet to just plain greed.
I suppose this is a political rant, but anyone who is not treating employees fairly is, in my mind, more likely to suffer these kinds of problems than employers who take care of their people and treat them with dignity.
If you are in business, make a point to set an ethical example for your employees. Make an effort to provide them with the kind of pay and benefits that keep employees loyal and honest. I guarantee most employees who perceive their bosses as fair and honest will try to step up to that standard.
Remember, the revolution will not be televised. Probably not even on your video surveillance system.