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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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24 Oct, 2000

TK's MORNING BUZZ: For Many Video Retailers, the 4th Quarter Will Decide Whether They Stay In Business or Close Shop


The latest wire report about amazon.com's continued bleeding states, in a nutshell, that while losses for the just-finished third quarter have widened, all eyes are on the critical fourth quarter.

That pretty much sums up what many video retailers are saying about their own businesses. Rentals were down over the summer, but for many the fourth quarter will be the deciding factor in whether they stay in business or close up shop.

For video dealers relying on VHS rentals alone, the fourth quarter promises to be a bummer. Despite a few big titles, we're seeing most of the summer theatrical blockbusters priced for sellthrough. Whether video specialty retailers will be able to turn these titles into hot rental commodities remains to be seen, particularly since practically all the big titles, rental as well as sellthrough, will be available day-and-date on DVD--and the mass merchants and consumer electronics chains like Best Buy and Circuit City will be pushing the hell out of them.

Unfortunately, nothing short of a boffo fourth quarter will have much of a positive effect on video rental stores. They've been hurting for the last few years, and even if rental revenue is on a par with last year, it won't be enough to make up for the ground they've lost so far this year. Keep in mind that open-to-buy dollars are predicated on past revenues, and the fact is that many retailers aren't buying as much product as they perhaps should simply because they don't have the money.

A year ago, retailers bemoaning the sad state of the business were busy adjusting to a lower standard of living. The rental store that used to generate $120,000 in annual revenue is now making maybe $90,000 or $100,000, and once you subtract overhead and other expenses, the balance isn't enough for the owners to maintain a decent standard of living.

Stay tuned to The Hive later today for a report on Blockbuster's latest financials and a conference call with analysts.

As a result, you already see retailers leaving the business to sell cars, hawk pizza, and pursue various other jobs that might not give them the same ego-boost as operating their own businesses, but that certainly provide them and their families with a little more money to live on.

My prediction is that the fourth quarter, rental wise, will be flat. And that means another accelerated shakeout that will leave the video rental community with a smaller population than it's had in years.


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


23 Oct, 2000

TK's MORNING BUZZ: Why Does This So-Called 'Dying' Business Continue to Generate So Much Money?

Imagine what the video rental industry must look like to an outsider.

In the last few months, two big public video chains, Video Update and Video City, filed for Chapter 11 bankruptcy.

Top video specialty chain Blockbuster Inc. saw its stock price nosedive to below $7 a share, less than half its IPO price, while the second-biggest chain, Hollywood Entertainment Corp., lost a significant chunk of its share price in a single day.

A respected industry analyst, Paul Kagan Associates, declares video rental is "dying," while reports that only about 100 independent video stores are going out of business each month are greeted as good news.

Through all of this, however, the mainstream media has been strangely, oddly, inexplicably silent. I remember back in early 1997, when video rental revenue was off a few percentage points from the year before. We immediately saw a barrage of stories in the financial press, calling video stores "dinosaurs" and insisting that the end is near.

The same doom-and-gloom stories followed every other crisis, real or perceptual, this industry has faced almost since its inception, from the video-on-demand threat posed by the telco mergers of the early 1990s to the arrival of the Internet a few years later.

The mainstream press' silence in the midst of what just might be the biggest crisis this industry has ever faced--and from it may never recover--could be due to a number of factors.

It could be they've already written us off for dead so many times that they figure one more crisis--one more nail in the coffin?--is old news.

It could be they just don't care. Let's face it--our problems are very real to us, but they're nowhere near as sexy as, say, the bursting of the dot-com bubble or, for that matter, the promise of DVD and video streaming.

Or it could be--and this is the worst scenario of all--that they're just holding their breath, like many of us are, and waiting for the other shoe to drop. Why waste ink on writing about the ailments of a sick patient when you can cover all that and more in the obituary?

And yet, despite all the setbacks video rental has suffered in the recent past, it is still a mighty industry generating more than $9 billion in annual consumer spending. Overall rental revenue is down, but only by a few percentage points. In fact, with all the obstacles it is facing, both from the outside and from within, it's somewhat remarkable that this "dying" industry is still generating so much money.

But I guess that's not a sexy story, either.


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


20 Oct, 2000

TK's MORNING BUZZ: If You Think This Was a Bad Year for Video Retail, Just Wait Till Next Year -- When VOD Accelerates

If you think this year was bad, just wait until next year.

That's when we're going to start seeing significant inroads made by the pushers of video-on-demand, who are quietly laying the infrastructure for what many believe will be a full-fledged assault by year's end.

What makes video-on-demand so deadly is that it mimics the video rental experience, offering viewers the chance to not only pick movies but also stop them, pause them and even fast-forward and rewind them at their whim.

Pay-per-view has never really taken off because it's a poor tradeoff. Yes, watching a PPV movie doesn't require a trip to a video store, but you can't "manage" the film as you can a rented video.

The powers that be in the cable and satellite industry know this, which is why for years they've been trying to perfect a technology that gives complete control to the viewer.

The technology exists, but the application has been a bitch, due to the high cost and time factor involved in building the infrastructure.

Now, VOD proponents are saying their time is finally coming. This is not to mean that everyone will have access to VOD by the end of 2001. But it does mean the baby steps proponents have been taking over the last few years will accelerate into a commanding stride.

Indeed, one major studio that shall remain nameless even has an internal timetable for the day, about two years off, when widespread availability of VOD will cause video windows to be slammed shut.

Will VOD be driven by the hits? You betcha. No one's going to wade through 5,000 movies on their TV-screen menus.

And that's why it's so sad that the video rental industry has become so dependent on the hits.

Retailers' one hedge against VOD is gone, and as one industry analyst recently told me, "It's only a matter of time."

I know we've heard such shouts before. For many of us, it's like the boy who cried wolf. Each year we hear that VOD will kill the video store, and each year that doesn't happen.

But if you remember the fable, just because the boy cried wolf time and time again doesn't mean the wolf never came.


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


19 Oct, 2000

TK's MORNING BUZZ: An Aggressive Push by Remaining Wholesalers May Snag Some of Major's Clients From Ingram

As the percentage of rental product channeled through distribution continues to decline, remaining wholesalers are intensifying their fight over the scraps.

Ingram Entertainment yesterday issued a press release informing us that its purchase of Major Video Concepts has closed--and reiterating its claim, made in the original announcement, that it now has a market share of more than 50% of rental product sold through distribution.

That original announcement provoked an outcry from other distributors, including VPD's Marty Jorgensen, who rightly point out that such a market share estimate hinges on Ingram picking up all of Major's accounts--which they maintain is unlikely, given Ingram's prior track record of retaining only about half Commtron's accounts when that distributor "merged" with Ingram in the early 1990s.

Further reducing Ingram's chances of hanging on to all Major's accounts is an aggressive push by other wholesalers to snag at least some of the former No. 2 distributor's clientele. Their efforts to do so may be aided by two factors.

For one, Ingram has traditionally serviced bigger accounts in metropolitan areas, and Major's accounts--mostly smaller retailers in rural markets--might be reluctant to sign up with a very different organization. Smaller retailers tend to be a lot more loyal than their bigger peers--witness WaxWorks' success over the years in holding on to its largely mom-and-pop clientele, despite the presence of an Ingram sales office in WaxWorks' hometown of Owensboro, Kentucky, just a few blocks from WaxWorks' headquarters--and many former Major accounts might feel more comfortable hooking up with a smaller organization they feel is more geared to their needs.

Secondly, by snagging administrative duties for Warner Home Video's Rental Direct program, landing the Universal account and buying Major, Ingram is seen as a hungry conglomerate--distribution's answer to Blockbuster, if you will. Smaller retailers, who believe anything big is bad, might shy away from Ingram simply because of its size. Ironically, Ingram is only furthering this perception by touting its big market share estimate.

Of course, Ingram has a reason for bragging about its market share. As independent retailers become less and less important to the studios, simply because their ranks--and buying power--are dwindling, the distributors who service them also slide down the perceptual food chain. That means less incentives like co-op dollars and, most significantly, mailer ads, which we all know is distribution's primary source of profits.

It's sort of a conundrum that Ingram is in right now. By consistently touting its commanding mark share, the company might be turning off many of the retailers it needs to establish and maintain that market share.

It's hard to be a big fish in a shrinking pond.


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


18 Oct, 2000

TK's MORNING BUZZ: Several Hurdles Are Emerging That May Impact DVD's Rapid Growth

While most everyone still regards the DVD market with cheery-eyed optimism, several hurdles are beginning to emerge that may impact the format's rapid growth.

Retailers are already reporting shortages of players, particularly on the low end of the price spectrum. This could slow the household penetration rate, since the cheaper players are designed to bring DVD to the masses and if the masses can't buy, then the masses won't switch.

Several studios, including DreamWorks Home Entertainment and Universal Studios Home Entertainment, appear to be shying away from the day-and-date release plan everyone was starting to embrace earlier in the year. There's been no official word as to why, but earlier in the year Universal executives, concerned over possible cannibalization with VHS, were reportedly mulling over exactly such a strategy. In most cases, the window is only a couple of weeks, but that could be enough to raise consumer skepticism--something you don't want to do in trying to establish a new format.

Add to that the fact that Sony is limiting PlayStation 2 shipments to a couple million units--hardly enough for the new wonder machine to be much of a factor in the DVD market--and continued replication problems that are seeing independent product pushed to the side, and the optimistic projects we keep hearing and reading about may begin to taper off.

To all parties involved: Please, let's not tinker with success now. For DVD to continue to flourish, you need to constantly reaffirm your commitment with both guns blazing.

And the key is availability. Consumers need to have ready access to DVD players and software, just as they do to VCRs and VHS cassettes. I already know one couple that was going to buy a DVD player, but, failing to find one in their price range (under $200) walked out of the consumer electronics store with a $46 VCR instead.

"We'll try again after the holidays," they told me.

That's not a very encouraging sign.


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


17 Oct, 2000

TK's MORNING BUZZ: Studios Cast Serious Eye to Digital Technology, Putting DVD Development Up With Sales & Marketing

What an enjoyable way to spend an afternoon.

Buena Vista Home Entertainment executives yesterday shuttled members of the trade press into the Frank G. Wells theater on the Disney lot in Burbank for hour-long presentations of the studio's two big-bang DVD releases, Toy Story/Toy Story 2 and Fantasia/Fantasia 2000. The focus was on the three-disc "deluxe editions," in which each film occupies one disc while the third consists solely of extra features and supplemental material.

Senior v.p. Bob Chapek, who sources say is the heir apparent to departing division president Mitch Koch, concedes Disney is playing catchup in the DVD arena, having entered the market late and at a price point a lot higher than anyone else. The Toy Story/Toy Story 2 two-pack, which streets today, carries a suggested retail price of just $39.99, about the same Disney was charging for stripped-down single-disc versions of its animated hits a year ago.

The product is tantalizing, and I can honestly say the Toy Story three-pack, called The Ultimate Toy Box, outshines anything I've ever seen before. Even the menus are animated, while the special features include everything from the original 1988 short, Tin Toy, to a virtual toy store of outtakes, deleted animations, interviews, behind-the-scenes shots, and even some Easter Eggs.

But the wonderful job Disney has done on these two projects is overshadowed by an even more significant move: after a brief introduction, Chapek turned the podium over to Chris Carey, Buena Vista's "senior v.p. of technical operations."

Carey represents a new breed of home video executive. The primary function of Carey and his staff is to plan, develop, strategize and spruce up DVD releases. The fact that Carey bears the same senior v.p. title previously reserved, not just at Disney but throughout the home video industry, for the heads of sales, marketing and operations signals that studios are casting a serious eye toward digital technology and putting DVD development right up there with sales and marketing.

Disney isn't the only studio to put a group of executives in charge of DVD development, but as far as I know Carey is the first to be trotted into the limelight with a senior v.p. title.

Disney's both-guns-blazing commitment to DVD is designed to capitalize on a market that's growing faster than anyone envisioned. And yet Disney will be both beneficiary and catalyst for future growth. Of all the major studios, Disney caters primarily to a family audience.

And once the family jumps on the DVD bandwagon, I'd say the day will soon come when we can all kiss our sweet VHS goodbye.

As Russ Solomon, the patriarch of Tower Records and Video, once told me, tape is an imperfect medium, a transition format. The music industry has already transitioned from tape to disc. Now it's home video's turn.


17 Oct, 2000

TK's MORNING BUZZ: Studios Cast a Serious Eye Toward Digital Technology, Putting DVD Development Up With Sales and Marketing


What an enjoyable way to spend an afternoon.

Buena Vista Home Entertainment executives yesterday shuttled members of the trade press into the Frank G. Wells theater on the Disney lot in Burbank for hour-long presentations of the studio's two big-bang DVD releases, Toy Story/Toy Story 2 and Fantasia/Fantasia 2000. The focus was on the three-disc "deluxe editions," in which each film occupies one disc while the third consists solely of extra features and supplemental material.

Senior v.p. Bob Chapek, who sources say is the heir apparent to departing division president Mitch Koch, concedes Disney is playing catchup in the DVD arena, having entered the market late and at a price point a lot higher than anyone else. The Toy Story/Toy Story 2 two-pack, which streets today, carries a suggested retail price of just $39.99, about the same Disney was charging for stripped-down single-disc versions of its animated hits a year ago.

The product is tantalizing, and I can honestly say the Toy Story three-pack, called "The Ultimate Toy Box," outshines anything I've ever seen before. Even the menus are animated, while the special features include everything from the original 1988 short, Tin Toy, to a virtual toy store of outtakes, deleted animations, interviews, behind-the-scenes shots, and even some Easter Eggs.

But the wonderful job Disney has done on these two projects is overshadowed by an even more significant move: after a brief introduction, Chapek turned the podium over to Chris Carey, Buena Vista's "senior v.p. of technical operations."

Carey represents a new breed of home video executive. The primary function of Carey and his staff is to plan, develop, strategize and spruce up DVD releases. The fact that Carey bears the same senior v.p. title previously reserved, not just at Disney but throughout the home video industry, for the heads of sales, marketing and operations signals that studios are casting a serious eye toward digital technology and putting DVD development right up there with sales and marketing.

Disney isn't the only studio to put a group of executives in charge of DVD development, but as far as I know Carey is the first to be trotted into the limelight with a senior v.p. title.

Disney's both-guns-blazing commitment to DVD is designed to capitalize on a market that's growing faster than anyone envisioned. And yet Disney will be both beneficiary and catalyst for future growth. Of all the major studios, Disney caters primarily to a family audience.

And once the family jumps on the DVD bandwagon, I'd say the day will soon come when we can all kiss our sweet VHS goodbye.

As Russ Solomon, the patriarch of Tower Records and Video, once told me, tape is an imperfect medium, a transition format. The music industry has already transitioned from tape to disc. Now it's home video's turn.


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


16 Oct, 2000

TK's MORNING BUZZ: Studios Having a Hard Time Meeting Goal on Rental Titles Have No One to Blame But Themselves

Reports are filtering in that studios have starting to have a hard time meeting goal on their rental titles. As Ray Jewell, the feisty Texas retailer who birthed the Red Hat Brigade protect-our-windows movement, told one of our reporters recently, "There just aren't that many of us left to buy all those videos."

Jewell has a point. While much has been written about how more than 50% of rental product is now channeled through revenue-sharing, primarily to the big chains that buy directly from the studios, the other 45% or so is still sold through traditional means, primarily to independent retailers. And since the output deals through which most revenue-shared product is sold are determined well in advance, any shortfall in meeting goals must lie on the independent side.

The rate at which independent retailers are going out of business has slowed considerably from the estimated high of 300 to 400 stores a month two years ago, but stores are still closing--and the pool of independent retailers is nowhere near as high as it once was.

On top of that is the fact that copy-depth programs are still not working, even after nearly three years of tinkering and modifying. By and large, the goals are still too high and the formulas too complex. On average, retailers do have a higher depth of copy on new releases than they used to, but it's still not enough to make up for the significantly smaller population of independent retailers.

For this problem to be rectified, one of two things has to happen: the closure rate needs to be turned around, so that there are more retailers getting into the business than there are going out of business, or studios need to come up with some sort of program to sharply elevate the average retailer's buys.

The former simply isn't going to happen--why anyone would want to open a video store these days is beyond me. And the latter, if achieved, still doesn't guarantee success. I'd be willing to bet that if all studios slashed the price of their new releases by half, so that retailers could buy as many or as few copies of every new video for $30 to $35 with no strings attached, you'd maybe see a few more copies being sold, but not nearly enough to make up for the loss in revenue.

It's a conundrum to which, sadly, there is no answer. And as studio executives begin to realize that it's getting harder and harder for them to meet goal, I sincerely hope they recognize the true culprit: themselves.


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


13 Oct, 2000

TK's MORNING BUZZ: For Blockbuster's Stock to Sink So Low Isn't a Good Sign for Big Blue

Happy Friday the 13th!

I opened my newspaper this morning to discover that Blockbuster Inc. stock closed trading yesterday at $7.50 per share, exactly half the IPO price.

Granted, the Dow had one of its worst days all year, nearly dropping back down to the 10,000-mark it first reached in March 1999.

But for Blockbuster's stock to sink so low, after a long period in the $9 range, certainly isn't a good sign for the company, particularly since the fourth quarter has just begun--which is traditionally a good time for retail--and the chain is in the midst of its much-ballyhooed expansion into selling DirecTV satellite systems and service.

Blockbuster chief John Antioco has made a big to-do with his strategy of exploiting what he calls the "pay for transaction" business. Simply put, he believes that the future of home entertainment will be increasingly fractionalized. The days when the family will gather around the livingroom TV set are over, he declares; thanks in large part to the growing number of delivery options, from satellite and cable to the Internet, DVD and the PlayStation 2 (which will also play movie discs), he sees Dad watching action films on the DVD in the study, Mom enjoying a romantic comedy on the bedroom VCR, and Junior alternately playing games and watching movies on his PlayStation 2 unit.

With so many entertainment options available, Antioco reasons, consumers will be less inclined to buy--hence Blockbuster's continued reluctance to jump into sellthrough, VHS as well as DVD--and more inclined to rent, be it a video from the video store or a pay-per-view movie.

The problem with Antioco's strategy, if one can be critical this early in Blockbuster's game, is that it appears he's trying to do too much, too soon, and thus risk losing Blockbuster's proprietary identity. You can buy satellite at the Good Guys or just about any consumer electronics store; you can subscribe to fledgling video streaming and downloading services via your own home computer.

But you can only rent videos (VHS and DVD included) at the video store, and despite the trend toward factionalized viewing in the home, the DVD sales market is exploding. Perhaps Antioco would be better advised to stick with what Blockbuster does best--rent and sell packaged movies--than to try to be all things for all people.

Three years from now, Antioco's strategy might be right on the mark. But for the time being, it appears he might be jumping the gun--with the barrel aimed straight at Big Blue's stock price.


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


11 Oct, 2000

TK's MORNING BUZZ: Is Ingram the New Blockbuster of the Distribution Jungle?

Video distribution now has its own Blockbuster.

With its acquisition of Major Video Concepts, Ingram Entertainment expects to have a commanding market share of more than 50% of all rental product channeled through distribution. That's more than all six of its remaining wholesaler competitors combined.

Add to this the fact that Ingram is now the only national distributor with an official stake in distributing product from all six major studios, and you’ve truly got an 800-pound gorilla with the power to become the king of the distribution jungle.

Already, parallels between Blockbuster and Ingram can be drawn.

Like Blockbuster, Ingram is on a quest to boost market share. Right after Universal restricted distribution of its product to Ingram and two other distributors, Ingram sales reps began calling up their non-chosen competitors’ accounts, urging them to switch and send in credit applications so they could continue to buy Universal product.

Like Blockbuster, Ingram is aligning itself with the studios. David Ingram calls studio executives his “partners” and says he agrees with them when they say there are “too many distributors chasing too few accounts.”

And, again like Blockbuster, Ingram is now finding itself in the hotseat, with competitors screaming about unfair competition and talking about going to court for help.

ETD head Ron Eisenberg told Video Store Magazine he plans on asking the FTC to investigate “antitrust implications,” the same charge cited in the FAIR action against Blockbuster.

Ingram’s response? “I like Ron,” he said, “and I hope he doesn't drag us down and waste our time in courtrooms.”

A move to Dallas is not anticipated.


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