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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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29 Apr, 2003

Adventures In Retail

Over the last weekend I had a couple of retail experiences that I found a bit harrowing, even though I benefited from them.

Because I am refinishing some chairs, I had to go to a fabric and craft store to get some upholstery supplies. This was not a neighborhood store, but part of a national chain.

I can remember when you had to know at least a little bit about sewing to get a job at a yardage store. I guess home sewing is a dying art, despite what the Home and Garden channel wants us to believe.

I thought it was just lax service when the woman at the home d?cor cutting table sent me to the general cutting table to have my goods measured so she could continue sorting safety pins or whatever trinkets she was pushing into little piles on the table. But when I got to the general cutting table, the young lady there didn't know which direction to measure the fabric. For those who don't know about yardage, it comes in a handful of standard widths between one and two yards. Since I was buying a 7-yard cut, I could have taken advantage and got the whole piece for the price of the yard-and-a-half width. But I set the salesperson straight and we measured the whole seven yards.

The POS system didn't register the advertised discount on one item so she told me to request it at the register.

Once there, I stood in line for what seemed like ages as two clerks closed their registers and the remaining line stacked up behind a customer with two full carts of Independence Day decorations. When it was my turn I asked for my discount.

First the clerk told me the discount didn't apply. When I pointed out three signs on the yardage table specifying that my goods did, indeed, qualify, she said she would give the discount “this time” – then proceeded to calculate it incorrectly, which gave me more of a discount than I was entitled to receive. I tried to call that to her attention but she was too frustrated and the line was getting too long, so she just sent me on my way.

On the way home I stopped for a burger. In the drive through I announced my combo coupon into the speaker. The food technician got the amount wrong and when I tried to correct her (up $1) she said “fine” and charged the lower amount, then didn't even ask for my coupon.

About now you're wondering what all this has to do with video.

It's not so much about video as the general state of retailing. It happens all over, especially at chains like Wal-mart, Kmart and Circuit City, where corporate management decides the best way to save money is to eliminate minimum skills at the lowest rungs and hire anyone who can fill out the application, often to sell quite specialized items or handle complex transactions.

Most of the time it seems like chains have all the marketplace advantages. But this street-level view proved to me that independents can do a better job of some things, like hiring and training people with at least marginal knowledge of the store's products and policies.

Independent retailers may struggle to pay decent wages, but at least they are involved enough to see what's going on at the customer interaction level. As chains divert ever greater portions of their revenue to senior executives and shareholders, they forget the costs of leaving their businesses in the hands of ill-trained, apathetic minimum wage slaves.

You can bet I won't be buying stock in either of the businesses mentioned here. If they run all their outlets like this, they'll go broke soon.


28 Apr, 2003

Rev-Share Deals Probably Don't Mean A Return to Bad Old Days

A recent post on the Video Software Dealers Association discussion board noted the new DVD revenue-sharing deals with the big chains and asked, “Are we about to be screwed again?”

The post referred to the controversial revenue-sharing deals of the late 1990s between the big rental chains and the studios, which forced many independent retailers to shutter, spawned a bitter antitrust legal dispute and changed the whole character of the business.

Despite the bad blood of recent memory, the simple answer to the question of whether indies will return to the bad old days is probably no.

The studios don't appear to be abandoning the sellthrough strategy on hit DVDs (Why would they want to upset Wal-Mart?), which levels the playing field on the most desirable titles between the big rental chains and the indies, thanks in part to the First Sale Doctrine.

The new revenue-sharing deals seem to be aimed at getting retailers to bring in the secondary titles, not more of the hits. They essentially allow retailers to share the risk of buying the lesser-known titles with the studios and maintain a nice selection in the process. That's a far cry from offering must-have titles to the big rental chains at what indie retailers complained was a highly preferential price with which they could not compete.

Retailer Tom Hannah doesn't seem too worried. In answer to the post, he wrote, “As for getting screwed by revenue-sharing, I think that will only happen to IVRs [independent video retailers] that enter into bad deals.”

He noted the big retailers may be using revenue-sharing as risk abatement in a mercurial business and that it's harder for the big chains to judge the number of copies needed for each individual store.

That's something independent retailers who are savvy enough to have weathered recent years probably won't have to worry about. If they've survived, they most likely have the expertise necessary to gauge their customers' demands. And, as Hannah notes in our article, the secondary titles are not must-have commodities. He's survived in the past by buying them later at a reduced price.

Still, suspicions in this business run high -- especially since the recent bad old days of indies exiting the business in large numbers looms large. I wouldn't discount the studios' interest in earning top dollar for product, but I don't think the market forces today dictate indies' demise.

Sellthrough DVD has been an unintentional peacemaker in the rental business. If the big chains think revenue-sharing on DVD fits into the company's business plan, it doesn't necessarily mean the indies need to follow suit.


27 Apr, 2003

Is It Time to Give Video Vending a Look?

Is it time to add video vending machines to the list of options retailers have to growing their business? Well, perhaps it's too early to tell, but there has been a recent flurry of activity in the space, as chronicled in this week's issue of Video Store Magazine. DVD has spurred interest in video vending by specialty and non-specialty retailers alike.

“It's a continuation of the channel blur,” Jeff Lenard, spokesman for the National Association of Convenience Stores told senior editor Holly Wagner.

The variety of systems and services being developed for sale, lease and franchise in the video vending category and the number of locations where something like this might work could be both an interesting opportunity for established rentailers as well as a competitive threat from other retail sectors.

There is no analysis yet available as to whether or not the video vending model is generally successful, but Blockbuster, as one example, has been active with video vending in Europe for a number of years in locations such as gas stations and grocery markets, and in Israel with machines placed outside some of their stores to extend their hours of business.

Indeed, the idea of using vending machines to extend one's business is an attractive possible alternative to, say, opening another store to reach into another market. By seeking out locations that combine foot traffic and the convenience factor, specialty retailers can also compete with their retail brethren in supermarkets, for instance, who have those attributes built into their business who are in the rental business now.

I also like the idea of the machine extending one's business hours, particularly in the morning. Many video stores open their doors at 10 am or later, and perhaps by having a vending machine outside their store, people on their way to work may take a moment to grab a video for that evening, instead of having to take the trouble to stop after work to rent a video when they'd rather be heading right home.

Video vending has been around for a while, but perhaps with DVD's size (and selthrough pricing) making it possible for these machines to have a larger inventory, the financial model for vending has improved. It's worth considering. We'll have to see how this concept progresses.


22 Apr, 2003

A Tradeoff Doesn't Have to Be A Bad Thing

Our Editor-in-Chief, Kurt Indvik, made some interesting points about used disc trade this week, but I think he only told half of the story.

This is another case of retail lines blurring, like Wal-mart getting into the disc rental business and supermarkets edging back into selling video. It's a retail free-for-all out there and any product as successful as DVD is going to be a prime target in a market where Wal-mart steals grocery market share from grocers and convenience store margins on gas and cigarettes are drying up, sending those chains in search of new revenue streams.

It seems to me that most video specialty dealers have been slow to catch on to the used disc trade, viewing it only as a way to sell off retired rental copies, not a thriving model of its own.

It's been the music retailers – on the ropes since music downloads burst onto the scene (coincidentally at about the same time as DVD got to market) – who have pioneered the used exchange model.

Chains like Wherehouse and Django's, which have bankruptcy in common, had no choice but to push into this model, one they perfected years ago with used CDs and defended in court when artists like Garth Brooks and Metallica made a stink about it.

Maybe the greatest lesson from music retailers is not the used trade model itself, but how long it took for them to embrace it.


21 Apr, 2003

Here&#39;s Hoping the Next Extended <I>Lord of the Rings</I> Gets Its Due

Retailers were caught a bit off guard by the two-release strategy for The Lord of the Rings: The Fellowship of the Ring. Many didn't order enough of the extended version – wrongly thinking it was merely a director's cut of the movie and wouldn't have much appeal. But the extended version actually turned out to be what I would consider the definitive cut of the film – the version that would have flown in theaters if people could keep their butts in the seats for four hours.

On DVD, a four-hour cut proves less of a problem. Viewers are more apt to watch the longer version in the living room, with the ability to pause for breaks. In fact, when I view or show others Fellowship, I always recommend the extended cut on DVD. It's a more complete vision of the story, I think.

Unfortunately, retailers were slow to warm to this new strategy. On a year-end visit to Wal-Mart, I talked to a clerk who said she had run out of the extended version and had to reorder. I wonder how many sales were lost during the interim.

Here's hoping retailers catch on to New Line's strategy this time around. If the quality of the first Lord of the Rings extended edition is any indication, we're in for a great product in November.


20 Apr, 2003

The Growing Impact of Previously Viewed Sales

The burgeoning business of selling used DVDs, VHS cassettes and video games continues to have an ever-growing impact on many parts of the industry.

It's impacting the way retailers buy and merchandise their products. For specialty rentailers, it's their way of battling for the sellthrough dollar against the mass merchants. The timing of when to bring rental product down from the rack to sell is being fine-tuned, not only to how mass merchants adjust their pricing and when, but whether or not local rentailer competitors have revenue-sharing selloff stipulations for their product and when those expire.

Previously viewed sales are impacting the way studios are structuring their DVD revenue-sharing deals and the previously viewed business is also a major factor in why units shipped into the rental marketplace have tripled over the past five years.

And, of course, previously viewed sales are having a significant effect on retailers' revenue over all. Consider that in 2002, Blockbuster scored some $365 million in previously viewed product sales in the United States, about 8 percent of its domestic gross dollar volume, according to Video Store Magazine market research estimates. Hollywood Video took in more than $100 million (7.6 percent of its gross) and Movie Gallery about $46 million (9.5 percent of its gross). A million here and a million there and we're talking real money.

For many smaller rentailers, sales from used product make up anywhere between 15 percent and 20 percent of their dollar volume and that number is growing.The fact is, as one retailer told senior editor Joan Villa, customers are learning that video specialty stores are no longer just rentailers, but retailers. Everything they see in the store is, or will be, for sale.

Not surprsingly, DVD can be seen as the cause for this fast-growing business segment. While VHS still outsells DVD at the previously viewed tables, DVD is growing by double and triple digits in unit and dollar sales at retailers around the country, while VHS continues to decline, according to a variety of market research.

DVD has transformed so many aspects of the home video industry. This is the latest evidence of the format's elevated perceived value in the mind of the consumer. Certainly its value as a “used” product is much higher than the lowly cassette and the reason that retailers are seeing exponential growth in sales.


17 Apr, 2003

Bringing Down the DVD House

I was cleaning out my office the other day when I came across an ad-filled supplement to Billboard magazine from the middle 1970s, honoring the many advances and surefire success of 8-track tape.

It's one of many notable failures to dot our checkered technological past, along with Quad sound, the Dynaflex LP, the Beta videocassette and, most recently, Divx.

If the next-generation DVD camps don't get their you-know-what together and either work out a compromise or agree to back one of the three competing formats, membership in this elite club — already preparing a seat for Super CD or DVD-Audio or perhaps both — could swell even more.

Here we are, several years after the concept of a next-generation, high-definition-ready DVD was first floated, and we've still got three banner-wavers vying to be the standard.

Two of them use a blue laser, while a third uses the tried-and-proven red laser, just like the current generation of DVD players.

Mucking things up is that unlike in the days leading up to the launch of first-generation DVD, there is no outspoken leader who can hammer away at all sides until someone caves and we have one format that all clearly champion.

To paraphrase the old Chicago song, “Harry Truman”: America needs you, Warren Lieberfarb — or at least a man like you with vision and a big, powerful clenched fist to drive that vision home to those who can't, or won't, see.

Hopefully that vacuum of leadership will soon be filled. Word has it that Ben Feingold, who was a half-step behind Lieberfarb in advocacy of DVD, is getting ready to step out as the poster boy for the Blu-ray camp, backed by mighty Sony, parent company of his studio, Columbia TriStar.

If he does, the Blu-ray folks will have a decided advantage in the hype arena, where format battles are typically fought. Feingold is intelligent, articulate and savvy, and if he does assume the role of Blu-ray champion the smart money would likely follow him.

Just picture it: Warren Lieberfarb as the architect of DVD, and Ben Feingold as the guy behind its remodel.

I like it already.


15 Apr, 2003

Promise her anything...

If there is anything besides equipment cost standing between me and a full-on home theater system, it is the device created to make our entertainment more convenient: the remote control.

Last week the Wall Street Journal's technology columnist, Walter Mossberg, had a column comparing two high-end multi-device remotes. These little controllers can operate a host of devices. They do pretty much everything but tuck you in and kiss you goodnight.

Of course, either one also costs more than both of my DVD players put together. And, no joke, Mossberg also recommended paying a professional to come to the home and program the remote. Apparently journalists in Manhattan make a lot more than they do in Santa Ana.

Now, video rentailers have had a longstanding joke about the Joe Sixpacks of the world, who could never figure out how to program the VCR. (Kinda funny, in a perverse way, that some people will figure that out just as tape gasps its last.) But that was different. Those machines did what they were supposed to, once you figured it out.

This is just another in a long line of technological red herrings, the kind of oversophistication that makes terms like “cable ready” and “universal remote” oxymorons.

I remember the hope of a better world to come. I have a TV that I bought cable ready, for 108 channels. Eighteen years ago.

Cable ready? File that one along with “the check is in the mail.” The equipment manufacturers and programming vendors could never get together on that. The manufacturers and cable companies make too much money selling and renting set-top receivers and now personal video recorders to ever let “cable ready” happen.

The new big lie in home entertainment is the Universal Remote. I have three of them and they are anything but universal. The only one that can operate my satellite system is the one that came with it. The convenient program guide sensor in the TV only works for broadcast and cable systems, so I had to disable it. (Note to R&D at RCA: You would think a company that makes satellite receivers would also make their TV programming guides compatible with them.) The remote that came with my Samsung DVD player has more switches and buttons than a 747 cockpit – just forget about operating any of those features with anything that purports to be universal.

Don't get me wrong, I love my DVDs. I just wish it was easier to operate the little daisy chain of devices involved in watching them. Some days, it's enough to make you (shudder) get up and change channels manually. Or even read a book.


14 Apr, 2003

&lsquo;Chamber of Secrets&#39; a True World Premiere

Warner Home Video's DVD premiere gala for Harry Potter and the Chamber of Secrets kicked off not in Hollywood, but in London last week and the event, attended by journalists from around the world, is indicative of the growing importance of the international market to the studio and of a coordinated worldwide launch.

I met journalists reporting in Brazil and Japan, among other countries. During an interesting conversation between journalists and Warner EVP of worldwide marketing Mark Horak, it became clear that Warner hopes to spread the studio's sellthrough DVD philosophy around the world. Japan is a most difficult nut to crack, he said, as the Japanese are trained to rent because the country's hardware and software prices are high. Chamber is priced about half as much as other major studio releases in that country, Horak noted.

Coordinated international launches are of interest to Warner because the practice cuts down on piracy, but also because the international business has “enormous” growth potential, Horak said.

DVD penetration in the United States is heading to the halfway mark and it won't be too long before the sellthrough market for DVD reaches maturity domestically. But penetration across the globe offers a new area of growth for studios interested in turning movie fans into DVD collectors. As the Chamber premiere attests, Warner in particular is eyeing business beyond our borders, and journalists from around the world are hungry for entertainment news from the home video realm.


13 Apr, 2003

The VOD Puzzle and Retailers Piece

The announcement last week at NAB of Disney CEO Michael Eisner's new video-on-demand venture, Videobeam (see cover story), comes close to finishing, at least for now, the VOD puzzle.

Besides Disney, other studio pieces of that puzzle include Sony/Columbia TriStar, Warner Bros., Paramount, Universal and MGM, which have joined to launch Movielink, and Fox, which is looking to CinemaNow to distribute its movies. Mini-major Lions Gate has a financial stake in CinemaNow.

No one is yet setting the world on fire with VOD, and most studio execs and analysts agree that VOD is years away from any potential of mirroring the rental market. But certainly, as public companies, the studios have to be seen as taking steps forward to the future of the business, even if it's arguable just how big a role VOD will play in the future.

So while studios search for other more short-term solutions to improving their return on the rental business, nevertheless the digital download option must be pursued.

There is another piece of the puzzle yet to be placed, however, and that's the retail element. One option that strikes me as intriguing would be to, er, echo the Echo consortium of major music retailers who have banded together to offer digital music downloads. There was a lot of excitement generated going into this year's NARM that the major music chains were going to join the digital download business and give the music publishers and their online ventures a run for their money. The thinking here is that who knows the customer better than retailers? Who has a better brand to develop an online retailing business?

The same could be argued for the video retailers. That Netflix attracted the competitive attention of Wal-Mart and Blockbuster, no less, in pursuing the online rental business, seems to me the same sort of statement. There are all sorts of competitive, legal, financial and technical issues that make a comparable VOD service run by home video retail chains a challenge, I am sure.

But, why not? I'd be interested in your thoughts.