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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 Feb, 2003

Is Online Rental A Flash in the Pan?

Online rental is the big rage these days, with Netflix recently signing its millionth customer and big-scale competition from Wal-Mart and Blockbuster heating up.

But falling DVD prices make me wonder whether the whole online rental concept is a bubble waiting to burst. The fact is, Netflix was launched and achieved its early growth at time when the selection of rental DVDs at typical physical video stores was severely limited, if not nonexistent.

Consumers were hot to try this new technology, but they wanted a huge selection from which to choose — and Netflix emerged as a simple and convenient way to tap into the growing catalog of DVD product without driving all over the place, trying to find out who has what.

The Netflix model still makes sense, to a large degree. The selection is fabulous, unmatched by even the biggest Blockbuster, and the subscription charge is about half what the average basic cable bill is — small potatoes, even to those who don't subscribe to HBO.

But as more and more consumers walk by those $5 DVD dump bins at Wal-Mart, the perceived value of DVD is going down, down, down. Sure, the cheapie DVDs are deep catalog while NetFlix offers all the latest new releases, but the most active renters rent an assortment of product, not just the hot new releases. And if they subtract two or three $5 oldies from their monthly rental menu, it's going to be a little harder to justify that $20-a-month subscription charge.

To be sure, that mindset won't hit everyone. But it could hit a fair amount of people, to the point where the market for online rentals is likely to shrink — or at least, in these DVD boom years, of not growing as fast as it used to.

Factor in the entry of the big physical stores — and a lot of small players, as well— and you're faced with a bleak prospect: A flattening market, and a growing number of mouths eagerly going after a taste of the pie.

Therein lurks the potential for disaster. If the decline in DVD pricing begins to spread beyond deep catalog — and at least one studio, Warner Home Video, has made no secrets of its quest for mass distribution and prices of about $10, even for new releases — then the rental business is going to suffer.

If DVDs routinely sell for $10, chains like Hollywood and even Blockbuster will be in the catbird seat—they'll be the ideal destination for consumers who want to rent some titles and buy others.

The online renters, meanwhile, will have to do something else to make up for lost business, for the migration of renters into the ranks of buyers. The natural choice, of course, would be to offer sales as well as rentals. Many already do.

But given the strength of established online sellers like Amazon.com, that transition could be tough, if not downright impossible.


25 Feb, 2003

The Age of Digital Darwinism

So, content providers won a round in their bid to demand (and get) the identities of individual file sharers from their Internet service providers (ISPs) so they can bring the battle against piracy to consumers' front doors.

I wrote about this almost a year ago and guess what? It's not going to work any better now than it would have then.

A federal court recently ordered Verizon to give up the name of a customer the Recording Industry Association of America (RIAA) said was illegally trading copyrighted material (Verizon is appealing the decision). Another hearing in the matter is scheduled for tomorrow. That may make identifying file traders easier, but I don't think it will do much to help RIAA, for a few reasons.

First of all, anybody who's been online for, oh, a week or so, knows there are so many ISPs out there they can switch whenever they like. If I were illegally trading files, I would change my service provider often to escape notice.

Now, that may seem like an obvious ploy that would be easy for RIAA to defeat, if not for one key point: RIAA regards technology much like cave men regarded fire. And understands it about as well.

Consider that the RIAA Web site, RIAA.org, has been hacked seven times in the last six months. As I write this, the feds are looking into who kept the site down for at least four or five days.

These people would have us believe they understand, embrace and support digital technology. But obviously they can't protect their Web site any better than they can protect their CDs, which leads me to view them in the same light as cave men: chin-stroking, head-scratching, cranially challenged folk who still wonder why it burns every time they stick their hands into the flames. If only they could harness that new discovery!

I wonder how much this has to do with Hillary Rosen's decision to quit her job as RIAA president by the end of the year. It can be pretty embarrassing to spend so much time squawking about how technology is looting your industry, especially when that industry is still paying out a nationwide class action settlement to consumers for keeping CD prices artificially high (check out musicscdettlement.com to claim your $20).

Especially when artists like Eminem have a No. 1 CD on its first day in release because selected songs were leaked and traded online in advance; and artists like Jack Johnson, who likely would never have been noticed commercially, can create demand by offering their wares online when record companies ignore them. It makes blaming file traders for the industry's decline a tough sell.

That ‘s doubly true for MPAA, which seems to take no interest in recovering the copies of Academy Award screeners up for sale on eBay. Not past hits, mind you, but titles like About Scmidt and The Hours that are still in theaters.

Welcome to digital Darwinism, a world in which only the tech-savvy survive.


24 Feb, 2003

The Long Shadow of Lieberfarb Extends Even to Board Games

Playing the new 20th anniversary edition of Trivial Pursuit recently, we came across a question I would have had a unique advantage in answering. (Unfortunately, it went to the other team. Curse my luck.)

Under the “Inventions” category was the question “What medium is Warner Bros. home-entertainment chairman honcho Warren Lieberfarb hailed as ‘the godfather of'?”

It was an easy question for my husband to answer, being married to an editor of a magazine covering DVD, but its appearance in the time-honored trivia game seemed to cement in my mind Lieberfarb's place in the history of home entertainment.

With so much of Lieberfarb's strategy still in place in the home entertainment marketplace -- even if the man himself is absent after leaving Warner -- it seems destined that his vision of low-priced DVD and the demise of the store-based video rental model in favor of video-on-demand will become reality. But will it?

Certainly, the first part of that vision is taking hold. Consumers seem to be buying up low-priced DVDs in ever-increasing numbers. The pricing structure of the disc has succeeded in changing consumer habits to a certain extent. Formerly conditioned to rent the titles they wanted, consumers now think to purchase many of them instead. Heck, even rental giant Blockbuster Video is encouraging customers to buy DVDs.

But is the rental model going to take the hit he envisioned? It may be suffering from the competition of low-priced DVDs, but the VOD future seems as far off as ever. Rental permutations such as Netflix's subscription model seem more of a threat to the traditional rental business than does VOD at the moment.

Two years ago, our magazine had on its cover the headline “Antioco vs. Lieberfarb” (with a graphic of the two titans in boxing gloves) and detailed the long-running difference of opinion between the heads of Blockbuster and Warner Home Video. In a New York Times piece quoted in the article, Antioco said, “DVD sales will never replace rentals” and in a story in the same magazine, he opined that VOD would ultimately attract value-minded sellthrough buyers rather than renters.

As Blockbuster replaces rental shelves with sellthrough racks, I can't help but think Lieberfarb has won the match, but it remains to be seen how far the long shadow of Lieberfarb will reach.


23 Feb, 2003

Reflections on a Post-FAIR Era

The headline on our initial reporting of last Thursday's federal court ruling dismissing the antitrust lawsuit in California brought by a group of independent retailers against Blockbuster and a host of studios stated "Strike Two for the Indies." Strike three would, presumably, be a ruling against the appeal pending on the dismissal of the similar lawsuit in San Antonio last June. I am not hearing a lot of expectation that the San Antonio plaintiffs are going to hit that one out of the park and, if preliminary returns on our online poll about the Los Angeles ruling are any indication, most people in the business pretty much see this latest decision as "the final nail in the coffin" of the indie retailers' efforts.

As these cases have come to a crescendo over the past months, I have heard it said on several occasions that whatever the outcome for the parties involved in the litigation, the overall future impact of these decisions was largely moot. The reason being that the whole concept of revenue-sharing, something that had radical implications five or more years ago, applied as it was to VHS for the most part, was already becoming anachronistic in the era of sellthrough-priced DVD. Six months or so ago I think that may have been a point well taken. But now I am not so sure.

The fact is that revenue-sharing involving DVD separately or in combination with VHS is becoming more prevalent. And as I have recently said in this space, I will not be surprised to see rental windows and rental pricing programs for select titles on DVD begin to emerge from studios, which could involve new revenue-sharing arrangements.

I am not suggesting that the court decisions on these past two cases will have any direct bearing on the specific structure of any future revenue-sharing deals, but I have heard from several industry observers that - and this is not a reflection on the merits of either side of the case - if nothing else, studios are going to continue to be careful to ensure that they find ways to involve the full spectrum of specialty retailers in revenue-sharing options.

It's to their advantage, certainly. Studio execs are the first to point out that the last thing they want is to help create one 800-pound retail gorilla (a Big Blue one) that can muscle bigger and bigger concessions as it gobbles market share. In fairness to Blockbuster, John Antioco has said that's completely understandable and pretty much proves why any conspiracy theory between Blockbuster and the studios doesn't make sense.

While "volume discounts" can't be denied, they can be reasonably scaled for every size retailer and that should be the expectation of all in the business. And to that end, perhaps the coalition of retailers called the Fairness Alliance of Independent Retailers (FAIR) can take some satisfaction in their efforts over the years.


20 Feb, 2003

Studios Are Blowing Out VHS At Pre-Viewed Prices

I know the VHS cassette is on its way out, with several studios either blowing out catalog titles at dump-bin prices or trimming back the availability of certain titles on cassette once they hit DVD.

But I had no idea how drastic the exodus was until I walked by the lunchroom trash can at our posh offices in Santa Ana and spied something that caught my eye.

There, on the back of editor Kurt Indvik's frozen Stouffer's entr?e box — Salisbury steak in gravy with grilled onions and macaroni and cheese, if you're interested in a journalist's eating habits — is a giant ad for free MGM movies.

Buy six Stouffer's products and, for just $1.99 shipping and handling, you can “have one of these MGM classics delivered to your door,” the ad proclaims. Consumers can choose from Fiddler on the Roof, West Side Story, The Magnificent Seven, The Graduate and When Harry Met Sally.

We're not talking crap here — this is top-quality, first-class catalog stuff, titles that still fetch full price on DVD.

But the videocassettes, well, clearly, they're no longer worth beans (although maybe they are; I'll have to watch Kurt's future lunch picks before I can reach a final verdict on that).

This makes me wonder how long the videocassette will be around. The vinyl LP disappeared virtually overnight, although many electronics dealers still carry turntables and needles and some small labels still release music on the notorious 12-inch “licorice pizza,” as one record chain popular in the 1970s was called.

With sales of new releases increasingly tilted in DVD's favor — most big releases now sell 75 percent or more of their total units on disc — the videocassette's days are clearly numbered. And with DVD players selling for as little as $39 and the proliferation of computers with DVD drives, and the sweeping success of Sony's DVD-playing PlayStation 2, the proverbial writing's on the wall.

I have recently cleared my house of virtually every videocassette I own, with the exception of 1) Disney's infamous Little Mermaid cassette with the castle tower that looks strangely phallic, an artist's trick the company has steadfastly denied; 2) Mondo Cane, a bizarre video of oddities from around the world; and 3) a handful of schlock movies like Undercover Angel that I keep around to sate my desire for all things cheesy.

Even my 7-year-old, Justin, handed over his entire videocassette collection to younger brother Conner — who uses them as building blocks.

Mark my words — by the end of this year, at least one major studio will no longer be releasing anything on videocassette.

If I'm wrong — and you can hold me to this — I'll buy Kurt some real lunch.


18 Feb, 2003

The Rise and Rise of A Kingpin

When I stopped into a grocery store on the way home from work Friday night, I got into line just in time to hear the cashier telling the customer at the front, "I never go to the movies any more. I just wait until it comes out on DVD."

I suspect that sums it up for a lot of people. Movie theaters force us to depend on time blocks and pricey tickets so, most of the time, it's more convenient to wait for the home video release.

But it goes beyond that, to broadcast TV shows coming out on disc as well. And it appears the time from broadcast to disc is getting ever shorter -- witness NBC's releasing the first six episodes of "Kingpin" on a three-disc set before the last of the episodes even airs (although ShopNBC.com does note buyers won't receive the set for eight to 10 weeks after ordering).

The show is a great example of why I'm a broadcast executive's worst nightmare. I kissed off cable after the idiots at Time Warner came out to cut off a deadbeat neighbor and cut off my service at the same time. (The make-good was a coupon for a free InDemand pay-per-view movie. Big whoop.) Bye-bye Time Warner, hello DirecTV!

But, since DirecTV charges an extra $5.99 per month for a slate of local broadcast channels, I don't buy them. Broadcast programming is generally so much less than compelling that I seldom watch it. I have an aerial antenna I can hook up for any local programming I really need to see -- which is next to nothing.

DirecTV recently gave subscribers three free months of local broadcast content, as a sort of loyalty reward but also an effort to get us hooked on the convenience. The promotion ran through Feb. 2, the night "Kingpin" debuted. So I did watch the first episode on KNBC. But by the following Friday I had learned I could watch the show Friday nights on Bravo (and I've only just learned it's a spicier version than the one that airs on NBC).

I'm enjoying the show, although it's not as good as HBO's "The Sopranos," which it was meant to challenge (same theme and time slot). Cable networks have already figured out they can offset production costs by putting shows like all of HBO's series, Fox's "24" and "The Shield" and Sci-Fi Channel's "Taken" on disc as soon as the first season ends. NBC seems to be trying to follow that lead, but I'm not sure it will work for a broadcast show.

For one thing, "The Sopranos" became a "water cooler show" -- one people talk about around the office water cooler Monday mornings -- almost immediately. "Kingpin" is cutting its chances of that happening in half by reaching half its viewers Friday nights. By the time Monday morning rolls around, we have a whole weekend's worth of other stuff to talk about.

I'm also getting increasingly spoiled to not having commercial interruptions. So I can't really say I cried yesterday when AOLTW announced that subsidiary Turner Broadcasting System's CEO, Jamie Kellner, is a lame duck. After all, he's the guy who told Cable World magazine that consumers who go to the bathroom or kitchen during commercials are stealing.

Well, Jamie, you caught me, but I've gone straight. My bathroom and snack breaks are guilt-free because I no longer watch broadcast television. Over the long weekend I spent my viewing time catching up on "The Shield" -- on DVD.


17 Feb, 2003

Kids and DVD Push Each Other's Happy Buttons

One of my original reservations about kids and DVD was I thought they'd have a hard time navigating the menu. In fact, I noted in this column DVDs that automatically start are a good idea for children's and family titles.

But recently I've found that kids are more savvy about using the remote control than we give them credit for. As my 4-year-old hits 5, she's become much more adept at navigating the menu on DVDs. In fact, she enjoys it; it's sort of like a simpler version of a video game.

She's so fascinated with the remote control that she will navigate the simple comprehension games on the discs over and over again. The games are almost as repeatable as the movies.

The industry was wary at first about DVD adoption in the family market. Of concern to parents: what if kids decided to polish the floor with a DVD (a neighbor of mine did in fact have that happen)? But also of concern was the menu. Many kids can load a videotape, but loading a DVD is somewhat more complicated.

What we may have missed is that the remote control generation has no problem clicking the right buttons. While, to be sure, very young children need assistance with DVD, it doesn't take them long to get the hang of it.


16 Feb, 2003

Latest Rev Share Deals Are Studios' First Steps In a Search for a New Rental Business Model

As we recover from the post-holiday sellthrough hangover, there is renewed supplier interest and focus on the rental market. This has manifested itself in a couple of new revenue-sharing programs combining DVD and VHS announced by Fox through Rentrak last week and by Warner the week prior. I think it's only the beginning of a series of maneuvers by suppliers to hedge their bets on the rental side of the market to maintain as much margin as they can.

Studios are getting less and less of the rental pie even as they stoke the sellthrough furnace which has, to date, more than made up for the slip in rental revenues. The cost of DVDs has been a terrific boon to rentailers whose margins have improved as DVD rentals increase, even as, perhaps, their overall gross revenues were dented by a burgeoning sellthrough business.

In the early stages of DVD's emergence, there was still plenty of higher-margin VHS business for studios, but as DVD penetration continues, naturally, rentailers are taking less and less VHS. And, to the likely chagrin to studios, DVDs are also turning out to be a successful used product, another very positive aspect of the business for rentailers that studios get no share of.

Meanwhile, while selthrough enjoyed a stupendous rise in unit and dollar volume in 2002, there is that lingering question for suppliers that won't go away: When do buy rates per DVD household start to fall (as many have expected they should have already begun to do), and how far will the fall be? What pricing levels are going to be necessary to keep sellthrough viable and how does all this dovetail with a lower margin rental business.

Because what isn't in much doubt is that DVD player penetration will continue and, eventually, VHS inventory requirements will be small. The DVD/VHS rev-share deals may be a temporary opportunity for some rentailers to lessen their overall cost of goods and provide studios with a better cut of the rental business. But I won't be surprised this year to see a test of some rental window and rental-priced DVD program (on select titles). That has the potential to be a longer term solution for studios as they try to figure out a business model as rental and sellthrough seek to find their equilibrium.


14 Feb, 2003

DVD Buyers Get What They Pay For

Are studios getting chintzy on their DVDs? As prices decline, particularly on the catalog end, we're seeing a conspicuous lack of the increasingly interesting and complex special features to which we've grown accustomed.

I just picked up a classic from a studio I won't name. It cost less than $10. The box promises “special features,” but I didn't bother to read the description — I figured there would surely be a little “making of” documentary and maybe an interview with some of the film's surviving cast and crewmembers.

Wrong-o. I watched the movie — brilliant — and then clicked on the special features button. All I got was a list of the cast (no bios or links) and the theatrical trailer.

Big whoop. That's the same sort of stuff I got in the early days of DVD, before Warner's The Wild Bunch came out with a ton of extras and the rush to not just spruce up, but also spice up, catalog titles began in earnest.

Now, I realize the economics in play here. Prices have dropped faster and more dramatically than anyone could have envisioned — anyone except maybe Warren Lieberfarb, who has never shied away from his desire to have everything priced at about $10 and available anywhere and everywhere things are sold. And it's hard to imagine a studio spending hundreds of thousands of dollars to film and produce a “making of” documentary when the finished product is going straight to Wal-Mart's new $5.88 DVD dump bin.

But for catalog titles, there's so much canned stuff in the vaults that surely some enterprising DVD producer can come up with something interesting and compelling without bursting the purse. And I think DVD is hardly as price-sensitive as some studios (and Wal-Mart) seem to think. I would have happily spent $12 or even $15 on this same title, maybe even $20 if it had that coveted “special edition” label across the top.

And that brings me to another point — why dump bare-bones editions of classic movies into the market at all? Wouldn't it be better to be a little more selective and come out with a handful of quality products each month? I would bet that overall revenue and profits back to the studios would be about the same. What you lose on volume, higher margins would make up.

I can see the logic in releasing vast amounts of products at impulse prices in the early days of the format, but not now, when there's already so much stuff out there. I can understand $15 or even $10, but $5?

Forget it. At five bucks, the message you're sending to the consumer is that this disc isn't really worth owning, or putting in your collection. And, sadly, that perception is only reinforced when the consumer slips this disc into his machine and finds the movie and not much else.


11 Feb, 2003

The Virtual Envelope, Please!

So, Oscar season has officially arrived with yesterday's announcements of Academy Award nominees for the year.

Most people had to see those films on the big screen, but the Academy management knows that not every member gets to every film, so they make sure to send out DVD screeners to voting members to be sure they can watch the movies.

A number of those screeners – ranging from About Schmidt and The Hours to Lord of the Rings: The Two Towers and Catch Me If You Can are available on eBay right now. Most of them at starting prices that would make Wal-Mart blush.

For today I'm just going to abbreviate my harangue on how the Hollywood antipiracy folks are looking for solutions in all the wrong places and skip to the constructive suggestion.

Like Movielink, the online video-on-download (VOD that's still not quite on-demand) service that five of the major studios launched late last year.

While not all consumers live in wired homes and with broadband connections and kabillion-gigabyte computers, I suspect most Academy members do.

So Academy screeners seem like the logical place to start for seeding the service and building a base of evangelists.

What if, instead of sending those DVD screeners that apparently are so hard to contain and control, the studios opened a password-protected section of Movielink for just the industry and let voting Academy members download their screeners – free copies that would self-destruct in 24 hours?

Another option would be Flexplay Technologies' expiring DVD. The MTV Latin America music video awards used the discs as party favors to offer guests a taste of the nominees' work.

I suspect that would prevent a fair amount of piracy. Surely it would help keep the still-theatrical titles from showing up on eBay (not to mention the plethora of lesser-known auction sites).

It's tough to say how well Movielink is catching on with ordinary consumers. Using it as in industry intranet could squeeze enough benefit out of the R&D to make the site worthwhile in the short term, while the industry waits for consumers to embrace downloading entertainment on a wide scale.