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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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27 Aug, 2002

THE MORNING BUZZ: Trouble in Bearadise

As if the Walt Disney Co. wasn't having enough trouble trying to hang onto its license for Winnie-the-Pooh products and stay afloat in the stock market, the two issues have at last converged.

At least two law firms have announced shareholder class action lawsuits against Disney, CEO Michael Eisner and CFO Thomas Staggs, complaining they hid a lawsuit over the hunny pot of money Pooh rakes in (estimated to be as high as $6 billion a year) from shareholders, who lost money when the case came to light.

The case was filed in 1991 but Disney didn't disclose it in filings with the Securities and Exchange Commission until May 15 of this year. A Disney spokeswoman said at the time that the company didn't think it was important to disclose until a judge set a trial date, which didn't happen until early this year.

But Disney's share price has skidded down 46 percent since the disclosure and the shareholders are blaming the dispute. They contend the loss of Pooh's income, which some sources say is as much as a quarter of the company's annual bottom line, would just be too much to bear. They also contend they might have made different choices if Disney had told the truth earlier on.

That seems to be a common theme in a case in which a judge fined Disney's lawyers $90,000 a year ago for shredding dozens of boxes of documents that might have helped sort out how much Pooh is due.

The case is scheduled for trial – no doubt one Disney execs would prefer to avoid –- in February. So far it's looking like the script for a Celebrity Death Match episode feature a chubby bear and a mouse that is looking scrawnier by the day.

In the wake of the shareholder filings, one of my friends, a Disney shareholder, has been complaining that it's time for a change in the big offices at the Mouse House. Observers have been speculating as much since the company held its annual meeting in the frozen wastelands of Connecticut in January, a choice my vested friend blasted then as a way to hide from the bulk of investors. The problem, he said, is that paying out executives would cost more than keeping them. Pooh, my friend observed, may change that.

Funny, I seem to remember Pooh being afraid of the dark.

I don't have stock in Disney. I still like the animation that took the company to top, even if some of its more recent efforts have left me nonplussed. But from what we can see in the numbers the company's overall performance has been slipping for some time and, that may not be the worst of it. If recent litigation is any indicator, investors should me much more worried about what they can't see.


26 Aug, 2002

THE MORNING BUZZ: Rental Stores Aren't the Only Ones That Think Movies and Games Are a Match Made in Heaven

Video stores have long rented movies on video alongside video games. While not always a hit with the game suppliers (scuttlebutt is one tried to take out an ad in the video trades warning retailers to cease and desist renting their product several years ago), the practice certainly has been a hit with consumers. Now game companies seem to be getting on the video bandwagon.

Acknowledging the rise of DVD and the fact that games now play on digital discs as well, game hardware manufacturers have built DVD playability into their machines. It's always been included on the Playstation 2; Microsoft's Xbox acts as a DVD player with the right add-on. In fact, the Xbox supplier this week gave an extra push to sell its game consoles over the holidays by offering full-price rebates for the console's DVD Movie Playback Kit through Nov. 2 to those who purchase an Xbox console.

Game companies are recognizing that the DVD movie fan is often a game player as well. Our recent Consumer Survey bears this out. According to the exclusive survey of 900 U.S. households conducted by Video Store Magazine market research, 64 percent of DVD households also have games, while only 35 percent of VHS-only households also have games.

Indications are game companies are warming to rental. Blockbuster in the last year crafted an exclusive 30-day video game rental window for the Playstation 2 game Maximo: Ghosts to Glory. Following the trend forged by major retailers, Pay-Per-Transaction firm Rentrak Corp. is actively soliciting revenue-sharing agreements with game companies and seems determined that now is the time to do such deals.

And, while game companies have long cross-promoted titles with videos, the practice seems to have ratcheted up. Such hit videos as Monsters, Inc., The Lord of the Rings: The Fellowship of the Ring and The Scorpion King and even Veggie Tales sport game tie-ins for the fourth quarter.

With fierce competition among the game consoles, video rental stores are playing an important role in allowing consumers to try before they buy. And knowing their penchant for games, game companies are looking to reach the sellthrough DVD customer as well. So while video rental stores have known games and videos work well together for some time, it has taken a slick little disc – DVD – to seal the marriage.


24 Aug, 2002

THE MORNING BUZZ: Decline in Rentals Foreshadowing New Video Paradigm?

Rental revenue has fallen short of same-week activity the year prior for eight straight weeks now, according to Video Store Magazine market research.

And while our very careful and cautious market research team advises me not to read this as a major trend -- yet -- the numbers are beginning to say something about the (possible) changing nature of the home video business.

This week's research report (see page 21) from Melinda Saccone, senior market research manager, mirrors what we have been hearing for months now. DVD's share of rental revenue is rising dramatically, but not enough to counter the similarly dramatic fall of VHS rental revenue.

In July, for instance, DVD accounted for about 40 percent of all rental spending, or some $320 million; that's up from 23 percent at the beginning of the year. Year to date, revenue for DVD rental is up 150 percent over last year at this time.

Meanwhile, rental revenue for VHS in July was down a little more than 40 percent, to about $483 million.

The combined DVD/VHS rental total in July was down some 12 percent from last year. Year-to-date rental spending is down more than 6 percent.

Naturally, one begins to wonder why this is happening and whether the factors contributing to this decline (if we can confidently identify them) are short term or a part of the evolution of the home video marketplace from a rental to a sellthrough paradigm.

Of course, one might think the biggest possible factor would be DVD sellthrough activity taking dollars away from the rental business.

Going into 2002, video sellthrough as a percentage of overall home video revenue had reached parity -- or exceeded it -- with rental. Regardless of whose 2001 year-end numbers you looked at, DVD was already accounting for 50 percent or more of that sellthrough volume. Consider that in relation to the fact that DVD player penetration only reached 25 percent or so of U.S. homes by the end of the year in 2001 and is expected to reach 40 percent or better by the end of this year, and you can see where DVD sales could be going in relation to the overall business.

DVD also has allowed retailers to increase their copy depth of new releases. According to Video Store Magazine market research, retailers carried almost 56 percent more copies of the top five rental debuts in the first half of 2002. This comes, certainly, at the expense of catalog titles, which can bolster rental business during weeks where there are no significant new releases debuting.

These are only a few factors in consideration of what may be a significant trend.

Stay tuned.


22 Aug, 2002

THE MORNING BUZZ: DVD Producers Have Arrived

The recent signing by the ICM talent agency of two independent DVD producers, Jonathan Gaines (X-Men, The Matrix) and Blaine Graboyer (Scream Special Edition) signals yet another narrowing of the gap between Hollywood and home video.

Indeed, DVD has done as much for the self esteem of home video executives as it has for the bottom lines of the studios, allowing them to transcend the long-held stigma of being in the “used movie” business and becoming an integral part of the creative process.

Extra material on DVD has certainly proven itself to be an alluring selling point to consumers. Study after study has shown consumers like special features and are buying more movies on DVD than they did in the VHS-only days largely because of all the bonus material.

Video Store Magazine's latest consumer survey finds that 67 percent of DVD buyers and 61 percent of renters access special features, and that the longer consumers have owned a DVD player, the more likely they are to view this supplemental material — a finding that to me signifies a sea change in how the public watches movies at home. It's no longer a passive experience, it's an interactive experience, with consumers perceiving DVDs as something new and exciting to fiddle with.

But as excited as consumers are about special features, video executives love this stuff even more because it finally helps them achieve a level of respect in the movie industry that has long seemed just beyond their grasp.

For years, they merely packaged and sold the movies someone else produced, and consumers had already seen.

Now, they're often getting involved in DVD planning while the movie is still in production. They get to talk to directors and other talent and work with them to create a new product of which the original movie, while still the centerpiece, is no longer the whole enchilada.

And in conservations with friends at backyard barbecues, weddings and Little League games, they can proudly say, “I work for a movie studio” without feeling the need to blush and toss in a disclaimer about home video.

Indeed, DVD producer, as my friend Cheryl Glenn told me earlier this year, is the hot new job in Hollywood — and one that's only getting hotter now that the agents are involved.

And with DVD producers still reporting to, or working under contract to, home video divisions, there's going to more and more elevation by association.


20 Aug, 2002

THE MORNING BUZZ: Economic Indicators

Economists and politicians are divided on whether we are headed for a double-dip recession or will turn around by fall. Some speculate it's going to be a weak holiday season for retail, others believe consumers have plenty of disposable income and will unleash spending power.

For our industry, one indicator to watch is the electronics stores. Best Buy revised down twice for the quarter on low sales and other chains are turning in similar results. That could mean fewer DVD players getting into homes, or at least getting there at a slower pace. But even that could go either way: many people may be feeling the pinch right now and holding off on buying the player until the holidays bring sale prices and make it a family gift.

At the risk of getting branded an armchair economist, I have a few little points I watch as barometers of the economy in the real America, where most of us live.

Fast Food: I've noticed that fast food chains are among the first businesses to respond to recessionary times and the last to boost prices when the economy seems to improve. Just last year a variety of cheap deals evaporated in response to rosy economic projections. But they started to return just a couple of months ago and now you can get two burgers or tacos for 99 cents just about anywhere in town.

Fast food restaurants know they fall into a budget dining category and will lose cost-sensitive customers when times get tight unless they keep giving them a reason to come in. The lines are decidedly shorter at McDonald's this week since the chain lifted the 39-cent cheeseburger promotion, which I predict it will return shortly.

Wal-Mart: Wal-Mart sales were up 26 percent for July. That's a whopping bump even for a well known discounter with a respectable-sized garden center to bring in summer customers.

Wal-Mart does a great job of building community. The discounter features sales associates and their families in print ads. It has an entire TV campaign built around senior citizen greeters and families who shop together. The message? We're all in this together.

That sentiment is connecting with Americans who have lost jobs or investments or who fear what the future holds; and that sense of community will keep bringing those folks into Wal-Mart, where we're on a budget and proud of it.

eBay: As both of my loyal readers know, I have been selling stuff I no longer need on eBay since early this year. In the spring, folks were still uneasy about the recession and my items were getting lots of bids. Then things started to look better and, when the general mood was more optimistic, bidding slowed down. Now, with the threat of a double-dip recession looming, my items are trading briskly again.

I think when people feel like money isn't a problem, they just run out and buy new stuff. When uncertainty looms, they tighten the purse strings and cruise eBay for the same item, used.

So those are my amateur economic indicators and all of them say double-dip. I hope the holiday season is a huge success for all of us, but from the way things look now, I'd make sure I had a Plan B.


18 Aug, 2002

THE MORNING BUZZ: Is Online Delivery the Key to A Bigger Entertainment Pie?

Yet another report came out Monday that indicates consumers who get entertainment online buy a lot of CDs and that record labels may be wrong in attacking online delivery of music for hurting business.

Weekly “streamies” – people who have watched or listened to streaming media online in a week – bought more than one and a half times the number of CDs in the past year than the average American, according to a new study by Arbitron Inc. and Edison Media Research. The study found weekly streamies bought 21 discs while the average American bought 13.

Last week, a report from Forrester Research found that piracy is not responsible for the 15 percent drop in music sales in the past two years. “There is no denying that times are tough for the music business, but not because of downloading. Based on surveys of 1,000 online consumers, we see no evidence of decreased CD buying among frequent digital music consumers," said Josh Bernoff, principal analyst at Forrester.

“The results were compelling and conclusive: Nearly every variety of online music activity was likely to correspond with increased purchasing by consumers, while the absence of such activities correlated with decreased purchasing,” wrote the lead analyst on the Jupiter study, Aram Sinnreich.

And that report echoed a similar study Jupiter Media Metrix released in May.

Our audio brethren, who are leading the way into online delivery (whether they like it or not), are quarreling with their best customers when they rage against online music. Research indicates online music may actually be stimulating the CD-buying public.

It's the “pie gets bigger” theory that seems to be working to some extent in the video market right now. While a whole new arena of sellthrough business has opened up with DVD, it hasn't yet resulted in a sharp dropoff in the rental business. The pie got bigger. We've seen it before with pay-per-view, which settled into its niche without destroying the packaged media business. And, if these recent reports are any indication, online delivery of movies will find its niche in a bigger pie as well.

As movie downloading makes its way onto the scene, the packaged movie industry needn't rail that it is consuming its business – there will likely be enough for everyone.


15 Aug, 2002

THE MORNING BUZZ: The Uncertain Future of DVD-Audio

Nobody's come out and said it, but let's face the facts: While DVD-Video has been a spectacular success, DVD-Audio has been a most unspectacular failure.

Sales projections for 2001 were as high as 40 million units, according to some starry-eyed record companies. Actual sales clocked in at a measly 300,000 units and many of those were returned.

I'm not surprised. The DVD-Audio universe is still plagued by format wars between DVD-Audio proper and the so-called Super CD; then, within the ranks, there's a split between Dolby and DTS.

And then there's the fact that DVD-Audio discs won't play to their full capability in DVD-Video players; record companies, realizing the stupidity of this, have taken to including regular two-channel CD versions on their DVD-Audio releases, which makes even more sense – pay $30, $10 more than regular CDs, and basically get the same thing.

To be sure, DVD-Audio discs have visuals, but these usually consist of lyrics or still photos that don't even fit the screen. That essentially makes them a lot like music DVDs with crappy video – and at a price tag that's close to twice the street price of DVDs, why anyone would bother is beyond me.

Audio purists might argue that with the right system, DVD-Audio does sound better and more natural than CDs, but again, I beg to differ. I still remember one DVD-Audio demonstration in which the background vocals came out of the left rear speaker. The photo of the performance clearly showed the backup singers on stage, with the rest of the musicians; I asked the demonstrator why the singing came from the back and he said “the producer remembers the choir being in the back of his church while he was growing up, so that's where he put the vocals.”

More natural? Give me a break. While 5.1 Surround Sound certainly is more natural for a movie, because it gives you the feeling you are in the middle of the action, like a room in which people are talking from all corners, for music it just doesn't work. Every concert I've been to has the musicians up on stage, in front of me – and regular stereo sound works just fine.

As my friend John Thrasher of Tower Records and Video recently told me, “We only have two ears.”

This reminds me of the big fad of the late 1960 and 70s: Quadrophonic sound. Instead of two speakers, there were four, each with different tracks. Quad was a dismal failure, because no one wanted to invest the big bucks to buy an additional set of speakers – not to mention a receiver that could properly decode the four distinct channels.

Correct me if I'm wrong, but is it possibly that DVD-Audio is headed for the same scrap heap of failed technologies?


13 Aug, 2002

THE MORNING BUZZ: Disney's Borrowed Magic

It's no secret that HBO is rapidly becoming the top of the series TV heap. The cable channel keeps racking up nominations and awards for its original series like "The Sopranos," "Sex and the City," "Oz" and Emmy's prom date for the year, "Six Feet Under." I like all of those shows – all distributed by Warner Home Video, by the way, and I think destined to turn in good home video numbers based on word of mouth from subscribers.

I'm hooked on another HBO show right now. It's called "The Wire" and it's about the cops and drug dealers in a Baltimore housing project. It's interesting because, unlike detective shows that unravel crime scenes or clues after the incident, it's a cat-and-mouse game that lets viewers see bits of strategy on both sides. It has that grim soap opera quality its HBO predecessors have, the character involvement that makes you tune in each week to see what happens next. Already I can't wait for the first season DVD set.

HBO's latest move to the mass market is a deal with sister company Warner Books, to publish a cookbook called The Sopranos Family Cookbook: As Compiled By Artie Bucco. The collection of southern Italian style recipes peppered with advice from series characters promises to spread the brand where it has never been before. HBO is reportedly planning a gourmet food line under a deal with Halifax Group as well, to include marinara sauce, pasta, salad dressing and frozen pizza. Sort of Tony Soprano meets Emeril LeGasse.

While Warner/HBO is kickin' it up a notch, it's pretty interesting to me that sagging Disney (Geez, their stock dipped below $14 yesterday, even after an unexpectedly strong two weeks of box office on Signs) -- heretofore the master of Branding and Brand Management -- is striking a deal for television programming from the HBO studios. Disney cousin ABC's prime time ratings are in the dumper and, to hoist them up, the Mouse House is knocking at HBO's door.

No doubt the Disney execs are riveted to the same shows as the rest of us. They know where the weekly winners are coming from. It's smart to go there looking for booty they can bring home to their own TV empire.

I think much of Warner's and HBO's growing success (which lately is the tentpole in parent company AOL Time Warner's descending stock valuation) is their eagerness to embrace digital media. Warner (not entirely for altruistic reasons) led the parade to DVD. Hot title DVDs from Warner-distributed New Line Home Entertainment hit the shelves complete with InterActual's media player software. Disney, by contrast, has dragged its feet and in some cases even works to obstruct the progress of digital technology – although the Buena Vista Home Entertainment arm now rightfully has embraced DVD with such elaborate and well-made releases as the “Toy Box” collection of Toy Story movies.

Maybe the lion's share of the Mouse's anti-copying offensive is a smokescreen – a scapegoat for a loss of vision and behind-the-consumer-curve adoption of media technology. Maybe it's easier to point fingers at shadows (nobody at Disney has yet explained how its products get into the online stream before they make it into theaters) than to rethink a strategy that doesn't work so well any more.
Disney's formula has relied, for many decades successfully, on branding the same characters across theme parks, movies, merchandise and grocery items. Disney succeeds where it can control the environment, so Disney fights to control as much of the environment as possible. It is a company utterly unprepared for the wild and wooly frontier of the Internet.

Back in the 50s and 60s, Walt Disney took his company to the top on his vision. He embraced technology and looked for ways to be the first to harness it for entertainment and profit. I think the company's recent performance illustrates the leadership vision now.

Too bad for Disney – and good for Warner/HBO.


12 Aug, 2002

THE MORNING BUZZ: Are the Scrappy Indies Making a Comeback?

Sunsplash, the Myrtle Beach, S.C., bash that yearly taps into the pulse of independent video retailers, may be a bellwether of a brighter future for the segment.

Organizers said preliminarily that attendance was up at the Video Software Dealers Association chapter event, and indications are indies are on the rise as well. "The number of independent stores has grown in the last year or two," said Bill Crystal, VP of sales for the East Region at Ingram Entertainment, during his presentation at Sunsplash.

With the favorable sellthrough pricing of DVD somewhat leveling the playing field between the independents and the big guys, it seems logical the segment would be growing again, or at least cease hemorrhaging stores as it has in recent years. Flat pricing on VHS by some studios also has offered a more equitable environment on cassette rentals.

Sunsplash attendee and industry veteran Ray Jewell, after a brief retirement, has reentered the business with Mister Video in Athens, Tenn. That seems to presage something. Either he's a glutton for punishment, or he sees a future for the independent.

The quick extinction of the segment seemed a foregone conclusion not so long ago. The National Association of Video Distributors periodic release of statistics on the hundreds of stores going out of business seemed to strike a death knell for the independent operator. All the news was bad.

I may be wrong in seeing a glimmer of hope. But I'd be curious to hear from indies who've recently gotten into the business and hitched their fortunes to this mercurial business. The scrappy indies may yet rise again.


11 Aug, 2002

THE MORNING BUZZ: Poll Shows Avoidance of New <I>Smoochy</I> Plan

“What's old is new again” might be one way to look at the various swoops and turns some studios are taking as they look for financial models that make sense in this topsy turvy, VHS-to-DVD, rental-to-sellthrough world that is home video.

They can and will try all manner of approaches to what they perceive as a problem – not getting what they feel is the appropriate return from the market – but if the plan doesn't make sense to retailers, its chances of working are slim.

Warner is trying something “new” by returning to the old goal system for VHS titles, testing the concept on Death to Smoochy and Monday Night Mayhem. The new goal program, admittedly a test for Warner (the Oct. 15 release of Warner's Insomnia has VHS priced at sellthrough), is designed primarily to help the studio reach what it deems acceptable revenue numbers from its rental store customers, since it was not getting enough volume action under the flat-rate price program. The goal program, the studio said, helps it realize the numbers it apparently needs on the title for those that buy small amounts and allows those who buy more to realize the lower price if they hit goal.

Well, it doesn't seem to be making much sense from the retailer's viewpoint, if one considers an informal online poll taken by Video Store Magazine this past week on Hive4media.com. Asked, “What do you plan to do about Warner's ‘Death to Smoochy' under the new pricing plan?” the consensus was pretty clear from more than 80 percent of the more than 100 votes cast: avoid the Warner plan or avoid the title altogether.

The poll showed that 49.45 percent of the voters said they'd “buy the title sideways or at a mass merchant; 32.97 percent said they'd “boycott the title” altogether; 14.29 percent said they'd “buy more through my usual channels,” while 3.3 percent said they'd “buy less through my usual channels.”

Okay, this is not meant to be anywhere near a statistically valid piece of data. However, the significant majority holding out against the plan is at least an indication Warner may have some challenges ahead if it intends to roll this program out with other titles.

Then came the news last week that Columbia TriStar Home Entertainment is embracing a return to revenue now including DVD and VHS for specialty retailers. (CTHE is also returning, albeit temporarily, to its old relationship status with distributors, but that's another story…also on this week's print edition cover.

At first blush the new rev-share deal appears to have balanced opportunities for retailers and the studio; the program is designed to give retailers a chance to more affordably serve their VHS customers, while limiting DVD buy to no more than 45 percent under the program, another nod to trying to keep VHS from being prematurely excised from the market due to DVD pricing. But the program also seems to help protect the studio's sellthrough DVD business in that under the program, rentailers must wait 45 days before they can sell their DVDs as previously viewed, which is much longer than rentailers have been waiting to turn at least some of their DVD rental inventory into sellthrough.

The home video business continues to transform as DVD marches onward in its conquest of the home entertainment market. Studios and retailers will be trying all sorts of new things to find the best financial model for them. But in this fluid environment any concept had best adhere to the “win-win” philosophy to have any chance of succeeding.