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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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5 Oct, 2003

Is It Time for a Rate Hike?

A number of areas of opportunity for business and profit growth for rentailers were discussed during last week's East Coast Video Show, including ways that smaller retailers can expand their Web sites into more transactional vehicles. The simplest and most obvious was raising rental rates.

The just-released benchmarking study by the Video Software Dealers Association shows that average rental rates in 2002 rose to $3.29, up from $3.05 in 2001. Combine that with the lower cost of goods in the DVD era, and effective operational cost controls in employee salaries and rent, and it helps to explain why, according to the study, the average “contributing margin” (gross margin minus operating expenses) of those retailers surveyed rose 44 percent in 2002 over 2001.

It seems like a simple concept, yet many retailers at the show said they have been hesitant to raise rates because of the competitive nature of the business. However, it's the nature of things in retail that prices always tend to grow at least some every year due to the inexorable rising cost of doing business. Add to this the fairly stable higher perceived value of DVD over VHS, and it's plain that, for many retailers, there is room to grow their bottom line through judicious rate hikes.

“I have never had anyone complain about rate changes,” said Halsey Blake Scott of C'Ville Video, during one session.

“Don't sweat it, just do it,” added Ken McLeer of Video Headquarters.

Some retailers in other panels also talked of how they have kept their catalog rate pricing the same as that of new releases. The thinking there is that when someone comes into the store looking for a specific title, they are not going to quibble over the fact that it's priced the same as a new release, although typically, catalog pricing is almost universally priced lower. The benchmarking study also reported that between 2001 and 2002, average adult rental rates rose from $3.50 to $3.98.

To be sure, not every retailer in every market has room to raise rates, and most everyone at ECVS agreed independent retailers have to be competitive with the big chains when it comes to rates. But the message was clear: If you haven't increased your rates in some time, you're probably leaving some money on the table. If that's the case, and you're looking to improve your bottom line (as you should always be), then, in the words of Mr. McLeer …

“Don't sweat it, just do it.”

3 Oct, 2003

Everyone Wants A Piece of DVD

Two unconnected events happened this week that got my mind a-thinkin'.

Earlier this week, the Motion Picture Association of America, the mouth of the Seven Major Studios, announced it would no longer be sending out screeners of films to awards voters because of concerns over piracy. In recent years, these so-called “Oscar screeners” — which contain only the movie, no extras, but typically come out long before most films make it to consumer DVD — have popped up with surprisingly regularity on eBay, the online auction house.

This morning, I checked my e-mail and found a promotional message from eBay, saying some of its most popular categories may now be instantly accessed via keywords. At the top of the list: DVD.

Now, I'm not saying that eBay condones piracy — they've actually been quite good in shutting down suspicious auctions once they're alerted by the studios.

But DVD has become so ingrained in popular culture that everyone wants a piece of it, and the bigger it gets the more vulnerable it is to mischief. Growing the number of DVD households is a good thing, but it also widens the audience for DVD bootlegs. And the nature of the digital technology is such that pirates can make beautiful copies virtually indistinguishable by the real thing. If there's a lag, it's in packaging, but even there we've made tremendous progress in recent years.

I was talking to a source the other day who told me a key catalyst in the studios' decision to stop sending Oscar screeners was an earlier event in China. No sooner had Harry Potter and the Chamber of Secrets hit the big screen than bootleg DVDs appeared throughout Asia, mostly grainy and wavy — the result of handheld camcorders smuggled into movie theaters, for years the preferred modus operandi of pirates.

But some DVD bootlegs were remarkably clear. Watching them, studio executives who had been given the contraband scratched their heads — until they saw the telltale disclaimer float across the screen.

It's great that eBay is embracing DVD. It's only natural, too, given their appearance at home video trade events to proselytize selling previously viewed DVDs on their site.

But the question remains, how many of these previously viewed DVDs really are previously viewed?

And, more importantly, who did the viewing?

The auctions eBay has shuttered are all for movies not yet issued on DVD. I wonder how many other bootlegs are being sold, without anyone knowing?

30 Sep, 2003

Hollywood Spin Doctors Hard at Work

All of life is a series of transitions and tradeoffs.As real estate has propped up the sagging economy over the past couple of years, we have all heard ad nauseum about those transitions – growing families moving into bigger homes and empty-nesters moving into city lofts.

The same is true in an industry's life cycle. A couple of transitions that made headlines last week were the battle over the federal “do-not-call” registry and the deathwatch for the Hollywood stunt industry.

A couple of commentators on CNN last week brought up the 2 million call center jobs that would be lost if the do-not-call law survives. Anyone who's ever had that forkful of fettuccine stopped halfway between plate and mouth because of a telemarketing call pretty much hates telemarketers, so the CNN commentators were reminding the audience that a lot of single mothers and other people in difficult circumstances hold those call center jobs. Real people just like us would get hurt.

Same with stuntwork and screen extras. As computer animation improves, Hollywood is able to animate stunts and crowds instead of hiring them. But in the bigger picture, these are transitions. Just as moving to digital technology, with all its perils, is a transition.

What I didn't hear reported is how, a couple of years ago, Verizon shut down a number of its call centers in the northeast to move to greener (cheaper) pastures. Or how Amazon.com got into PR hot water for shutting down a 400-seat unionized call center in the Seattle area to send those jobs to India. I also didn't hear how many stunt jobs are getting replaced with CGI animation jobs.

So I get pretty sick of Jack Valenti and his gang at the Motion Picture Association crying crocodile tears over how Internet piracy will ruin the motion picture industry and destroy American jobs. Their antipiracy campaign is built on ads featuring makeup artists and set painters pleading for their jobs, pointing out that they are regular folks just like us, not superstars like almost-governor Ahhnold, who probably won't miss a few pennies per download.

I don't download, I don't have kids who download and my dogs don't have opposable thumbs so they are at a serious disadvantage operating my computer to download when I'm not looking. I absolutely do not advocate piracy. But I do think the laws we have in place are enough to prosecute it without paying off the government to track Hollywood's errant digital files.

I also think that if the studios were so concerned about keeping American jobs, they would insist on replicating DVDs in the United States and monitoring the security of replication facilities, creating jobs in both arenas. Instead, we hear about expanding facilities in Southeast Asia, where pirates burn DVDs to order, and, most recently, Poland. (Incidentally, wasn't that Jack who released that report a few months ago claiming that DVD piracy in Eastern Europe was funding terrorism and organized crime?)

So when the Hollywood machine puts those sympathetic images up on the screen to make us all feel solidarity with the makeup artists and set painters, don't you believe it. The only reason those people still have jobs in the United States is because Hollywood hasn't figured out how to have some $2-a-day worker in Malaysia or Poland apply makeup to the high-dollar stars sitting in their dressing rooms over here. As soon as they do, I'm sure the studios will have no more compunction about sending those jobs overseas than they have about sending their replication jobs into the piracy capitals of the known universe.

Like everything in Hollywood, it's an act -- rehearsed and played for maximum pathos. Don't download. But don't fall for the hyperbole designed to bamboozle a bunch of blue-haired, technophobic politicians into extending copyrights into the next millennium, either.

29 Sep, 2003

I've Still Got Two Dead VCRs

For anyone who missed last week's column (I can't imagine who would), I mentioned that both of our VCRs are broken, and I can't decide what type of hardware to replace them with.

This weekend we went to Wal-Mart, and I saw a VCR/DVD combo player – a likely replacement –- for only about $100. I almost purchased it. I say almost because I thought of another wrinkle. My husband would really like a PlayStation 2, a piece of hardware that is coming down in price and plays both games and DVDs. Why would we need another DVD player if we eventually got a PS2? I find it practically inconceivable that we would need four DVD players.

We could buy a PS2 and a cheap VCR – say about $40 – and get more bang for our hardware space.

So did we buy anything? No. I'm the type that can always find a reason to wait. I'm the classic late adopter –- always looking for a better option or a better price. Mostly, though, I think I'm looking for an all-in-one device that hasn't been invented yet; that convergence box that plays what I want, when I want, without taking up much space. That's why I'm so interested in those flat TVs that hang like picture frames.

While game fans may find other reasons, I think one of the downfalls of the Nintendo GameCube is its inability to play DVDs. Even at the new $99 price ($80 below PlayStation 2 and Xbox) it doesn't offer the same value as competing consoles that can play DVDs as well.

While electronics geeks may salivate over the myriad digital devices on the market, piling box upon box with cords hanging down like snakes, I'd really prefer something simple, elegant and utilitarian in my hardware –- like the classic black dress, a box that can go anywhere and fit in.

25 Sep, 2003

Retailers: It's Time to Give DVD More Floor

Whatever happened to cutting-edge retailing? Music sales are in a definite tailspin, with three consecutive years of down CD action.

And yet I haven't seen any of big retailers appreciably cut back on their CD inventories and pump up the volume in regard to DVD, which for more than a year now has been the hottest consumer good on the planet.

Even Best Buy, which helped launch DVD with its early, and visible, support of the digital format, still has row after row of CDs up in front, better merchandised (read: face out) and occupying a much bigger footprint than DVD, which is in the back of most stores.

Wal-Mart has DVD filed library-style, along a tall row, while CDs are face-out and waist-high.

Barnes & Noble and Borders also have significantly more “friendly” CD sections, laid out invitingly, while DVDs are displayed more as an afterthought.

Target Stores has probably gone the furthest in at least putting DVD on an equal footing with CDs, at least in its reconfigured stores, but that's not the point.

DVD is outselling the bejesus out of music, while CD sales are now a fraction of what they were three years ago — with the Recording Industry Association of America reporting a drop in CD shipments of more than 15 percent, just in the first half of this year, on top of an 8.9 percent drop in 2002 and a 6.4 percent decline in 2001. Since 2000, annual CD sales have fallen from an all-time high of 942.5 million to 803.3 million, and, based on first-half trends, this year promises to be even worse.

A lot worse.

Virgin Megastores has the right idea. What was once the nation's biggest music store (in terms of average store size) is now a veritable DVD emporium.

When are the others going to follow?

23 Sep, 2003

Music Downloads Are Creating a Cascade Effect

The retail side of this industry is changing so fast these days you can't tell the players without a program anymore.

A lot of observers have said the home entertainment retailing industry is due for a shakeout, especially with the music side imploding in the face of downloads. But there are a lot of conflicting opinions out there about what's going on.

Recent announcements that TransWorld Entertainment would buy bankrupt Wherehouse and CD World look like just the leading edge of a trend that will snowball smaller companies into larger concerns that have a better chance of survival. In particular, Tower Records and Djangos look like low-hanging fruit. Djangos is in bankruptcy, and Tower's foundations appear to be crumbling. The trend looks a little more startling when you realize that TransWorld, Tower and Wherehouse ranked 4, 6 and 9, respectively, in video revenue generated at music and consumer electronics chains, according to Video Store Magazine market research's Top 100 for 2002.

DVDPlanet.com, while a respected brand online, has been a cash drain on parent Image Entertainment for some time. Maybe the lesson there is that content providers are not the best retailers. Now, DVDPlanet will join Infinity Resources' stable of e-tailers, which include DeepDiscountDVD.com and digitaleyes.net. Hopefully, combining the infrastructure and distribution will get DVDPlanet into a stable orbit.

Blockbuster Video, long viewed as one of the stronger players in the video industry, got a rude awakening last year when rentals dropped after Thanksgiving. Analysts wondered if sellthrough had the chain on the ropes. Not letting any grass grow under its feet, Blockbuster has quietly invested in online ventures, including rental and video-on-demand, as well as a small brick-and-mortar chain that buys and sells used DVDs. Now Big Blue reportedly has the urge to merge with Time Warner's Columbia House, which would give Blockbuster a footing in direct mail and online sellthrough, and give Columbia House a … well … house.

It's starting to look like what space scientists call a Cascade Effect, in which one piece of space debris impacts another and each impact sets off a giant, cosmic game of billiards. In that scenario, even the bigger targets are likely to take a few hits as the smaller ones spin out of control.

It will be at least January before we know if the industry is in for a deep impact or a gentle splashdown.

22 Sep, 2003

Facing My Dead VCR Dilemma

I've got two broken VCRs in my house, and I don't know what to do. One has been broken for at least a year, and another has had a tape stuck in it for about three months. For the price of fixing either of them, we could buy a new VCR. But it seems silly to buy a new one — sort of like investing in an eight-track tape player after the CD has taken over.

There are numerous other recording options either just available or on the horizon. I could make the leap to a personal video recorder, like a TiVo. I could buy a DVD recorder. Yeah, those old VCRs are looking more like dinosaurs all the time.

And yet … I just can't seem to get rid of them. We've still got lots of children's tapes that the kids might want to watch someday (though I must admit they've been doing just fine without them for three months, and they take up more than twice the space of DVDs). And there are a few classic kids' titles that we haven't yet replaced on DVD.

But is it worth the trouble? Keeping all this dead hardware reminds me of Jeff Foxworthy's “You Might Be a Redneck” gag about stacking the working TV on top of the broken one. As it is, the things are just taking up space, holding a place for their eventual replacement — I just wish I knew what it was.

21 Sep, 2003

Will Market Forces Turn Music Retail Deals Into Winners?

Sometimes in business the best thing to do is when everyone zigs, you zag.

Call me a little crazy if you want, but you have to wonder if maybe the music retailing business hasn't hit bottom, and the acquisition of struggling music/video chains such as Musicland and, this week, Wherehouse Entertainment and CD World (see our cover story in this week's issue of Video Store Magazine) at bargain-basement prices is going to turn out to be a very prescient thing to have done. Is Tower, also fishing for a suitor, next?

For as much as the file-sharing of music seems to have undone the music industry, the combination of a variety of market forces may — just may — bring music buyers back to these music/video chains and regain at least a portion of the magic that has kept them at the center of home entertainment retailing for decades. Meanwhile, these chains and anyone else retailing home entertainment software have to be busily, and continuously, transforming themselves as digital entertainment software brings the spectrum of entertainment media eve r closer together.

I am not privy to the details of recent transactions, but Sun Capital picked up 1,100-store chain Musicland in an all-stock deal that included assumption of liabilities, and that struck a fairly resounding note that the valuation of music chains had reached epic lows. Just last week, Trans World Entertainment picked up Wherehouse Entertainment's 148 stores for a reported $41 million total consideration that includes cash and assumed liabilities. On the face of it, those look like pretty rock-bottom deals for what have been major franchises in a multibillion-dollar industry.

Musicland had been draining money from Best Buy since it acquired full ownership of the company in January 2001, and Wherehouse had assets of $228 million against $222.5 million in debts when it filed for bankruptcy at the beginning of this year. Meanwhile, Tower lost $13.8 million in its most recent quarter. So there is no arguing that the picture is not pretty for these companies. But as the old saying goes, there has to be a puppy somewhere under that large pile of bad financial news.

Recently, things have been moving in a direction that could help these chains. Most importantly, Universal Music Group will dramatically cut the price of its CDs to a range that makes it a reasonably priced entertainment product. There has been a growing chorus within the industry to bring back the single, and scuttlebutt is that its return is not far away. The music industry is recognizing the growing interest of DVD music, and embracing both DVD music and DVD-Audio, along with exploring the so-called flip-disc CD/DVD-Audio combo. Add to this the continued and growing role of music stars in movies, not to mention the various public relations and legal efforts by the RIAA to, er, encourage file-sharing abusers to stop their bad habits and buy their music, and you have the makings of a possible comeback by the music business that can only serve to help these embattled chains.

18 Sep, 2003

VIAAC Visionary Honors: A Tribute to Those Among Us With the Biggest Hearts

I spent much of last night up in Beverly Hills, reminding myself that underneath all the competition and one-upmanship, the home video industry does, after all, have a heart.

The occasion was the annual VIAAC Visionary Honors dinner, where our industry comes together not to sell product or cut deals, but to honor our own who have selflessly given to the cause.

VIAAC, of course, is the Video Industry AIDS Action Committee, a volunteer group of video industry professionals that was formed in 1989 to respond to the urgent need for funding for AIDS service organizations around the country.

In the ensuing years, VIAAC has delivered more than $2.8 million to 100-plus agencies in the battle to find a cure for AIDS and HIV — a battle whose biggest enemies, aside from the actual disease, is public indifference and, in some circles, intolerance stemming from a grossly misguided perception of what the disease is all about.

I'm proud to report that this year's honorees are all longtime friends of mine.

Jim Cardwell and Bob Chapek, presidents of Warner Home Video and Buena Vista Home Entertainment, are both seasoned pros who lead two of the most progressive and smart video operations around. They are dynamic and visionary leaders, and it comes as no surprise to me that they would also give as generously as they have to VIAAC. They're passionate and compassionate — two words with different meanings, but not for these two.

David Kahn has been a convention buddy of mine for nearly a decade, a leading Blockbuster franchisee who's never been afraid to have his own thoughts, his own expressions. Back home in Birmingham, Ala., he's a big philanthropist as well, serving as a board member of the local Red Cross chapter, United Cerebral Palsy of Greater Birmingham and other such groups. Here in our industry, he's been one of VIAAC's biggest retail supporters since the organization's “Penny For AIDS” days, in part because the disease has affected him personally: His first cousin has AIDS.

Steve Feldstein, the flamboyant voice of 20th Century Fox Home Entertainment, is one of the first people I ever met in home video. I'd never say so to his face, but I truly love the guy — because his heart is even bigger than his mouth. Steve is a founding member of VIAAC and has been one of the organization's biggest supporters, both in time and in raising funds. He's a true master of persuasion — just look how many times he and his executives are quoted in my stories, both in Video Store Magazine and in the consumer press — and has used that golden tongue to bring myriad talented and dedicated volunteers and donors into the organization.

Last, but certainly not least, is Kimbirly Orr, a close friend for eight years and a colleague for four. Kimbirly is group sales director for Advanstar Communications' Home Entertainment Events division, which with the VSDA puts on the annual VSDA convention and the East Coast Video Show. She works right down the hall from me — Video Store Magazine also is owned by Advanstar — and she's one of my best friends here at work.

When my kids sell Sally Foster, Kimbirly is always the first person to buy, and she also places the biggest order. Now, I know this isn't just because Kimbirly loves wrapping paper or candy; it's because my kids go to private school and, well, Kimbirly can't help but give to those who need it the most. She can't help herself; it's in her nature.

If people were colors, Kimbirly certainly wouldn't be a pastel. She's bright, vivid and bold — a deep purple, say, which not surprisingly happens to be her favorite color.

A tireless worker, Kimbirly doesn't just live in the fast lane, she is the fast lane. It's hard to imagine she finds time for charitable work, but she does. She freely commits time and energy to such noble causes as fundraising for cancer research, granting wishes to terminally ill children and, of course, VIAAC, an organization with which she's been actively and aggressively involved with for the past eight years, most recently as vice president.

In putting together the program for last night's event, Kimbirly provided me with a most telling quote that really sums up who she is, what she's all about, and just how big her heart really is.

“When I joined the home entertainment industry in 1995, I realized I had more friends who were being affected by this disease,” she told me. “It was important for me to get involved in an industry charity, but also something that was near and dear to my heart. This organization's reach extends beyond the bounds of entertainment, benefiting organizations around the county and people living with HIV or AIDS. The research spawned from VIAAC contributions to organizations like the UCLA AIDS Institute is bringing us closer to a cure, although much more research and fundraising is required, as we're nowhere near our ultimate goal of having no need for VIAAC's existence.”

Well put, my purple princess. On behalf of all our fellow workers at Advanstar — Don, Liz, Janet, January, Jennifer, the two Kurts, Stephanie, Jessica, Holly, Judith, Melinda, Meryl, Brendan, Erik, Enrique, Dave, Barbara, Kim, Renee, Susan, Julie, Jeff, Denis, Claudia, Debbie and the rest — we salute you!

17 Sep, 2003

Convergence Is Converging Faster Than Ever Before

When Forrester Research released a report predicting the demise of physical media just a few weeks ago, most industry observers discounted its disc death knell as more than a little premature.

But events in the couple of weeks since make Forrester principal analyst Josh Bernoff look a lot less like Chicken Little and a lot more like an industry oracle.

Consider these examples:

  • Two weeks ago, the Federal Communications Commission (FCC) adopted “plug and play” rules for digital programming. The new rules will mean consumers can, at last, run cable transmissions directly into their TV sets, with no need to pass the content through set-top boxes. They would still need descrambler cards to get premium channels like HBO and set-tops for two-way services like video-on-demand (VOD) , but at least they could get high-definition broadcasts without one.
  • In the same rules, the FCC also removed subscription video-on-demand (SVOD) services from “copy never” status to “copy once,” like other subscription services. Starz Encore CEO John Sie jumped for joy at the ruling, which lets Starz customers tape or burn copies of its programming for personal use.
  • Disney, which recently signed on to offer its movies on Movielink.com and launched a test of expiring DVDs, signed another Internet VOD deal to offer its movies over Cinemanow.com. The studio is also preparing to test its own proprietary VOD service, Moviebeam.
  • Microsoft announced it would open the source codes for its Windows Media Player 9 to the software development community, which means they can not only improve on the code, but, if it gets accepted by the Society of Motion Picture Television Engineers, it could become the dominant platform for a variety of home entertainment devices.

Any one of these events might not be a big deal, but coming together, they could point the way toward a new entertainment future.

I'm not schlepping my DVD player out to the trash just yet, but it does look to me like convergence is converging at an increasing pace.

The last piece of the puzzle is copy protection for cable and satellite content. If the studios ever get cable and satellite to use copy protection, watch for the rental window to slam shut. You'll see, as Bernoff predicts, a rapid shift to day-and-date releases everywhere but in theaters. And maybe even there.