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.
Yet another VOD provider took a potshot at the rentailer yesterday. This time it was Starz Encore chairman and CEO John J. Sie, who called VOD the “killer app to repatriate the $8-plus-billion-per-year that consumers still spend renting videos and DVDs.”
“SVOD will break through the clutter, reach consumers, and give them the power to select movies and other programming on demand with DVD-like control with no per-transaction fees and no trips to the video store,” he said.
The VOD proponents' new scheme is the subscription model, rather than pay-per-view. “People will pay the cost of having broadband at their home if broadband offers rich entertainment content they control and enhances their television enjoyment,” he said.
Ah, but how much would that subscription cost? Between my cable bill (which costs a pretty penny even at the semi-basic level), the cable broadband bill for quick Internet access (on top of that cable bill), magazine and newspaper subscriptions and Web site hosting costs from Earthlink (for our family Web site), that subscription bill is getting pretty darn big. I'd much prefer a $3 to $4 cash “on demand” transaction at my video store to paying oodles for access to movies I might not even have time to watch.
On the other hand, my husband might be a good target, Unlike me, he loves new technology. He falls into that “early adopter” group we often talk about in relation to DVD. But even for him, the devil is in the details. If that VOD service had great movies and TiVo-like functionality at a decent price — say at most $50 a month — he might be interested. But $50 is about as much as even he's willing to pay.
Are the studios willing to give away their first-run films at that subscription price?
An ace in the hole rentailers have is the roughly $10 billion (by Video Store Magazine estimates) consumers spend on renting videos every year. It's a powerful market, although not all of that money goes back to the studios; it's split with retailers. Sie makes it clear he would like to take those billions away.
If the rental market weakens, as recent numbers indicate it might, it will be a much easier target. Studios might choose to gamble on VOD once again. But now, it's probably still a case of crying wolf. My first week at the magazine in 1993, Bell Atlantic chairman and CEO and VOD proponent Raymond Smith said in our pages that the video store model was “no longer viable.” In 2002, his multibillion-dollar merger with TCI is dead, and the video rental market is still here.
By: Stephanie Prange
In our current online poll (off to the right of this very column), it seems that a fair number of retailers are definitely grabbing hold of the brass ring (or maybe it's a life raft for some) of selling off their used DVDs.
The poll may have changed since I posted this column, but as of last Friday the results showed almost 90 percent of the respondents are generating revenue from the sale of previously viewed DVDs. While the majority of retailers say that they generate between 1 and 10 percent of their revenues in this category, I was also heartened to see about 20 percent of the respondents reporting between 11 and 25 percent of their revenues are coming from used DVD sales.
If any of you have been reading these columns and the columns in Video Store Magazine, you are no doubt aware that rental revenues have been dropping by double digits in the past several months, even as DVD rentals grow by triple digits, and our market research group predicts a drop of some 7 percent in rental revenues this year from last when it's all said and done.
Certainly one way to regain some of those lost revenues, if you happen to be experiencing this very same trend, is to find a way to join the sellthrough business that is transforming home video as a result of DVD. Our 2001 Top 100 research showed that retailers were selling off nearly one quarter of their new release inventory (both DVD and VHS) after two months, and I'll bet that when the next Top 100 rolls around that time span will have shortened.
Anecdotally we hear that some retailers are aggressively buying deeper in certain hit titles, getting several turns out of each DVD copy and then selling off significant portions of those titles after several weeks, not months. The fact is, the shelf life of home video may well be squeezed with an ever-larger wave of releases hitting the streets and you have to be there with the product (and even earlier with the message of its availability) when your customer is thinking about buying it.
It's all about "training" your customers to think about you when they think about buying home video. The major specialty chains are taking sellthrough seriously. The smaller operators must find their niche in this evolving marketplace by looking for models that allow them to capture their share of the sellthrough dollar.
Despite studio protests that it's still a “viable format,” and despite IRMA's pathetic attempts to revive the VHS market through an awareness campaign and grandiose statements about how great tape is, the videocassette is dying -- fast.
Let's just compare sales for two “monster” hits, less than a year ago. Last November, DreamWorks reported sales of 7 million units of Shrek in the title's first three days of release. Of that total, the majority (4.5 million) was VHS.
Last week, Disney reported first-week sales of 11 million units of Monsters, Inc. The breakdown: 7 million DVDs, only 4 million cassettes.
The balance of power has shifted dramatically this year, and it's going to continue until VHS sales are polarized far in the minority. The studios are more than happy to accommodate this transition, with Disney offering consumers $5 rebates if they buy a film on DVD that they already own on cassette.
DVDs are cheaper for the studios to produce, and cooler for the consumer to own, thanks to a variety of factors -- not the least of which are all the special features and kid-oriented games and other “interactive play” elements suppliers are incorporating on discs to get people hooked on the DVD experience at a very early age.
Already, as Video Store Magazine has reported, several anime suppliers have given up completely on VHS. And while studio executives still go out of their way to stress the continued importance of VHS, wait until the DVD penetration rate passes 50 percent (it's now around 30 percent) and I bet you're going to see an abrupt change in their rhetoric.
The fact is, the VHS cassette is antiquated, a flawed technology that has no place in today's digital world. I understand Hollywood's reluctance to drive in the stake, just yet -- but it has less to do with genuine belief in VHS' durability than it has to do with avoiding the fate that befell the humble 8-track what now appears to be ages ago.
The market for 8-tracks fell so swiftly that K-Tel, one of the largest suppliers, unceremoniously dumped millions of new cartridges in landfill.
Video suppliers clearly realize VHS' days are numbered, but they don't want to be stuck holding the proverbial bag. Even though cassette sales are spiraling downward, they haven't bottomed out just yet.
It'll be a few more months, but quite honestly, I don't see VHS lasting more than a year.
Then again, Sony only now pulled the plug on Beta.
By: Thomas K. Arnold
Most of the big media mergers haven't lived up to the sales pitch, which was "synergy across the enterprise." That was supposed to deliver multidimensional exposure to advertisers, who could one-stop shop for all their media buys.
I instinctively distrust catch-all babble like "synergy". It's one of those words that means anything the salesperson wants it to mean. Which, I think, is why the mergers have been dismal failures. Disney and AOL Time Warner stocks are down and Vivendi Universal is going supernova, not just because of 9/11 or the tech crash or the advertising slump. The companies just haven't been able to synergize. The way the Wall Street Journal tells it, that means the various units can't play nice together, especially in a tight advertising market. It's arguable that the plans were too ambitious to start with.
The decline led AOL Time Warner to clean house in recent months, unseating the AOL Internet oligarchy and replacing the bigwigs with executives from the media side. I don't really know how that's working out for the advertising side, but I find the effect on the news publishing organizations quite disturbing.
Of course, there are no better marketers than those at media companies. Their living is getting people to suspend their disbelief in entertainment content, so it's not much of a stretch to get them to do it with the truth as well. The New & Improved AOL Time Warner is an example. While there's no movement in the market, the entertainment tentacles have started to poke through the news delivery like never before. I think it could lead the news arms to a crisis of trust.
A couple of weeks ago the conglomerate's Sports Illustrated published a story on how women's tennis is as much a fashion show as a sport. The article focused on a blonde player named Simona who seeemed more fluff than player. Readers had to get to the very last sentence of the article to learn that "Simona" wasn't real; the photos were computer generated.
And they looked suspiciously like Simone, the virtual media darling in New Line Cinema's eponymous film about a guy (Al Pacino) who computer generates a woman and makes her a media star without her ever doing the impossible personal appearance.
Now, it's one thing to use one of your properties to advertise and market another. Even product placement in shows is a sort of benign force. But I think it's quite another to start weaving those free entertainment plugs into supposedly factual news items. The only company getting any advertising synergy out of this as far as I can tell is AOL Time Warner.
But I wouldn't be ranting to you folks if this was just a one-time event. I'm starting to see it as a trend. Because just this week -- not coincidentally right after The Sopranos opened the season with mob wife Carmela fretting about estate planning with mattress money (in case capo Tony gets whacked or sent to the slammer) -- AOL Time Warner's CNN Web site and its financial news channel on satellite and cable had a "news" story using Carmela as an example. It was an advice piece about what someone in financial circumstances that are similarly unpredictable might do to maximize financial resources in this crummy market.
The channel also made big hay yesterday of a news story; apparently the HBO series is a victim of its own success. According to that story, HBO is taking legal action against primarily Italian restaurants, most of them in New York, that host Soprano nights. They pipe in the show and no doubt serve tons of pasta. HBO says that's an unfair use of its programming and they should fuhgeddaboudit.
They don't say the company's marketing executives have so generously created a line of Sopranos pasta and sauces, which they told wire services is just because they thought it would be fun for fans. They said they'll never make any money off the stuff, it's just a gimmick.
But now with this going on, I smell another trade interference angle for the lawsuit: marinara piracy. Those pesky restaurants are out there doing peer-to-peer pasta trading and now we'll never get people to buy the sauce and stay home to watch.
Never mind that the show's audience is wider than ever and a few freeloaded episodes this season probably generates major sales for HBO subscriptions and past season Sopranos boxed sets.
It's interesting to note that the early Sicilian Mafiosi became powerful by controlling the olive oil and semolina trade to the U.S. (it's true, you can look it up); while AOL became the dominant ISP by giving away free hours by the hundreds of thousands. (Betcha can get 1,000 or more free hours right now on a shareware disc at your neighborhood electronics store.) Maybe the people running HBO should review what one might call an interesting choice of business models.
I guess pasta and synergy have a couple of things in common: they're both cheesy and maybe too much of either isn't such a good thing.
By: Holly J. Wagner
Each year, the Video Industry AIDS Action Committee Visionary Honors event is an industry reunion of sorts, where we see faces new and old, even some who are no longer in the video business, but retain an interest in the cause and the industry.
The 2002 event honored New Line Home Entertainment president and COO Stephen Einhorn, a video veteran from the Vestron days who inaugurated New Line Cinema's video division 12 years ago. Einhorn picked up his award from our own Don Rosenberg, Video Store Magazine publisher, who read a gracious letter from former trade paper editor Bruce Apar. Eloquent as always, Bruce's puns drew several titters from a crowd who knew him, and his famous wit, well.
Also honored was indie retail veteran Ray Jewell, who left the business a little more than a year ago, but returned recently with Mister Video in Athens, Tenn. A passionate voice for the embattled independent retailer, Jewell lauded his fellow indies for supporting the cause. Longtime Rhino Home Video exec Arny Schorr used his time in the Visionary spotlight to mention there's still work to be done and thanked his wife Joyce for all her support..
And Maria LaMagra — aptly described as having a mouth as big as her heart — proved the point by getting choked up over the honor and the many friends who have embraced her in the industry. I spotted LaMagra chatting with former boss and honorary event chairman Louis Feola, who now heads up Universal's made-for-video effort.
Having been in the business nearly a decade myself, I've shared many moments with this crew and last week's event proved one of my fondest. Congratulations to all the winners.
By: Stephanie Prange
Video Store Magazine market research this week makes the call that combined home video rental spending for 2002 will fall short of the 2001 level, generating about $9.5 billion at the rental counter, or a drop of about 7 percent from 2001's $10.03 billion.
That's back to 2000 levels, when combined video rentals rang up $9.46 billion, according to VSM market research. Of course, the big difference now is that DVD's share of the rental pie for all of 2002 will certainly end up being somewhere between the 23 percent it started with at the end of January and the 40 percent it garnered for all August transactions. DVD's share of rental spending jumped from 6.5 percent of rental spending in 2000 to 15 percent of rental spending in 2001 and should be someplace north of that in 2002.
Even DVD's triple-digit growth in rental activity so far this year is not enough to halt the slide of VHS rental activity. As you can read in this week's report (see page 22), VHS rentals for August were down more than 40 percent from a year ago. When you consider that in 2001 VHS accounted for 85 percent of the total rental market, you understand the significant loss of dollars this drop reveals.
The year 2001 was a telling one, where the trajectory of VHS and DVD, sellthrough and rental, intersected. First, sellthrough pretty much matched rental in dollar volume for the first time in the industry's history at about $10 billion each, according to VSM market research. Second, DVD sellthrough dollars pretty much matched VHS sellthrough (or exceeded, depending on whose numbers you looked at) for the first time. Third, because while VHS rental activity managed to remain fairly constant, losing only 4 percent from 2000, to $8.83 billion, DVD rental surged more than 140 percent, to $1.5 billion, more than making up for the difference.
DVD has overtaken VHS in sellthrough; the disc garnered 64 percent of July units sold, according to VideoScan, compared to 37 percent of units in the same month in 2001. Take last week's Monsters, Inc. for example. Buena Vista sold 5 million units of the title and by the day after street was claiming record-breaking sales (including pre-sales). Monsters, Inc.'s first-day popularity is just one example of the overwhelming consumer response to the sellthrough nature of this business. The balance has shifted, and the scales now begin tipping ever more toward sellthrough and DVD -- perhaps in part at rental's expense.
Yes, there is an argument that the sellthrough (and rental) economics of DVD have caused the premature decline of VHS.
The questions I have are: A) where will the equilibrium between rental and sales end up being; and B) will the total home video pie grow as a result?
The following is an editorial letter from recently resigned VSDA board member Mick Blanken, in response to an article about the organization by Kurt Indvik.
It is with great dismay that I must respond to your editorial of September 16 -- "VSDA Won't Be Caught Between Indies & Chains". I cannot speak on behalf of any other specific retailer, independent or otherwise. However, the inference that my resignation from the VSDA Board of Directors is a result of the collective issues stated in your article is largely inaccurate. And, while I do have issues with VSDA, it is not fair to VSDA to have those issues or thoughts misstated, improperly characterized, or used simply to perpetuate a conflict between the association and its membership.
IVRs vs. Big Chains
I have never been a proponent of the idea that the VSDA should arbitrarily "...take the side of the IVR against the big chains". In fact, I have always contended, and openly stated, that VSDA should serve ALL video retailers. Furthermore, I have never stated that the major reason for the existence of VSDA should be to help the IVR compete against their major chain competition.
VSDA's Strategic Plan
You are correct that the new strategic plan calls for a great emphasis on legislative affairs and research...just as it should. Not only do I have no objection to that, but I agree with it. But, even given that great emphasis, the strategic plan still allows for programs and benefits for all retailers, including IVRs. There are legislative battles looming that might prove to be potentially more damaging to video retailers than any past challenge...including the initial battle over first sale. VSDA should continue to protect the legal rights of all retailers, and should work hard to make sure that it can continue to be in a position to do so when necessary.
VSDA'S Financial Ability To Provide Services And Benefits To IVRs
It is obvious that VSDA is in a situation that requires it to "tighten its belt". But the real issue has little to do with "what amount" VSDA spends, and more to do with how "efficiently" it spends it.
At its inception, virtually 100% of the revenues generated by VSDA could be attributed to the IVR...if for no other reason than that all video retailers of the time were, in fact, independent. As time passed (and especially over the last several years) the percentage of those revenues attributable to the chains and larger retailers has grown significantly...to the point where those revenues may now be the dominant source of income for the association. In general, I have no resentment over this.
However, as revenues from chains have grown, revenues (both directly and indirectly) realized on behalf of IVRs have declined...primarily as a result of the erosion of the IVR retail and membership base. I believe that much of that base erosion might have been unnecessary.
Your article (among others of late) reminds us that a lot of money has been spent in pursuit of providing benefits primarily of use to IVRs. That is absolutely true, and many of those benefits are very viable. But, there seems to be a lot of focus on the millions of dollars VSDA spent on a couple of large tests over the last few years. In my opinion, there is no reason that VSDA should not continue to allocate funds (based on appropriate availability) for programs and projects PROVIDED that those programs and projects are PROPERLY implemented AND properly represented to the membership. In my opinion, this has not been the case.
It is disappointing to me that VSDA continues to allow the implication that its commitment to spend this money on these initiatives to help IVRs is largely to blame for its current financial situation...that it is VSDA's specific support for its IVR members that is helping to exasperate this problem.
Unfortunately, VSDA may be in a position today where it MUST place greater emphasis on larger retailers and chains, as they have become a dominant source of the association's funding. But, in my opinion, that VSDA finds itself in that position is a result (at least in part) of how it has chosen to conduct business over the last several years.
It is equally disappointing to me that VSDA continues to convey confusion as to what, exactly, IVRs think it should do for them; that VSDA continues to deny their failures, instead of learning from them; and that VSDA's reaction to those failed projects is not to make the necessary adjustments in the future, but rather to simply refrain from undertaking them at all.
As children, our parents taught us that "practice makes perfect". But that is not true..."PROPER practice makes perfect". Practicing IMPROPER implementation only makes us perfect at doing things improperly. VSDA's expectation that IVRs should respect the association just for pursuing a benefit on their behalf is unacceptible. The day that they make an honest commitment to the PROPER pursuit of IVR benefits is the day that more IVRs will offer that respect.
In the future, I would appreciate it if you would contact me prior to making any statement that infers that I have any specific position or opinion in regards to VSDA or my resignation.
Mick Blanken Superhitz
By: Mick Blanken
Like it or not, video rental dealers — successful video rental dealers — are no longer exclusively in the video rental business.
This point was driven home to me by several things, including e-mails from independent retailers who say they're getting a bigger and bigger chunk of their revenues from the sale of previously viewed movies. Indeed, with legs as short as they are — the hot new title typically turns freezing cold within about two or three weeks of release — more and more rental dealers are taking orders for used movies before they are even released.
There are other examples of this rental-sellthrough synergy that independent dealers are not so good at, at least not yet — chiefly, integrating new sellthrough into their business model.
For a quick lesson at how it's done, let's take a look at Blockbuster. Now, I know, a lot of independents hate Big Blue and everything it stands for, but let's face it — back in the late 1980s, when Blockbuster was first being villified, smart operators kept their mouths shut and their eyes open and learned from Blockbuster. It's no secret that Blockbuster gave birth to the notion of a video rental superstore, and countless indies that not only survived, but thrived, during the 1990s owe their blueprint to Blockbuster.
It's time to resume your studies, guys. Thursday afternoon I dropped by the local Blockbuster and was greeted by a huge sign over the front door that read, “Previously viewed movies and games — BUY 2 GET 1 FREE.” A second sign, hanging in the window, read, “Free rental with purchase.” And through the store, there were little blue signs that read, “Rent it! Like it! Buy it!” and green ones that promised, “All previously viewed DVDs, $9.99.”
Blockbuster, perhaps more than any retailer I've encountered, is doing it right. Sellthrough is commanding a bigger and bigger chunk of consumer dollars, primarily because of DVD. And while I don't necessarily agree with those who put forth that rental is a dying business, I do believe we are seeing a sea change in consumer behavior — a decided bent toward collecting movies, rather than just watching them.
Blockbuster is managing its assets the way all retailers should be. For starters, there is no excuse for a rental dealer to not sell movies. The movie-watching public has made it clear they're no longer willing to settle for a one-night stand; they want to buy, they want to own, and if their friendly neighborhood video store isn't going to play along, adios.
To encourage sales, Blockbuster is offering free rentals. It's so logical, it's a wonder every retailer isn't doing it. Particularly in this era of copy-depth, when the average price of a rental title is $25 rather than $75, retailers can afford to play with rentals as a loss leader. I know of one Blockbuster that is selling copies of Monsters, Inc. for the list price, around $25, but throwing in a dozen rentals, one per month for a year. Not only is that store getting great margins on Monsters, Inc. sales, but it's also ensuring steady foot traffic for a solid year — and at what cost? A few cents each month.
Sellthrough and rental are no longer mutually exclusive. Independent retailers have figured out half the equation — there's gold in them there used movies, especially DVDs.
Hopefully they'll soon figure out part two. After all, their competition already has.
By: Thomas K. Arnold
I don't buy much stuff branded “collectible.” Even DVDs, because often the “collectible” element is packaging. I admit, I'm oodles more interested in titles that are collectible because of content than packaging. This makes me wonder what all the efforts at collectible packaging will really amount to.
I had some time off a couple of weeks ago and spent a bit of it maintaining auctions on eBay. Some of what I am selling is old dolls and, as I searched the Web for information about some of them, I found a lot of validation for an idea I've held for quite a while: There are two kinds of collectibles.
One kind is what I call the “contrived collectible.” That's anything that's collectible because the marketing department stamped it on the package. The market is flooded with them – everything from kids meal toys to sports cards to handpainted state quarters.
There is quite a market for contrived collectibles – just ask the Ty company, which makes Beanie Babies, or companies like the Franklin Mint, which seem to make any event (or even nonevent) an excuse to issue a commemorative snow globe, coin, figurine or toilet paper roller. The labeling and promotion of these special, limited edition, genuine synthetic collectibles (just check the coupon flyer in your Sunday newspaper) is enough to send me running in the opposite direction.
Then there are the real collectibles – stuff that's collectible now either because it was a goof, like a mis-struck coin, or because it was popular some time ago, because then it really was cool – so cool that most of that item was used and then lost, discarded or damaged.
Dolls are a great illustration. As I surfed for information and price comparisons, it was quite obvious the dolls I had received as gifts (most of which were immediately snatched from my preteen hands and stashed away because they were collectible and too “nice” to let a child play with) are worth no more – and in some cases less – than the original selling price. The stuff I chose for myself and played with is what rakes in the big bucks from collectors.
I think the same will ultimately be true for DVD. Some of those “collectible” packages make a nice impression as a gift, but they mess up the symmetry of your media shelf and I don't believe they increase the value of the product.
I'll be watching sales trends for collectible-packaged DVDs. Although they may do well at retail around the holidays, I'll bet that over time that fancy package is just a distraction.
But that won't hurt the bottom line, at least for a while. Because just as with other collectibles, only time will tell.
By: Holly J. Wagner
As the heightened impatience level of certain activist independent video retailers (IVRs) might attest, it's clear the Video Software Dealers Association is not (and for the most part never was) going to take the side of the IVR “against” the big chains that, as many IVRs are wont to blame, are responsible for their somewhat precarious business fortunes.
A house divided is sure to fall and, though the IVRs collectively have a majority of the estimated 25,000 or so video specialty storefronts in the U.S., still a handful of powerful and growing chains individually represent almost as many IVRs and they, too, are a significant membership factor and influence for the VSDA, along with a host of non-specialty retail sectors, studios and distributors.
While the association has attempted to offer a spectrum of services and education for IVRs, and invested several million dollars in the past several years in certain special programs (generic advertising test, copy depth study, etc.) that, according to the VSDA, were generated with the IVRs in mind, still, the association cannot and will not, as some IVR advocates would have hoped, take up as its major reason for being the cause of helping indies compete against their major competitors, the chains.
The association's new three-year strategic plan will call for more emphasis on legal and regulatory advocacy on behalf of the industry as a whole, including the First Sale battle looming on the electronic frontier (a return to its roots, when the VSDA was in the thick of the First Sale battle in the early 80s), as well as its usual First Amendment, free speech battles and legal battles in various states pertaining to adult content retailing.
Research is another area the association hopes to expand upon for the benefit of both chains and indies alike. And education services that include online, conferences and trade shows for both the industry and even consumers are being revamped and or created to be cost effective and provide a decent return for the association and its members. In fact the association has committed that it will be “net positive” in its operations by next year, by cutting costs and seeking to build new revenue streams to replace the ones that have fallen. Chapters are expected to operate similarly.
This belt tightening will mean significant projects that focused on improving IVR competitiveness in the marketplace will either have to be self-funding in some manner or they cannot be pursued. That, amongst other issues of long-standing irritation to IVRs, has caused some of the VSDA's more outspoken IVR board members such as Mick Blanken, to resign or not pursue additional terms in office, feeling that the VSDA is no longer attempting to fulfill a role they had hoped it would or could aspire to fulfill.
Certainly in its early to middle years the VSDA may have been accurately perceived to be the association for the independent video retailer. And while that is still a membership base the association clearly wants to continue representing and serving, it's also clear it intends to ensure it keeps its focus broad enough to be able to embrace a wide variety of interests in the home entertainment industry.
Video Store Magazine and Hive4media.com in the next several weeks will examine the current and future status of the VSDA as it seeks to re-focus on what it believes are its core capabilities, and grow not only its current membership constituencies but reach out to others (such as online providers) who also can benefit from its services.