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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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16 Nov, 2000

TK's MORNING BUZZ: The Real Winners Under Revenue-Sharing Are the Studios


Beleaguered Hollywood Entertainment Corp.'s latest financial filing with the Securities and Exchange Commission (SEC) holds some pretty interesting conclusions.

The chain blames its sorry financial state, in large part, on revenue-sharing. No real surprise there--I've always held that the cost of goods under even the most optimum revenue-sharing deals, 40%, is higher than the cost of goods retailers are accustomed to paying under the traditional buying model (which typically saw retailers spend no more than 30% of rental revenues on videos).

What is surprising is that Hollywood blames revenue-sharing for sucking many top titles out of the sellthrough pipeline. Read between the lines and its becomes clear that sellthrough pricing is still the preferred copy-depth incentive, and that while in the revenue-sharing era retailers can bring in more copies of hot new releases on the cheap, they not only get stung on the back end, but they also lose a lot of product that previously would have gone direct to sellthrough, with significantly lower margins.

Turn the cards and one sees that the real winners under revenue-sharing are the studios--which explains their continued commitment to the revenue-sharing model. They flood the market with more cassettes, and then make more money on the back end because more cassettes invariably means more turns--and more money flowing back to Hollywood's coffers. In theory, the studios are supposed to pour some of this money back in the form of post-street-date advertising, but the promised ad campaigns have been few and far between, leaving the studios with even more cash on hand.

As for sellthrough, the studios are holding back on VHS and focusing on DVD--cheaper to manufacture than videocassettes, and gaining in popularity among consumers so fast that DVD sales are more than making up for any lag in VHS sellthrough sales. The end result: Even more money for the studios.

Hollywood and other retailers can bellyache all they want about revenue-sharing. The studios know a good thing when they see one, and you can bet your bottom dollar they're going to milk revenue-sharing for all it's worth--and for as long as they can.


Comments? Contact TK directly at:TKArnold@aol.com


15 Nov, 2000

TK's MORNING BUZZ: Video Retailers Should Follow Their Music Brethren -- and Prepare for the Digital New Order

Word of yesterday's settlement between MP3 and the Universal Music Group on the digital downloading of music reached me while I was in my car for a late lunch.

The radio announcer made a big deal of the settlement, in which MP3 has to pay Universal $53.4 million in damages but gets access to Universal's entire music catalog.

The focus, as one might suspect, was on the imminent "death" of the brick-and-mortar record store. Of course, there were no interviews and little in the way of statistics except for one finding, not attributed to any source, that held record sales in music stores located near college campuses was going down.

Fast forward three or four years into the future and we can expect to hear the same death knell sounding for video retailers, renters and sellers alike.

Just as the announcer asked, "Who's going to buy a CD when they can download one?", we're going to hear things like, "Who's going to buy a DVD when they can download a movie?"

The answer, in both cases, is, "a lot of people." If record sales have gone down in music stores near college campuses, that's perfectly understandable.

Until the recent involvement of the courts, digital downloading of music was free and unregulated. Of course a college dude's going to download the latest Smashing Pumpkins album if he can get it for free.

But under the soon-to-be-ironed-out New Order of digital downloading, which some labels are already implementing, downloading music will carry a price tag. It probably won't be as much as buying a pre-recorded CD in the store, but then you don't get the neat artwork on the disc or the packaging, either.

I firmly believe digital downloading and packaged music will co-exist peacefully, and the next few months should prove me right.

If there is a slight dip in pre-recorded CD sales at retail, dealers can make up for it by latching onto the digital bandwagon and offering digital downloads either on their Web sites or in their stores, at Web-linked kiosks. Trans World and Tower already offer digital downloads, but in the wake of yesterday's ruling are expected to beef up their selections and their overall commitments, in the belief that consumers are far more likely to go to one site for all their music needs than skip around from record company site to record company site to amass their collection.

The same will hold true in the future, in regard to digital downloading of movies. The key thing for video retailers to remember is to do what the music chains did--prepare and learn as much about the technology as you can, so when it comes around you won't get caught off guard and, instead, will be in a position to embrace it and capitalize on its potential.

Before long, even that know-nothing radio announcer will realize reports of the death of brick-and-mortar music stores are greatly exaggerated.

Of course, that won't prevent him from making a similar pronouncement in the future, when it's the video industry's turn.

We'll just have to show him again.


Comments? Contact TK directly at:TKArnold@aol.com


14 Nov, 2000

TK's MORNING BUZZ: The Internet Makes It Easier Than Ever for Retailers to Keep in Touch With Their Customers

I spent a little time yesterday on the Home Theater Forum, a Web chat room for DVD buffs with more than 14,000 members and a wealth of information on all things DVD--from information and reviews of upcoming software releases and the latest scoop on hardware to more esoteric topics like popular misconceptions people have/dumb things people say about DVD (my favorite was the complaint about a local Blockbuster store that stickers its DVDs, both on the box and on the actual disc, with those annoying "Please Rewind" stickers).

No wonder studio marketing executives like the savvy bunch at Fox Home Entertainment routinely monitor this site for information on what consumers want in the way of special features, and even invite members every now and then to visit the studio and preview upcoming DVDs in person.

It's the ultimate focus group, a new and improved way of finding out what the customer wants and then giving it to them.

Retailers should take a cue from Fox and other farsighted studios and use the Internet not just as a marketing tool, but as a vehicle to listen to suggestions and exchange ideas with their customers.

Work the chat rooms religiously and treat the chatters as the consultants they are.

Retailers have always stressed the importance of keeping in touch with their customers and involving them in business decisions, and now the Internet makes it easier than ever to do so.

If the golden rule in business is keeping the customer satisfied, this is the way to go. Monitoring the DVD chat rooms, filled with diehard fans of the packaged home entertainment industry's hottest format, will surely result in any number of tips and ideas for delivering the goods.

And that's what this business--any business--is all about, isn't it?


Comments? Contact TK directly at:TKArnold@aol.com


13 Nov, 2000

TK's MORNING BUZZ: DVD's Special Features Are Taking Home Video Marketers Out of the 'Used Movie' Business

Sitting through a demonstration of the new X-Men DVD on the Fox studio lot last Friday, I was amazed at how studio executives were talking up the disc's special features. It was the focus of their talk, and clearly their pride and joy. The audience consisted mostly of DVD Web chatters like the Home Theater Forum, whose members Fox execs routinely solicit for advice on what "value-added features" (that's official studio jargon!) to put on their discs.

The Fox show, highlighted by appearances by director Bryan Singer and X-Men creator Stan Lee, came less than a month after Disney held a similar shindig to show off its splashy three-disc Ultimate Toy Box, in which one of the three discs contains nothing but extra stuff.

All of this underscores the growing contention that DVD is taking home video marketers out of the "used movie" business and presenting them with a new and unique product in which the actual movie is just one of myriad facets.

Indeed, special features, considered a nice novelty when DVD was launched in March 1997, has emerged as a driving force, every bit as important as the better sound and picture quality.

It's the DVD sellers who benefit the most; video marketers concede the special features are aimed at buyers and collectors, not renters or casual watchers.

And yet the rental market benefits as well. A DVD loaded with special features is the ultimate hedge against pay-per-view and even video-on-demand.

And one high-ranking studio executive told me that as the extra stuff--oh, sorry, I mean, "value-added" features--created for DVD continues to increase in quality, quantity and imagination, video marketers will start including some of those elements on the VHS versions, to give the lowly old VCR user a taste of this hot new trend in home entertainment programming.

I think we should all thank our lucky stars for the growing prominence of special features. In this arena, at least, electronic delivery can't even begin to compete with packaged home entertainment.

And it doesn't take an Einstein (nothing personal, Rose!) to conclude that our industry can use any hedge against the competition it can get.


Comments? Contact TK directly at:TKArnold@aol.com


10 Nov, 2000

TK's MORNING BUZZ: NAVD Takes a Firm Non-Stance on Ingram's Exclusionary Deals With Warner and Universal

Distributor Steve Scavelli (center) of Flash Electronics is flanked by Mitch Budin of DreamWorks Home Entertainment (left) and Jed Grossman of Artisan Home Entertainment. (Hive Photo)

The trade association's biggest member cuts special deals with the studios.

The smaller members get upset and urge the association to look into those deals, and support them should they decide to mount a legal challenge. The association says no, it can't get involved in disputes between members. The smaller members fume.

Such was the case with the VSDA two years ago, when then-VSDA president Jeffrey Eves refused to let the association get in the middle of the spat between Blockbuster Inc. and independent retailers over Big Blue's direct revenue-sharing deals with the studios.

And now it appears that the National Association of Video Distributors will take a similar stance--or non-stance, rather--in the dispute between Ingram and other distributors over the top wholesaler's deals with Warner Home Video and Universal Studios Home Video that cut out most of its competitors.

Like the VSDA, the NAVD is in the tough spot. But like the VSDA, the NAVD is ultimately going with the "big tent" approach, believing that by not getting involved in member disputes and potentially alienating its biggest member, it can more effectively do its job in the future.

"What kind of clout do you think we'd have with the studios if Ingram wasn't on board?" NAVD executive director Bill Burton asked me the other night.

He's got a good point. Already, distribution only accounts for about 45% of rental product, and rental only accounts for about half total video sales. Slice that in half again--should Ingram bow out--and you'd be left with a weak association of comparatively small distributors.

Jeff Eves used the same argument to keep the VSDA neutral. Lose Blockbuster, with nearly 40% of the rental market, and you don't have nearly the clout you had before. (In the VSDA's case, it was belatedly discovered that the issue was also financial. Single-store retailers account for 78% of the VSDA's membership, but only 17% of its revenue).

I took issue with the VSDA's neutrality stance at the time, saying that if the association consists primarily of independent retailers, it should act in the best interests of the majority of its members and if they want the VSDA to get involved, then the VSDA had better do something, regardless of Blockbuster.

In the NAVD's case, I'm not so sure. The NAVD only has a handful of members, and had any one of them been offered a deal similar to the ones Ingram got--fulfillment for Warner's Rental Direct, and full-line distribution for Universal's rental, sellthrough and DVD--you can bet your PlayStation 2 they would have jumped on it.

And yet the exclusionary deals clearly hurt the other distributors, who comprise the majority of the NAVD's membership.

What's the association to do? I'm going to sit this one out--and thank my lucky stars that I'm not Bill Burton, an honorable gentleman in a business where honor and gentility no longer seem to have a place.


Comments? Contact TK directly at:TKArnold@aol.com


10 Nov, 2000

APAR's WORKING WEEKEND: Whose Price Is It, Anyway?

A more timely headline would be “whose vote is it, anyway?,” but we’re in the business of entertainment, note elusive elections. So on with the show…

When consumer goods and services are modeled for the marketplace, which comes first: perceived consumer desire, or the imperatives of distribution? Without casting aspersions on the latter, the answer is a no-brainer. First you figure what people want, then you figure how to negotiate the perils of the pipeline to get it to them.

That is simply said. Not so simple are the vagaries of the VHS rental business in these crazy, hazy days of revenue-sharing. Even messy market conditions, though, can’t alter absolute fundamentals. One of those is the consumer comes first, last and always. For a more schooled, eloquent elaboration of that theme, catch Amazon.com founder and c.e.o. Jeff Bezos deliver the keynote at the Home Entertainment Expo & DVD Festival in Las Vegas on Jan. 7.

So how is it that one of the home video industry’s most productive doers and original thinkers is agitating for DVD labels to raise their prices? That’s what Flash Distributors president Steve Scavelli is asking for with his campaign for a “two-tiered pricing structure” on DVD that echoes the time-honored VHS rental window.

The rationale is that you build a protective shield around a new release for the rental trade that lasts for several weeks or months by keeping it out of the hands of retailers who only sell goods. The supplier does it either by pricing each copy beyond what any consumer or retail seller would pay to have it, or leasing the copy to a rental outlet on a pay-per-transaction basis. After the so-called rental window outlives its usefulness, the same movie is repriced to a level of affordability for ownership.

DVD is not VHS. It is the successor to VHS. With the digital format tearing up the shelves and injecting much-needed excitement into all parts of home entertainment, why retard momentum by jacking up the retail price? Sure, you can argue, it hews logically to the law of supply and demand: when demand is riding high, soak the customer.

But in the case of DVD, to what end? Aah. There’s the rub. It has little to do with suppliers, who have already established their preferred pricing levels for DVD, and it has even less to do with satisfying consumers, who have voted with their wallet in favor of DVD ownership. It has mostly to do with those in between-–retailers and wholesalers.

Mr. Scavelli proposes that DVDs be priced at $49, “and then three or six months later be reduced.” That would frustrate the considerable consumer base of DVD collectors just getting used to purchasing a DVD movie at an affordable price when it’s released simultaneously at rental on VHS. It also would keep the new-release DVDs out of the hands of high-volume merchants whose sales velocity eats into rental transactions.

An estimable industry veteran who runs a successful distributorship, Mr. Scavelli argues that not every movie is worth owning. True enough, but are those not worth owning worth a retailer buying wholesale off a $50 retail price? And if a movie’s not worth owning (a highly subjective judgment to begin with), why worry about competition from sales outlets, and why should the supplier go to the bother and marketing expense of repricing it at all? Just price it low out of the gate as a cheap-inventory rental copy.

Prevailing DVD street prices, generally under $25 for new releases, open the field to retail sellers as well as rental locations. It works for most everybody, but not everybody sees it that way. Those who don’t want to own a DVD can still rent the DVD from retailers who can afford more rental copies, without revenue-sharing, than they could under a DVD rental-pricing window, where their cost per rental copy would double. Hollywood Video’s chairman Mark Wattles has gone on record supporting the same, self-serving, “consumer-be-damned” sensibility of a two-tiered pricing structure. It’s a solution without a problem.

At the same time, Blockbuster reportedly is leaning on Hollywood labels to delay DVD versions of hit titles until the rental VHS copy of the same movie can pay back its cost and then some. That says consumers are clamoring for DVD; otherwise it wouldn’t be cannibalizing VHS rental revenue.

This is not to say an industry always can satisfy the consumer completely-– goodness knows, the video industry’s conceit for years was that it thrived on not giving the customer what she wanted, which led to the revenue-sharing rampage. But with DVD, the industry appears to have reached a very happy medium, and if some are unhappy, an industry cannot always completely satisfy all its trade customers either.

It’s only fair to note that Mr. Scavelli and I are longtime friends--of video, and of each other. He is nothing if not indefatigable, generous, tough-minded, trustworthy and tons of fun to hang with.

But often our politics don’t mix-–IM me when there’s a new President, Steve--and just as often our industry positions are poles apart. That’s what makes horse races-–and contested elections.

Hail to DVD!


Comments? Contact Bruce directly at:bapar@advanstar.com


9 Nov, 2000

TK's MORNING BUZZ: Sparks Don't Fly at NAVD Meeting in L.A. -- Ingram Unchallenged

The expected sparks didn't fly at yesterday's National Association of Video Distributors meeting in Los Angeles.

Despite rumors that a move would be made to boot Ingram Entertainment off the board, or at least censure the distributor, for its exclusive deals with studios, the matter was barely brought up.

Feisty distributor Steven Scavelli, president of Flash Electronics in Brooklyn, N.Y., reportedly did bring the matter up, asking his board members whether Ingram might have violated NAVD charter provisions and, if so, whether some sort of action should be taken.

Scavelli won't comment, but other distribution sources say that despite Scavelli's urgings, no action was taken "or even considered. They did pull the charter out and several distributors said it was worth looking into, but in the end nothing happened."

NAVD board members focused on other matters. "We do still have common interests," executive director Bill Burton told me last night in the lobby of the Le Meridien, where wholesalers were gathering prior to a dinner with MGM executives. Among them: getting DVD on a par with VHS in all areas, including margins and returns; late shipments of product; and funding another video store census with the VSDA, to the tune of $50,000 total cost.

Distributors also queried studios about the recent holdback of some DVD releases (they're against it), if and when they will adopt a two-tiered pricing structure for DVD to mirror the current VHS model (they're for it), and what studios plan on doing about the increasingly likelihood of defective DVDs once the rental market really gets rolling.

In short, it was a business as usual--in a most unusual business.


Comments? Contact TK directly at:TKArnold@aol.com


8 Nov, 2000

TK's MORNING BUZZ: Video Insiders Are Cringing at the Prospects of a Bush Presidency

So far, the presidential election has had a positive effect on the video rental business. Retailers around the country on Election Night reported that despite the drama and fireworks of the closest presidential race in 40 years, people are not glued to their TV sets and, instead, are renting videos.

One regular reader tells me he was a bit concerned, given the high turnout and close race, that he would not experience the customary uptick in rental activity he's seen in elections past, but his fears proved unfounded and he did as well as he ever did.

And yet video insiders are cringing at the prospects of a Bush presidency. When the Republicans are in charge of the White House, they say, there tends to be a lot less tolerance of free speech; veterans say that when Clinton was swept into office eight years ago, they noticed an immediate change in attitude toward the legislation of morality that had become commonplace under the Bush (Sr.) and Reagan administrations.

What to expect under Bush the Second? Retailers who rely heavily on adult to lift them through the hard times could very well see an increase in prosecutions. The celebrated Tin Drum case, an anomoly during the Clinton years, could well become the rule rather than the exception, and while retailers in that case ultimately triumphed, observers are not so sure of the outcome should a similar situation arise under Bush.

As a journalist, I have always been an ardent foe of any attempts by government to impose its moral bent on the public. Even as a child, I relished reading books that had been banned through the years, including J.D. Salinger's Catcher in the Rye.

On the video side, I'm not a personal fan of adult entertainment, and yet it makes my hair bristle to think that someone could get in trouble for renting or selling this stuff to consenting adults. Freedom of speech was one of the founding principles of this country, an important tenet in the so-called Land of the Free--and a right we must protect and defend no matter what the guy in the White House or his lieutenants think.

Hopefully George W. Bush will be a little more farsighted than his Republican predecessors, and be as fair and nonpartisan in making appointments as Clinton has been. It may be the will of the people that he serve us as our next President, but that doesn't give him the right to subjugate everyone's inherent free will so he may advance his own particular sense of morality or political sensibility.


Comments? Contact TK directly at:TKArnold@aol.com


7 Nov, 2000

TK's MORNING BUZZ: There Could Be Fireworks at This Week's NAVD Meeting in L.A... Just How Welcome is Ingram?

There could be some real fireworks at this week's meeting in Los Angeles of the National Association of Video Distributors, wholesalers tell me.

Although unlikely, the meeting--which will be held Wednesday and Thursday--could result in something as radical as Ingram Entertainment being booted out of the organization by angry competitors who no longer feel the giant wholesaler is "one of us," in the words of one. In any event, don't expect to see Vern Fross toasting drinks in the bar Wednesday night.

Ingram has never been a favorite among its competitors. A few years ago, when WaxWorks was having some financial problems, Ingram opened a sales office within earshot of WaxWorks' headquarters in Owensboro, Kentucky. Tensions eased last year, at the 1999 NAVD conference in Indian Wells, Calif., when Ingram pleaded with suppliers to "feel our pain" and appeared to speaking for all wholesalers.

But then, when Ingram landed fulfillment duties for Warner Home Video's Rental Direct program and everyone else was shut out, a real rift developed.

It widened when Ingram became one of only two distributors to be tapped by Universal to carry its full line of product, and was torn wide open when Ingram sales reps began calling their rivals' accounts the moment the deal was sealed, urging them to give all their business to Ingram.

David Ingram calling his competitors "idiots" in a conference call didn't help matters, and when Ingram bought Major Concepts and began claiming a market share of more than 50% of all rental product channeled through distribution, the line in the sand was clearly drawn.

Several distributors feel the Feds should look into the Universal deal, and there is wisespread sentiment that distributors may ultimately square off in court.

If the NAVD has to weigh in on one side or the other, someone's going to walk out--and remember, the majority rules. If the NAVD pulls a VSDA and does nothing, saying it can't get involved in disputes between its members, then it will have lost any effectiveness it might have had.

Either scenario is not pretty, and I don't envy Bill Burton right now. The future of the NAVD hangs in the balance, and I have a feeling the butterflies will be churning in Burton's stomach between now and Thursday night.


Comments? Contact TK directly at:TKArnold@aol.com


6 Nov, 2000

TK's MORNING BUZZ: Artisan Home Entertainment Signs Revenue-Sharing Output Deal With Rentrak, But Will It Include DVD?

You read it here first--longtime revenue-sharing holdout Artisan Home Entertainment has done what executives for years were saying they'd never do: sign a revenue-sharing deal with Rentrak Corp.

Retail sources say two options are available, both for six-month terms. One is an output deal in which retailers pay $3.50 per cassette up front and agree to turn over 40% of rental revenue, or a minimum of $1.15 per transaction, to Rentrak.

The other is a standard pick-and-choose deal in which retailers pay $8.30 per cassette up front and turn over 55% of rental revenue to Rentrak.

DVD may be included in the mix, at Artisan's option--although when the program kicks off with the Jan. 2 release of The Way of the Gun, only VHS cassettes will be included.

Artisan plans to release between 36 to 40 rental titles in 2001.

The regular reader of my column here on the Hive who furnished me with this information, a retailer I have come to respect for his insight and savvy, applauds this deal as leveling the playing field for all retailers.

"If I were in your position I would encourage other studios to do the same," he writes. Pending further investigation, I just might do that.

In the meantime, I really hope Artisan does start to include DVD titles in its revenue-sharing program. The big studios are very afraid that DVD will cannibalize sales to retailers of higher-priced rental cassettes, and all sorts of methods do thwart this are being discussed. Already, Fox andUniversal are testing a concept I think is most unwise: withholding the DVD release of certain hot new titles so that rental dealers can only buy them on VHS for a couple of weeks.

Other studios are talking about including DVD in future revenue-sharing agreements, and now Artisan has at least opened the door by saying future releases might be available through revenue-sharing on both formats.

Speaking of DVD, if anyone out there still doubts the mainstream appeal of this disc-based format, consider this: Friday night I stopped by the local Von's supermarket and right there in front of the store, sandwiched between leftover pumpkins and jumbo packs of paper towels, was a stack of Toshiba SD-1600 DVD players. "DVD players--$179," read the sign. "For Von's Clubmembers only."

This, at a chain that only began carrying sellthrough video five years ago...


Comments? Contact TK directly at:TKArnold@aol.com