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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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4 Sep, 2003

A Tiny Boat of Sense in a Sea of Stupidity

Too little, too late?

I read with interest the announcement that Universal Music Group is drastically cutting CD prices to $12.98 from as much as $18.98. I've never understood the high price of CDs, particularly after DVDs rolled around. As a consumer, I'll be damned if I'll buy the new flavor-of-the-week album for twice what it would cost me to buy two great old movies. And apparently lots of other consumers feel the same way, because since DVD's launch in 1997, CD sales have taken a dramatic tumble.

I'm not saying the two are connected, but you have to admit, the job of getting consumers to buy CDs when they can buy entire movies for less is a formidable challenge — particularly with the lure of free downloading.

Universal is the biggest of the five record giants, and I'm sure the others will follow.

But will it work? For years, the record companies have been a study in stupidity, and I can't help but wonder if their attempts to revive a dying business will be an exercise in futility.

True, it's a step in the right direction — namely, to make CDs more appealing to consumers — but it comes after so many missteps I question whether it will work.

For starters, the pricing structure of music should have been modified a long time ago. Maybe in the days when there were true superstars with staying power it made sense to keep catalog prices high while discounting new releases, but in video it's always worked the other way — prices are cut throughout the movie's life cycle until it ends up selling for less than $10 at Wal-Mart.

The keen minds in music, however, figured it made more sense to maintain the status quo, somehow figuring the same guy who didn't mind spending $20 for The Beatles' Sgt. Pepper wouldn't blink at shelling out the same amount for an eight-year-old Gin Blossoms (who?) album.

For another, why in the #$@%^* did the music companies kill off the single? True, with the CD era the two-sided vinyl single that sold for less than a buck became a mini-sampler with three or four songs selling for $5. But, still, it was a cheaper alternative to a full album — and it did let consumers try out new music before investing $20 in the whole enchilada.

Unfortunately for the labels, the murder of the single coincided with the emergence of file-swapping. Gee, buy a whole album of untried music for $20 or sample a song for free — that's a no brainer. When consumers saw how easy it was to download a song, why not two, three, 10 or 100? The record companies had deprived them of the chance to effectively try before they buy — so to hell with them, why buy at all?

And then, what came next — ah, yes, the glorious, illustrious DVD-Audio. You can almost hear record company executives saying, “People aren't buying our CDs anymore? I know — let's double the price, call it DVD and then not give them any of the extras they're accustomed to from DVD-Video.”

If that wasn't enough to deprive DVD-Audio of any real chance it had to catch on, the record companies then embarked on a ruinous format war, with the development of the Super CD.

Oh yeah — and nothing was compatible with anything else. Hell, you can't even get proper DVD-Audio sound out of a DVD player—unless you buy a special one that's tailored to DVD-Audio (not to be confused with DVD-Video) specs.

For the past two or three years, CD sales have continued to decline, and this time the record companies did nothing. Well, that's not entirely true — they did start releasing DVD-Videos of concerts, which happened to cost a few dollars less than the CD of the same music, sans videos.

They also started using DVD-Video as a promotional item, an add-on to CDs. They saw it as a savvy marketing tool, but to me it made it even more apparent to consumers that they were getting ripped off. That's right —t ease me with a DVD-Video of one song, then charge me full price for an audio-only CD.

So what's next? You got me. Slashing prices sounds like a good idea, and if it's done broadly enough, across all fields and by all companies, it could rekindle sales.

But knowing the record companies, I fully expect them to find some way to muck the whole thing up.

Again.


2 Sep, 2003

New Alternatives for a Public That Likes to Watch

Well, it looks like the race is on.

Just as Internet video-on-demand (VOD) service Movielink is upgrading its features -- including offering its first set of Disney titles for download -- Buena Vista Home Entertainment is getting ready to test the EZ-D expiring disc from Flexplay.

And just as both businesses try new ways to please consumers, Forrester Research principal analyst Josh Bernoff is measuring DVD for a shroud. He's not ready to give discs the last rites quite yet, but in his new report, From Discs To Downloads, he predicts that ever-shrinking space in homes, combined with ever-better cable and satellite technology, will spell the end for DVD before the high-definition disc formats ever even get off the drawing board.

Perhaps Disney is testing Bernoff's theory without even knowing it, because of the seven announced Disney titles launching on Movielink and the eight testing on EZ-D, four are the same. The titles are The Recruit, 25th Hour, The Hot Chick and Frida.Coincidence? I think not.

I'm not sure exactly what the folks at the Mouse House expect to learn, but I doubt it's an accident that the supplier will test both technologies with overlapping titles. Both technologies offer a limited viewing window -- 48 hours after breaking the seal on an EZ-D and 24 hours after launching a downloaded movie -- and both could offer a significant pot of gold for the studio if they can threaten traditional rental.

What seems clear is that Disney is investing heavily in disposable movie technologies, whether the expiring format is physical or virtual.

I'm sure the entire industry will be watching … at least until their viewing window self-destructs.


1 Sep, 2003

Can Rental Survive the Fourth Quarter Better This Year?

One of the biggest shocks in the video business last year was Blockbuster's unexpected drop in rentals in the fourth quarter, which many, including Blockbuster, in part attributed to consumers buying instead of renting in the holiday season.

Wall Street panicked and sent the stock of the big three domestic rental chains plummeting after Blockbuster warned mid-December that rentals weren't so rosy. At the time, John Antioco attributed the shortfall to “a number of factors unique to this holiday season, including the unprecedented number of movie titles available for sale at deeply discounted prices, this year's DVD gift-giving phenomenon and a compressed holiday season which has limited consumers' leisure time.”

But were the problems with rental in the fourth quarter really “unique”? As we enter another holiday season in which the fourth quarter is packed with titles meant to take advantage of gift-giving, I'm glad I'm not in Antioco's shoes. To be sure, Blockbuster has moved into the sellthrough arena, has taken advantage of the previously-viewed sellthrough market (rentailers' ace-in-the-hole against Wal-Mart and other loss-leader chains) and is benefiting from a rental resurgence with the greater adoption of DVD. Still, the business is entering somewhat uncharted territory. With DVD penetration at 50 percent of households, will rentailers see an even bigger dropoff in the rental business, or was last Christmas season an anomaly?

I find it hard to believe that mass merchants will refrain from lowball pricing, especially in uncertain economic times. I doubt consumers will stop giving DVDs as gifts – or buying them for themselves for that matter. Perhaps the holiday rush will be less hectic this year, but I don't know if that will translate into much more leisure time for the consuming public to rent and watch videos. They'll most likely sit next to the Christmas tree and watch a DVD someone got as a gift.

This year, we'll likely find out if the fourth-quarter rental drop was truly unique or sign of things to come.


31 Aug, 2003

A Toast to Your Employees

Ah, Labor Day. That last grasp of summer before the onset of school, fall then winter and the holidays. I don't delude myself that most of you who would typically read this column are doing so today. I trust (and hope) that you are enjoying a day of rest with your friends and family, as I am (having written this column before today).

But, doubtless, if you are a retailer, your store is open and there are employees working there right now. These are people who help to generate an annual average of $76,000 for each full-time employee you have (according to the 2003 VSDA benchmarking survey of member retailers), and thousands of dollars per employee to the bottom line. While the work being done in a video store is not going to change the world, still it provides (mostly) young people with a good job that builds some skills and confidence, and provides for a modest living (the average hourly wage of a video store employee is $9.53, according to the VSDA).

Labor Day began in 1882 in New York as a celebration of the working man, and the idea spread to other industrial and urban centers around the country, with Oregon being the first state to recognize Labor Day as a holiday in 1887, then Congress, in 1894, passing legislation making Labor Day (always the first Monday in September) a national holiday.

Today, while most employees enjoy Labor Day across the country as a holiday, the service sector workers often find that as one of their busiest days.

So here's a toast to your employees, some of who labor even on a national day of rest and relaxation for the American worker. I don't have to tell you how important they are to your business, nor how much you should value them and invest in their development. That's an investment that has contributed to America's worldwide economic dominance and helps fuel the growth of the nation. Cheers to them.


28 Aug, 2003

DVD Has Redefined Home Entertainment

My cup runneth over.

DVD has changed the way I watch TV — I don't.

DVD has changed the way I collect software — my CDs no longer mean beans, and my DVDs, my precious DVDs, are spilling out of every conceivable shelf, closet, rack, box and spare suitcase.

I can't get rid of any, and I can't stop bringing them home. Now, I'd hardly consider myself Joe Average Consumer (or Joe Average Anything, as I'm sure those of you who know me will attest).

But the DVD craze is certainly causing a heck of a lot of movies to wind up in peoples' homes, and it's starting to make a dent in other forms of media.

CD's woes, I am convinced, wouldn't be quite as severe if it wasn't for DVD. I've got no research to back me up, but my hunch is that the collectors among us have switched gears, causing a ding in CD sales every bit as damaging than file-sharing and the fact that there's no real star with any sort of staying power.

I was listening recently to a radio talk show, and the topic was the crap on TV — nothing new there. Many of the callers phoned in to say they no longer watch TV — again, nothing new. But of the non-TV watchers, virtually every one did have a DVD player, telling the host that this way he can control what his family watches. I don't recall hearing that in the VHS-only days.

My point — and sorry it's taken so long to get to it — is that DVD has gotten beyond being a true pop cultural phenomenon.

It's changed the way we perceive home entertainment and the way we regard TV. The box in the family room isn't a receiver; it's a player. DVD represents the ultimate in pick-and-choose technology.

For years, TV viewers have been complaining that they don't have a choice. Even when the 12-channel expanded into 100, 200, 500 or even more channels, one would hear cries of “there's nothing good on” — a function, I believe, more of navigation than of content.

When VHS came into the picture, it certainly triggered a change in viewing patterns, but it was always a complement. We'd use the VCR to record our favorite shows, and then pop in movies during rerun season.

Only with DVD has home video gone from a complement to a replacement. We're in control — full control — thanks to random access. And now that we've tasted how good it can be, we aren't ever going to let go.


26 Aug, 2003

Sometimes, the Best Laid Plans Backfire

I can't help but be a little awed at the way this industry keeps mutating, and it's not lost on me that every time the studios and networks try to lock in a greater share of profits for themselves, they end up shooting themselves in the foot.

One example is the network bugs and graphics I wrote about in my last column. In their haste to recapture a few hundred thousand ad-skipping Digital Video Recorder (DVR) users, the networks are alienating the millions of the rest of us with their annoying clutter. In my case, and I'm sure many others, it fuels the defection.

Another example is the past five or six years of home video history. First, the chain rentailers got preferential terms — by design or default — under revenue-sharing agreements. The indies were on the ropes when the studios got scared of the big rental chains and pushed sellthrough-priced DVD into mass merchants. That put indies on a more comparable footing, with much less disparity in their cost of goods. Plus, they are no longer bound to keep product on the shelves for contractual periods of time; they can sell off pre-viewed copies as soon as they stop renting — even sooner, if they like.

Ted Engen, president of the Video Buying Group, recently told me he knows dealers who buy more copies of new releases on DVD than they used to on VHS, but only because they know they can sell them off after as few as five turns per copy.

I'm sure the high value consumers see in used DVD is also part of the motivation behind self-destructing discs; but they'll be a tough sell, since fully loaded used discs cost about the same as the expected price for expiring discs.

At the VSDA show, analyst Tom Adams said the studios make $2.5 billion a year on rental; when VHS dies its inevitable death, that figure will drop to $1.5 billion.

No wonder the studios are scrambling to come up with new revenue-sharing programs with terms attractive enough, they hope, to get the indies back on board. I predict the success of those new deals will hinge as much on the selloff date as the price.

There's a large segment of this industry that started to make real money again when it was released from the bonds of compulsory shelf life. And no matter how hard they try, the studios can no longer guarantee they can ever get that genie back into the bottle.


25 Aug, 2003

The ABCs of Moving Kids' Titles From VHS to DVD

Many have noted that children's titles — slower than some other genres to transition to DVD — have begun to make that move, and a look at the top kids titles in our recent kidvid genre section adds fuel to that contention.

One of the most interesting parts of our new genre sections is the charts that show the top sellers year to date in each category. In our most recent kidvid section, the top three titles in both DVD and VHS sales are the same, although the order is slightly different. Disney's 101 Dalmatians 2: Patch's London Adventure, Jungle Book 2 and Atlantis 2: Milo's Return all appear among the top three sellers on each chart, although Jungle Book 2 is the top DVD and 101 Dalmatians 2 the top cassette in sales year to date ended July 27.

One indication that online video sales were moving beyond a merely high-tech fan niche was when online top sellers began to match sales in store. The same mainstream adoption growth pattern seems to be happening on the kidvid front. Parents that buy stuff for their kids are now buying it on DVD as well — and it's not just the stuff for older kids. Disney's titles are firmly youngster territory, and that studio used to more clearly dominate the VHS sales charts. Now, Disney's titles have taken over the top spots on the DVD charts as well. In part, it's a testament to Disney's successful branding of the Disney DVD, but it's also an indication of mainstream adoption of the disc.

While many parents initially worried about how DVDs would stand up to kids' rough treatment (at least one of my neighbors lost a Monsters, Inc. DVD when her 3-year-old decided to polish the floor with it), parents seem to have gotten over that fear and are purchasing the same young-skewing titles on DVD that they are on VHS. Chalk up another victory to disc, which is successfully converting almost every genre, except perhaps fitness. Today kidvid. Tomorrow fitness.


24 Aug, 2003

Copy Depth May Put Pressure on Other Areas of Business

A couple of weeks back at the VSDA show, I was moderating a panel on how retailers are managing the transition from VHS to DVD. One of the interesting points made during the discussion was the fact that, while DVD had surpassed VHS as the leading platform for new-release rentals, VHS still held significant command of the catalog rental business.

The home video business has always been a hits-driven business, made even moreso as copy depth increased during the era of VHS revenue-share deals and then, on a broader scale, with DVD sellthrough pricing.

Studios have doubled their output into the rental pipeline in recent years as both large and small retailers upped their buys on new-release DVDs, many of which eventually find their way onto the previously viewed sales shelves.

As Melinda Saccone, Video Store Magazine's senior market research manager, indicates in her analysis of this trend, this copy-depth nirvana also has meant a faster turn on the rental shelves as turns per copy have dropped by half as volume has increased.

Not only has this meant that second-tier titles get less attention from retailers, it also means that the growing population of DVD customers, often guaranteed their fill of any new releases, are not finding their way into the catalog area.

As DVD penetration continues into 50 million domestic households and upwards, what can we expect for the catalog rental business? If we're getting our fill of new releases at rental and or at retail (either new or previously viewed), and we can buy much of our old favorites at bargain prices at the mass merchants, it would seem that the catalog business at rental could be a real challenge in the future, and also for the second-tier product on the supply side.

Studios such as Warner, in conjunction with Rentrak, are developing aggressive revenue-sharing programs geared to ensure that retailers pick up some of their second-tier product after they have stopped feasting on new releases. But that might eventually lock out suppliers that can't be as competitive.

Retailers should be thinking creatively in terms of luring people into the catalog sections, looking for themes and current theatrical hits that can make for interesting endcap displays of related catalog product. The indicators seem to point to a struggle ahead for this area of the business.

WELCOME!
I'd like to take this opportunity to welcome the newest member of our editorial team, Erik Gruenwedel, who joins us as a senior reporter. Erik was most recently a reporter at Billboard, and before that he wrote for Adweek. He has experience in entertainment and business journalism and an MBA to boot. We look forward to Erik's contributions.


21 Aug, 2003

Indie Retailer Resilience Pays Off in the DVD Era

Independent video retailers are a resilient lot. During the recent VSDA convention and, a week later, at Sunsplash, I had the chance to chat with more than a dozen indies, all of whom have weathered the various Great Shakeouts and are still in business today, long after many of our industry's top minds predicted they would be gone.

One studio executive recently told me that indies still account for about 40 percent of the rental business. And if rentals are up, as our market research department and most other credible sources report, then the indies must be doing quite well for themselves.

My conversations reinforced that view, for the most part. Low-unit pricing for DVD and the virtual disappearance of the rental-priced cassette have rendered the level-playing-field debate all but irrelevant for most.

And the booming market for used DVDs lets retailers not only squeeze every last drop of dough out of their over-the-hill rental titles, but also counter the new sellthrough focus of the big chains. It's one thing to try to sell new copies of Chicago for $15, as Wal-Mart is doing. It's another to offer your loyal customers previously viewed copies for $10 just a few weeks later.

Video Store Magazine market research estimates PVT (previously viewed title) sales generated more than $100 million in July, up 29 percent from the average monthly take in the first six months of this year. My prediction: By the end of this year, we're going to see average monthly PVT sales double.

One reason: eBay. The online auction house is mounting an aggressive pitch to get retailers to sell used videos (particularly DVDs) online. EBay “instructors” were at both the VSDA convention and at Sunsplash, and in each case their talks were so convincing that retailers who might have gone in with a ho-hum attitude were eagerly scribbling notes and peppering the instructor with questions before the seminars were half over.

This was clearly an encouraging sign, and one that attests to the resourcefulness of retailers who in the past 10 or more years have encountered all sorts of obstacles and hurdles, from the near-recession of the early 1990s to the near-recession of the new millennium, from the rise of the big chains to the pre-DVD wearing-off of the video rental habit.

There's an old saying: Only the strong survive.

Rest assured, they have.


18 Aug, 2003

Downward Spiral of VHS Shows Up in CEA Numbers

While many in the industry anecdotally say VHS is on its way out, it's interesting to see quantitative evidence.

Recently released numbers from the Consumer Electronics Association show a 78.4 percent drop in VCR deck sales to dealers for the four weeks ending July 25 compared to the same four weeks last year. July 2003 VCR deck sales to dealers tallied a mere 295,972 (versus 1.36 million last year) while July 2003 DVD player sales were nearly 1 million.

Even more telling about the shift to DVD is the growth in TV/DVD combo units. These are not the units new DVD adopters would typically purchase. Your first DVD player purchase is typically a player-only device you can attach to the TV with the best picture in the house. TV/DVD units, I would surmise, are usually the second or third DVD player purchase for a household – something to put in the kids' rooms or for older kids to take to the dorm at college.

Year-to-date, sales of TV/DVD combo units are up a whopping 233.4 percent. Looks like lots of households are buying their second and third players.

While many say the VCR will hang around for a while, I'm beginning to wonder. It didn't take long for me to jettison my turntable when CDs came around. As my VCRs begin to break, I find it hard to justify fixing or replacing them. We used to have two, but now we're down to one. The only family members that even watch videocassettes anymore are the kids, and if I had to choose between a TV/DVD combo for the kids and a new VCR, I'd probably choose the combo unit. Looking at the numbers, lots of other families are doing just that.