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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.

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26 May, 2003

In Praise of the Middleman

Studios are realizing that retailing just isn't their game. Walt Disney Co. is planning to close or sell its Disney Store outlets, which have been a problem for years. Warner likewise pulled out of its Warner Bros. stores a few years ago.

As much as the studio execs like to rail against external middlemen, they are finding that being their own middleman isn't all it's cracked up to be. An independent middleman offers perspective. Like a Hollywood agent, he or she knows how best to sell a client. A client (actor or actress) often has a skewed vision of his or her best attributes. In short, not many people know how to best sell themselves. But a middleman does.

It is understandable that the studios would try to cut out the middleman. After all, they create (or more accurately they pay to create or market) the product. Why should they allow anyone else to take a cut?

I would say the answer is focus. The middleman, once removed from the creative process, has a clearer view of a product's value to the customer. In our business, that translates to a retailer or distributor who knows which movies his customers will want to rent or buy better than the studio that creates them.

As studios move into the brave new world of video-on-demand, it is interesting to note that the record-label-backed Web sites are going the way of the Disney and Warner Bros. stores. Roxio has hired Napster creator Sean Fanning and is buying up Pressplay, started by record labels Sony and Universal, with plans to turn it back into Napster, reincarnating that most vilified middleman of legal battles past. (As proof of the vilification, the major music labels are suing the venture capitalists that backed Napster, claiming they fostered copyright infringement.)

So, hats off to the middleman. Everyone is trying to cut him out (or sue him into oblivion), but, in the end, he's often a necessary component – some say evil – to good business.

25 May, 2003

Late Fee Customers At Risk

It's no surprise that what consumers most dislike about renting videos is the return trip to the store and, if they failed to make the return trip on time, the second most disliked aspect of renting videos is paying the late fee. So said a recent intercept poll of video rental consumers Video Store Magazine market research conducted in support of an article in this week's edition looking at Buena Vista Home Entertainment's upcoming test of the Flexplay disposable DVD.

It is these two negatives that have given life to the online rental business, such as that of market leader Netflix, and have also been the impetus for technological strategies to deliver more convenient home entertainment, such as VOD and, of course, the concept of a throw-away DVD.

I looked at the top 10 rentailers in VSM's Top 100 report published in April of this year and calculated that of the seven in that group that imposed late fees, revenues from that much-despised practice averaged 12 percent of total company revenues, according to VSMmarket research. That, my friends, adds up to $694 million in late fees from just these seven chains alone, giving Blockbuster credit for generating about $392 million of that,

The next 40 on the Top 50 generated about $23 million more in late fee revenues. My point here is that a million here and a million there for the other thousands of retailers in this business and we're talking real money.

And it's real money to the minority of video consumers that pay that tab. Let's say that our unscientific poll could be extrapolated. That means that the 24 percent of respondents who picked late fees as the most irritating thing about video rental could represent 24 percent of your customers put “at play” and possibly wooed away by any technology or service that renders late fees a thing of the past.

Certainly, Netflix' million-plus customers may be testament to this dynamic. And there is no doubt that some customers are choosing to spend more of their dollars buying new (and, yes, previously-viewed) discs as another option to avoid the rental hassle in general.

It's understandable that some rentailers may have just become accustomed and attached to that late fee revenue, but it also may be time for these same rentailers to seek out ways to help their customers avoid that late fee, however it may work best in their stores. Subscription programs with unlimited viewing policies are certainly one answer, and Blockbuster, among others is pursuing these.

The pressure is building on this “at risk” portion of your customer base, and those rentailers that blithely continue to whack customers with late fees without seeking some other alternatives, may find themselves losing customers at some point, if they haven't already.

22 May, 2003

Steamroller VOD Campaign Signals VOD Getting Tough

I received a lovely gift basket the other day from Cox Cable. It came to my home in Carlsbad, Calif., from the publicity department of the San Diego Cox affiliate. The contents are all movie-related, from a promotional T-shirt for The Ring to Hollywood brand cookies.

A rolled-up “Media Alert” was attached to the cookie box, and as I read it I almost lost my cookies. Cox is launching a VOD service in San Diego, and targeting video stores with one of the most vicious assaults I've ever seen.

“10-Ton Steamroller Smashes Hundreds of Videotapes at Cox Communications, Rock 105.3 Block-Buster Rally,” the headline screamed. “Join the Entertainment on Demand revolution and say good-bye to video stores forever.”

The media alert claims “the number of people renting videotapes and DVDs is in decline.” Citing an uncredited “2002 marketing survey,” Cox claims “only 50 percent of those surveyed had rented videotapes within the past month, a 16 percent decrease from 2001,” and that “there was an 11 percent decrease in the number of people who rented DVDs.”

To drive home that point, Cox is banding together with a local radio station to sponsor a rally before an indoor football game by the San Diego Riptide. Patrons, armed with “sledgehammers and bricks,” will demolish videotapes and vie for prizes, including a 65-inch high-definition television.

“The ultimate Block-Buster, a 10-ton steamroller, will bulldoze hundreds of videotapes to show Entertainment on Demand's superiority over renting videos,” the media alert continued. “Your home is your video store. No late fees! No waiting in line. No leaving the comforts of home.”

The alert advised, “Don't forget to bring your unwanted video store membership card to the Entertainment on Demand Block-Buster Rally and watch it go up in smoke.”

Well, there's certainly a lot of smoke here, and it isn't coming from burning cards. But I have to admit, Cox has me captivated. I had no idea the video rental industry was going down the tubes — our own research shows quite the opposite, with DVD rentals doubling in 2002 — and I guess soaring DVD sales really aren't a factor in all of this.

I'm also very anxious to see how Cox intends to show VOD's superiority over renting by bulldozing “hundreds of videotapes.”

My curiosity, however, has been aroused. I dug deeper into my basket, hoping for a manual of some sort, and was immediately rewarded with a “Cox EOD Tutorial.”

On a videocassette, no less.

20 May, 2003

Ghost Stories

Well, the Buena Vista test of the Flexplay expiring disc seems to be the topic of the week for the industry, so I might as well jump in.

I can't help but be amused at the rampant comparisions to Divx, the proprietary delivery system on which, according to published reports, Disney and Circuit City took a $130 million bath. Except for the two-day play window, EZ-D is not even remotely like Divx.

Why not? Because Divx required a separate set-top box. The discs wouldn't play on ordinary players and the set-top had to be wired to a phone line so someone at the headend could charge users for renewing content. Comparisons to EZ-D are misguided.

What is much more like Divx, however, is The Walt Disney Company's announced Mickey-come-lately foray into video-on-demand (VOD), MovieBeam.

The plan there is to rent proprietary set-top boxes to consumers. The boxes will come loaded with 100 titles and Disney will offer about 10 more per month for a fee, according to announced plans. If there are still a lot of unanswered questions about EZ-D, MovieBeam looks downright hare-brained by comparison.

I predict MovieBeam is destined to go the way of Divx for the same reasons it happened the first time: proprietary box, no portability and limited consumer choice.

Analysts have reacted the same way I did: are consumers really going to make room for yet another box in the house? Not likely. Especially not with the percentage of homes that already need a box for cable or satellite. Which, incidentally, offer several Disney channels as well as pay-per-view.

I had cable, but one of the reasons I kicked Time Warner to the curb (aside from absolutely dismal service and overpriced surcharges for digital programming) was the high fees to rent their set-tops and remotes. For two rooms, hardware was about 20 percent of the monthly cost of getting cable and digital service added another 10 percent.

While all the savvy programming providers are getting wise to space-conscious households and trying to consolidate devices into fewer and smaller boxes -- industry nemeses TiVo and ReplayTV, for example, are building DVD players into their set-tops -- Disney lumbers up like the adult elephants in Dumbo and will try to get consumers to pay for the privilege of putting another ugly box in the living room or family room.

And so far I've heard nothing about how installations will work as a practical matter. Is Disney prepared to hire and field an army of installers like the cable and satellite companies (which, by the way, often struggle to pay the field force)? Or just send these boxes through the mail and hope consumers can install them themselves, which would require on-demand tech support by phone? And all of this just to get only Disney content? Because, like Divx, other studios are unlikely to support another format. And what about the euphemistically named "universal" remote control. Will they work on MovieBeam boxes?

Sorry, Disney, I just don't see this one working. Call it MovieDream, because that's all it will ever be. Try putting as much whimsy and creative energy into creating the content as you do to protecting it and you just might be a going concern again.

19 May, 2003

Late Fees or Extended Viewing Fees: People Just Don't Like Them

One of the biggest selling points of Flexplay's limited viewing disc, which self-destructs in two days, is the elimination of the late fee.

Flexplay last week announced a test of the disc with Buena Vista and prominently mentioned the no-late-fee advantage.

Flexplay isn't the only home video alternative to use this tactic. Wal-Mart often advertises the no-late-fee plus to purchasing a value-priced DVD, rather than renting it at the video store. Video-on-demand, pay-per-view and other non-packaged services have also attacked the traditional rental model on this basis.

Whatever you call the charge for bringing in a video after the appointed due date -- a late fee or the "extended viewing fee" coined by a certain rental chain -- consumers simply don't like it. It could prove to be the rental businesses Achilles Heel.

There is, however, another model using traditional packaged media that is catching on both online and in store that could eliminate the late fee as well -- the subscription model. Netflix's mail-order DVD rental business is built on it, and Blockbuster, in a nod to the growing online service, has been testing an in-store version.

While pricing and other factors may make this model less profitable than the old rent-and-return-on-time rental, video stores could soon find it's the right weapon to combat customer aversion to the late fee.

Some who support charging late fees have noted that car rental services aren't pilloried for asking customers to return that merchandise on time. But in that business, customers who need mobility really have few alternatives. Home entertainment is another matter. Many businesses are competing for eyeballs and anything the video business can do to keep those customers happy -- perhaps offering the subscription model as an option -- might be a good thing.

18 May, 2003

Gone in 48 Hours

In a column for this space last October I wondered about what sort of business model might be necessary for studios to pursue using the Flexplay Technologies disposable DVD technology.

Well, come August we'll find out, as Buena Vista Home Entertainment embarks on a four-city test of the Flexplay EZ-D expiring DVD technology with eight of its titles.

Buena Vista isn't being specific yet on how these bare-bones discs will be priced other than to say that they will likely have a slight pricing premium over a typical video rental. And though no test markets have been announced, or participating retailers, Buena Vista does hope to test this concept across a broad demographic and through as many different retail channels as will take it, including, says Bob Chapek, BVHE president, video specialty stores.

According to Chapek, this test — and he's quick to say many times, it's a test — is not about seeking a new model to replace the current rental business, but to help the studio find a new revenue stream that doesn't imperil the current sellthrough or rental businesses. The intent, says Chapek, is to retrieve that lost rental customer who has gotten tired of that return trip to the video store, or paying the late fee when he doesn't make that trip in time.

Of course the devil is in a few major details, such as price and release schedule. According to Chapek, the idea would be that the titles typically selected for this sort of disposable platform, would be rental in nature, not major theatrical titles, and that they would not be released until about six weeks after the initial street date of the, er, permanent edition. In effect, it's an approach that allows consumers to rent a title from their usual home entertainment rentailer of choice when it first comes out or wait six weeks and grab it on their next visit or some other convenient location knowing they don't have to make the rental return trip.

Okay, there are many, many questions, and the test is designed to uncover the key retail pressure points, price being the big one for starters. Would a later window for this sort of product make this disposable DVD model palatable for rentailers? What about managing the balance between order quantities for the disposable version versus the permanent? Just how deep will non-video retailers be willing to stock these disposable DVDs?

I am sure we will all have plenty to talk about leading up to these groundbreaking tests. Look forward to hearing your thoughts.

15 May, 2003

Movies Will Have to Hit the Screens Running This Summer

We live in an era of frontloading. This is the weekend of The Matrix Reloaded, and I'll bet everything I own that this is going to be the biggest opening of any movie, ever. Warner Bros. reportedly spent in excess of $100 million on marketing alone, money one would think would hardly be needed for a film that has generated so much advance buzz.

The Matrix revolutionized filmmaking when it hit theaters several years ago, and its style, special effects and “look” has been copied by so many other filmmakers, TV producers and even commercial directors that the film's very name has become an integral part of our pop culture.

Opening-weekend crowds would likely have set a record anyway, even without the pricey Warner blitz, but this sort of hype is almost obligatory in an era where openings keep getting bigger and bigger and the studios, who keep a higher percentage of the dough the first few weeks a movie screens, don't want to risk leaving anyone unaware of the exact date, time and place of the initial showing in cities, towns and hamlets all over the country.

A similar thing, of course, is happening in video. New releases are blistering hot their first week in stores, but by three weeks they've cooled sufficiently to the point where a growing number of retailers are already selling off used rental copies (I refuse to use the term “previously viewed,” just like I hate car dealers trying to pass off used cars as “previously owned”).

Well, I predict this trend will accelerate, both on the theatrical front and in home video, and that The Matrix Reloaded will be a watershed event. From this point forward, the hype won't focus on the first few weeks of release, or even on the first week, but on the opening weekend. Throughout this summer, what in the past was a battle over total grosses will be a frenzied fistfight over bragging rights for opening weekend box office figures.

And, unfortunately, we're going to see a lot more good movies fall through the cracks, because, quite plainly, there's no longer going to be any breathing room, no more strong second-, third- or fourth-place finishes—just one clear winner, and a bunch of also-rans.

Come fall, we're going to see a similar phenomenon hit video — at least, in terms of hype. Hopefully, however, consumers will be so sick and tired of the “I've gotta be first in line” syndrome that they won't be suckered in and will instead base their buys and rentals on what they truly like, instead of what they're told to like.

But maybe that's wishful thinking.

13 May, 2003

Vending Machines May Just Catch On

As much as I love the idea of video vending machines, at least for certain locations, I've heard a lot of naysaying from folks in the industry and had some doubts myself.

On the other hand, an online poll we conducted in this space a couple of weeks ago, added to the handful of letters I have received from folks interested in breaking into video vending, make me think this really could be the next wave. Not the whole ocean, but the next wave.

In the poll, 28.16 percent of respondents said machines would be a good way to extend hours; 29.13 percent saw it as a good way to extend a store's geographic reach; 26.21 percent said the ROI just wouldn't be there; but only 16.5 percent said video vending machines will just never catch on.

People are skeptical of the concept here in the U.S., but those who have spent time abroad recently are much more interested, mainly because they have had a chance to see the machines in action in other countries. It seems the machines sell themselves once dealers (or potential dealers) see them in action.

What may be problematic for our industry is that folks in so many other industries, like convenience stores, markets and even gas stations, see them as the latest and possibly best way to offer the hottest consumer product around – DVD – with minimal hassles. That means people in a lot of other industries see making DVD rental easy as the best way to increase traffic at unrelated businesses.

Video specialty dealers have always had to face a certain amount of competition from grocers and onesy-twosy stores that seem to carry everything but specialize in nothing. But it's not hard for me to see video vending machines making inroads into places where no video has ever gone before.

How about the beauty shop? How many people would consider titles to rent while getting a haircut, knowing they could choose while waiting for their nails to dry?

What about restaurants? Dinner and a movie has long been a favored date night pairing. I doubt we'll see a video machine at every Denny's any time soon, but certainly a lot of mid-level restaurant chains like Mimi's, Coco's and pretty much anyplace else that gives kids coloring placemats and crayons are candidates. Busy parents + rambunctious kids = an opportunity to sell a little more convenience – not to mention creating a reason to come back, at least to the restaurant lobby. If they figure out how to make the machines ATMs as well as rental destinations, that could really spell trouble.

Vending machines may never squeeze out traditional video stores, but it's a sector to watch. If not for expansion, then for encroachment..

Since I've had so many requests for more information on the machines, here are a few Web sites to visit so you can decide for yourselves:

DVDPlay, dvdplay.net
Giant Video Limited (MovieMat), moviemat.co.il
Novetix Corp. (MediaVendor), mediavendor.com
TikTok DVDShops, tiktokeasyshop.com
V&L Tool Co., vltool.com
Video Access Computers/Video USA, vac247.com
Video Vending North America (CineVault, MuVi), vvna.com

12 May, 2003

A Man for the DVD Season

I first met George Feltenstein in 1994 at a junket for That's Entertainment III for MGM. In the presence of such MGM musical luminaries as Cyd Charisse and Esther Williams, Feltenstein seemed right at home.

Now, Feltenstein is appropriately heading up Warner Home Video's classic DVD effort as SVP of classic catalog. Warner has some 2,000 to 2,500 library titles, including classic titles from the old MGM, that Feltenstein said are viable for DVD, and I couldn't think of a better guy to head up the titles' rollout.

During Warner Home Video's Friday announcement of the studio's “DVD Decision 2003” -- a promotion in which consumers vote on a selection of classic movies on AOL to decide which five will be released on DVD -- Feltenstein told me he regularly surveys classic movie sites and other collector forums, scanning them for old footage and other material that could be useful for DVD extras on classic movies.

Unlike movies being made today, for which filmmakers dutifully collect making-of material, deleted scenes and other goodies for the DVD release, classic films often require some sleuthing and creative thinking for DVD. For the 20 films in consideration for DVD Decision 2003, Feltenstein has in mind such clever extras as a “Tom & Jerry” cartoon spoof of Bad Day at Black Rock. Through his involvement with Turner Classic Movies, he's got his sights on The John Garfield Story, a documentary about the legendary actor that ran on TCM, for The Postman Always Rings Twice.

Feltenstein stressed that Warner plans to give its classics tender loving care, adding that the studio won't -- as some have –- blow out its classic library on DVD just to “pay the rent.” I can't think of a better guy to mine the gems in Warner's vault.

11 May, 2003

Warner Promo First of Many Catalog Salvos?

Warner Home Video has always been a leader in the release of catalog into the sellthrough video business, especially with the advent of DVD. According to the most recent DVD Release Report Warner has released some 439 catalog titles onto DVD, trailing only MGM's 589.

But with DVD player consoles expected to reach the 50 million U.S. household milestone this year, it may not be surprising to see those studios with a deep catalog kick things up a notch in marketing those titles to an ever widening mass market of DVD consumers.

Last Friday Warner Home Video announced a new and corporate-leveraged effort to grab the hearts and minds of these 50 million households with its “DVD Decision 2003” promotion (see our story posted on this web site Friday). Basically the idea is to have consumers vote for which five of 20 selected classic movies Warner will release on home video in special single disc offerings next January.

Warner is leveraging several of its other media properties, America Online and the Turner Classic Movies cable channel, to drive the promotion for its home video unit. Votes will be cast on AOL between June 2 and July 1. TCM will air all 20 movies between June 23 – 27. According to Mike Saksa, SVP of marketing at Warner Home Video, it's the first time AOL/Time Warner has called on these two major media sources to help fuel home video marketing and sales. Of course, home video is the darling of the entertainment industry these days so it all makes complete sense. And it'll be a terrific opportunity for retailers.

With each leap of household penetration of DVD players a new and significant market is growing for all genres and types of programming on DVD; these are people who are buying everything to feed their hungry new machines. But another factor to consider is that at 50 million households, you are also now dealing with the beginning of some market maturation, if you can believe that. Even at the young age of 5 years, the adoption rate of DVD has been so incredible that there are people who may be nearing their saturation point of movies they want (or have room) to own. So if you have a lot of ammunition in your catalog cannons, you'd best get to firing before it's too late.

I would not be surprised to see a real strong move in the next 12 months to a higher flow of catalog product by those that have a lot of catalog that they can (and need to) release on DVD while the getting is still good and strong. According to Warner, it has maybe 2,500 viable titles for DVD release, so if they are counting the 439 or so they have already released over the past 5 years, which leaves them with about 2,000 to go. Naturally, they're going to have to step things up a tad or risk having titles in the vault that may not realize the kind of sellthrough potential that a younger, less mature market, might absorb with more gusto.