SUBSCRIBE : MAGAZINE | NEWSLETTER

Is Netflix Seeing UltraViolet?

The recent financial industry discussion with the CFO of Netflix shed some light on what the subscription service may be focusing on as it moves into the streaming future. I think it may be seeing competition from UltraViolet, the cloud-based license storage service backed by most of the major studios.

Netflix significantly is not a member of the Digital Entertainment Content Ecosystem (DECE), the consortium of more than 70 members that support UltraViolet. Suddenly, as UltraViolet has had a successful launch in Walmart stores and has racked up 2 million accounts, Netflix CFO David Wells told an investor group the company plans later this year to roll out a subscription plan enabling multiple users within a household to stream content on different devices.

Wells said the upcoming subscription offering with an as-yet undefined price is the result of a growing number of users accessing Netflix from one account at the same time.

Hmmm …

Could that be a response to UltraViolet’s ability to let consumers have up to six household members per account able to access content on up to 12 different devices?

As I have said previously, ownership is a very efficient way to get consumers the movies they want — without making them pay for a bunch of titles (via licensing deals with Netflix) that they don’t ever want to see.

In this recent call, Netflix is making it clear that even within households, different members like different content and want to watch it on different devices — sometimes at the same time as another member in the household.

What model serves consumers’ desire to both watch the content they want and also watch it on the device (TV, tablet, mobile phone) they want — regardless of what other members of their “account” are watching at the same time?

I think UltraViolet may be giving Netflix some headaches in that competition.

Have We Turned a Corner?

It may be that our business has finally hit an equilibrium. The home entertainment market as a whole — measured as direct sales to consumers plus the money they spend renting content (either digitally or physically) — has grown more than 2%, but the true measure of the health of the business, as far as the studios are concerned, is the sellthrough measure. And spending there seems to be about equal to the first quarter of 2011. In this economic environment, flat is good, and sellthrough spending is essentially flat.

While many have been predicting a bottom in the housing market — with some saying we have actually hit it this year — I think it’s more likely we have hit a bottom in the video market, and may be heading up on the sellthrough side soon.

UltraViolet may prove to be the savior of electronic sellthrough, which the studios have been trying to spur for years with little success. Walmart’s disc-to-digital program, whereby consumers bring in their old discs to load them into the cloud via Vudu, is showing every indication it is the killer app for the UltraViolet service. Studio executives are hailing a jump of 1 million UltraViolet accounts to 2 million with the launch of Walmart’s service, which has only barely begun. TV advertisements for the service just started hitting in late April (see story, cover).

If UltraViolet truly starts to pick up momentum — as there is every indication it will — incremental revenue from the service should help the home entertainment bottom line, and it should also help studios draw back consumers who have turned to Netflix or other digital services for their home entertainment. Ideally, studios would like consumers to own their content, either digitally or physically, and UltraViolet may help bring consumers back into the sellthrough fold.

In addition to UltraViolet, home entertainment spending should get an assist from a strong slate of summer movies, starting with the much-anticipated superhero spectacular The Avengers. On the home entertainment front, we can look forward to the sure-to-be-blockbuster release of The Hunger Games.

Redbox Rentals Sitting Pretty

One of the side effects of both Blockbuster closing stores and Netflix starving its disc rental business is the continued rise of Redbox.

While Redbox won’t reveal its final first-quarter financial report until April 26, parent Coinstar began to show its hand earlier this month, saying both profit and revenue would exceed expectations despite Redbox raising daily DVD rental prices from $1 to $1.20.

How many businesses can say raising prices didn’t hurt revenue or profit in these difficult economic times? Perhaps Apple with its higher-priced, uber-cool products can push higher margins on consumers, but not many other businesses have had that kind of price elasticity.

In the end, $1.20 isn’t that much more than $1 in many consumers’ minds, considering Redbox has garnered a larger and larger share of the physical rental market. Consumers simply have fewer choices. The video rental store is all but dead in many areas. Meanwhile, Netflix has all but abandoned its disc customers, forcing them to pay more for disc rentals plus streaming and cordoning off disc customers from the streaming service’s recommedation and reviews system.

Redbox (and indeed Netflix) has built its business being the low-price rental leader, and an extra 20 cents doesn’t seem to hurt that position at all — despite rental windows from major studios.

So far so good for Redbox’s mastery of the physical rental arena.

What I and many analysts are waiting for are the details of its digital delivery pact with Verizon. If Redbox can somehow offer a new value proposition in the digital arena, it could prove a strong competitor to the likes of Netflix and others — backed by its already profitable physical rental business.

As Netflix pulls away from its disc rental business, Redbox can move in with a new hybrid of physical and digital rentals. No other retailer, save for Blockbuster, has the same opportunity.

While Redbox’s physical rental business is booming — proving DVD is far from dead — its digital plan could be the roadmap for the future. 

Independents Bulking Up

The new watchword in this business, as far as content distribution is concerned, seems to be “Get big or go home.”

Gaiam’s recent acquisition of Vivendi Entertainment and RLJ Acquisitions’ buy of both Image Entertainment and Acorn Media indicate a move by independents to bulk up in preparation for the new digital order.

While some indies are merging, others are finding big brothers with muscle, as evidenced by Samuel Goldwyn’s deals last week to have Warner Bros. Home Entertainment handle its disc, electronic sellthrough and transactional VOD rights, with Miramax taking care of the rest.

When libraries make deals with the likes of Walmart on the physical distribution side and such companies as Netflix in the digital arena, it makes sense to pack some content punch.

In discussing Gaiam’s Vivendi move, Gaiam president Bill Sondheim noted the deal is a way to leverage Vivendi’s content relationships with Gaiam’s retail, direct-to-consumer and digital distribution moxie.
In other words, Gaiam is adding product to its already well-established pipeline.

The combined company will “leverage our increased scale to attract additional product from leading studios and other content providers,” he noted, indicating the bulking up has only just begun.

Ted Green, the newly appointed CEO of RLJ, talked of “mining the current catalogs at both [Image and Acorn] and exploiting the various channels available to us with those properties as well as continuing to look at potential acquisitions.”

Is that the case? Are more acquisitions in the offing? It seems quite possible.

In journalism, three occurrences make a trend, and with the acquisitions of Image, Acorn and Vivendi in just the past few weeks, a trend certainly seems to be in the offing.

Like dancers at a cotillion, independents seem to be looking for strong partners to dance their way into the digital future.

Betting on UltraViolet

Our latest issue includes our special white paper on UltraViolet, which lets consumers store the rights to movies and other content in a digital locker in the cloud, and access that content whenever they choose on whichever device they choose.

It’s a reboot, if you will, of the ownership model that made Blu-ray Disc and DVD such successes, and it promises to move the consumers’ content library into the digital world. It’s no secret that electronic sellthrough has been slow to get off the ground, and UltraViolet is designed to kick-start digital ownership.

One of its advantages is that it includes so many backers. There are many studios, consumer electronics companies, retailers and technology players betting on UltraViolet. Walmart’s recent announcement that it would allow consumers to access digital copies of their discs via UltraViolet and its Vudu service for the nominal fee of $2 or $5 (for a high-def upgrade) made the introduction of our white paper particularly timely. This stamp of approval from the biggest home entertainment retailer — and biggest retailer, period — could prove a shot in the arm for the digital service.

The home entertainment business is no stranger to new formats and initiatives to bring content to the consumer — or to the heated competition such changes can engender, from the battle between VHS and Betamax in the early days of the home video business to the high-definition format war between Blu-ray Disc and HD DVD.

In hindsight, industry observers can usually point to a decisive event that precipitated each move to a new content delivery format. The inclusion of a Blu-ray player in Sony’s PlayStation 3, for instance, rocketed that format ahead of the competing HD DVD and may have been the  catalyst that helped Blu-ray win the high-definition disc battle. Walmart’s backing of UltraViolet may prove to be such a turning point, which is precisely the reason Home Media Magazine decided to produce this comprehensive overview of the initiative post haste.

Granted, UltraViolet is still a work in progress. But it has many betting on it, and as history has shown, in the world of home entertainment, there’s a lot of strength in numbers.

Oscar Titles Should Hurry to Disc

'The Artist'

Purists will say that ideally every Oscar-lauded title should be seen in the theater, and I understand that sentiment. Sitting in the middle seat of a packed theater offers an experience that is truly unique.

But that ideal experience doesn’t always occur. Often, arriving late to a packed theater I have to squeeze into a seat way up front or way at the back. Perhaps the focus is off or there is a screaming baby in the theater. If you arrive early, you often are forced to sit through numerous commercials. In short, the theater experience isn’t always the ideal that filmmakers, who are often treated to private screenings, extoll.

At the Oscars this year, the Academy of Motion Pictures Arts and Sciences made a point of touting the virtues of going out to the movies. Ushers handed out popcorn and other goodies to the theater audience at the ceremony, a nostalgic nod to the movie-going experience of yesteryear. It only made me recall that the last time I got popcorn, I had to wait in line at the refreshment counter and pay $4 for a snack that cost the theater pennies.

I can’t exactly blame the Academy for romanticizing the movie experience. That’s sort of its job. But I do think the home viewing experience has an important place in exposing consumers to these critically acclaimed films.

Last year’s best picture winner, The King’s Speech, wasn’t easily accessible to my mother after the ceremony. She couldn’t find it playing theatrically anywhere near her Texas town, and she asked me when the disc was due. I told her it would be weeks away. A few years ago, I tried to see Frost/Nixon, another Oscar-lauded film, but could only find it at one theater in my area in Orange County, Calif. This disc wasn’t yet available.

While it’s great that this year’s Academy Award juggernaut and best picture winner The Artist, may be opening up to more theatrical screens, I wish it were available immediately on the home screen.

The Oscar ceremony’s marketing push lasts only so long, and disc often is the best medium to capture that fever.

Ownership Makes a Comeback

We can thank a glittering vampire for injecting some new vigor into the sellthrough business. The latest “Twilight” movie, Breaking Dawn — Part 1, sold 5 million disc units in its first 11 days of release, according to Summit Entertainment, which is owned by Lionsgate. The studio last week announced disc sales of the title are about 13% ahead of sales of the third film in the franchise, The Twilight Saga: Eclipse, at the same point in its release.

Breaking Dawn — Part 1 helped push overall disc sales revenue for the week up almost 20% from the same week the previous year, according to Home Media Magazine research. The last up period was the week ended Nov. 12, which included the debut of another juggernaut, Harry Potter and the Deathly Hallows — Part 2. The lesson: Consumers continue to collect the big hits in large numbers and are interested in owning them on disc.

Meanwhile, the cloud-based digital storage platform backed by five of the six major studios continues to add consumers (see story, cover). Consumers have redeemed UltraViolet digital rights to more than 1 million title copies, according to research firm IHS, with 50,000 new accounts opened since early January.

“One million [UV titles] may not sound like much compared to the 504 million movie discs sold in 2011,” said Tom Adams, analyst at IHS. “However, we have projected that only 19 million digital film files were sold during the entire year of 2011 by electronic sellthrough (EST) vendors like iTunes, Xbox Live and Vudu. This suggests that if UV can continue to gain momentum this year, it could encourage consumers to buy more movies.”

Also, considering the small number of films offering UltraViolet at the moment, it seems use of the service cannot help but pick up speed. I know UltraViolet has come up against a wave of criticism from consumers and industry observers, but the fact that it is gaining accounts in spite of that criticism is a very good sign — and an indication that consumers want to own, not just rent, content digitally. Where EST has faltered, UltraViolet may succeed.

Ownership is staging a comeback.

Redbox: Only Disc Rental in Town

When we first moved into our house, there were two Blockbuster Video stores and a Hollywood Video within about a mile. A few years later, I heard about neighbors waiting to get movies in their queue at Netflix. I noted to these neighbors that they could easily get what they wanted at the local rental store (either Blockbuster or Hollywood). But they all were content to wait in the queue (after all, the price couldn’t be beaten). First one Blockbuster closed, then the Hollywood, then the other Blockbuster.

Then I noticed the stream of people waiting in line at the local grocery store to rent a movie from Redbox (at that time $1 a day). It was a different kind of queue, but one that seemed to be making inroads in its battle with Netflix.

The studios soon took notice and slapped windows on the kiosk company and subscriber rental service Netflix, both of which were charging what the studios considered too small a sum for content. Lawsuits were filed, they made up, and we got a window. But it wasn’t big enough for Warner, which in January announced a 56-day window (widened from 28) for rental companies such as Netflix and Redbox. Netflix agreed, as it continued its laser focus on streaming content from a vast library of (albeit older) licensed TV shows and movies.

But Redbox said (to quote a popular film), “Bring it on.”

And here we stand: Once again in a window war. But this time, Redbox is definitely bigger and probably wiser. According to The NPD Group, the kiosk vendor’s share of the disc rental business rose from 25% in 2010 to 37% in 2011. Meanwhile, Blockbuster’s and Netflix’s share of the disc rental business receded. Just this month, Blockbuster parent Dish Network announced it was closing more of the chain’s stores than originally planned.

Redbox says it will work around the window by obtaining its discs through “alternative means,” according to an executive. Even so, with more than a third of the rental market, and as the only disc rental business in my town, I believe consumers will wait in that queue to get their second or third choice, if No. 1 is unavailable.

Studios Need to Make a Case

At this month’s International Consumer Electronics Show, we got a clearer picture of the support behind UltraViolet, the cloud-based digital copy platform backed by five of the six major studios.
At least one retailer, Amazon, is on board with the concept, as well as consumer electronics companies Samsung and Panasonic. Also, 750,000 households have opened accounts in the first three months of launch.

We also got an idea of the outliers, namely Disney, which has not yet joined the UltraViolet bandwagon and is touting its own yet-to-be-clarified (if it ever will be) All Access concept, and Netflix, which has put all its eggs in the rental streaming basket and reportedly has left the Digital Entertainment Content Ecosystem (DECE), the cross-industry consortium behind UltraViolet. Rental isn’t the aim of UltraViolet, as the studio representatives on the CES panel seemed to stress by their continued focus on its sellthrough possibilities.

Also, if you happened by Samsung’s “Disc to Digital” demo on the show floor, there were hints about future revenue possibilities from UltraViolet. Samsung’s demo included the possibility to charge for upgrading a DVD-quality copy to high-definition, or charging for the upload of library discs into the cloud. Will studios charge consumers a nominal fee to upload their existing disc libraries into UltraViolet? What will that fee be? What fee would consumers swallow for getting a digital version of discs they already own?

While DECE made a significant step forward with its CES press conference — making this editor at least a little more comfortable about the future — it can’t stop there. There needs to be a continuous drumbeat of information about UltraViolet — all communication lines need to be open, lest the studios repeat the debacle they are facing with the piracy bills in Congress (see story, cover). When my daughter (13), who wants to be a writer, is on the side of the pirates, the studios haven’t gotten their message across.

A concerted and sustained consumer campaign about UltraViolet — and the antipiracy bills in Congress — is in order, and the studios better make it quick.

Holiday Movie Watching on Disc

In between line-dancing and two-stepping at Billy Bob’s in Fort Worth, Texas, and eating various casseroles cooked up by my aunts over the holidays, we watched movies, as no doubt many families did this holiday season.

While many may have streamed their favorites via Netflix or some other service, my family watched films on disc.
We watched one of my favorites, Meet Me in St. Louis, as well as It’s a Wonderful Life, among other old classics. “Ma and Pa Kettle” films made an appearance, as they are a favorite of my mother’s.

Growing up, we watched classics such as The Wizard of Oz, which happened to be broadcast during the holidays, but these days families have more choices afforded them by disc and other services.

Today, we can watch The Wizard of Oz in all its restored glory on Blu-ray Disc, which is a far cry from the grainy, blurry version broadcast in previous years.

Meet Me in St. Louis, too, has been cleaned up and polished for Blu-ray by Warner Home Video, offering a wonderful experience of that film, which includes Judy Garland’s unforgettable rendition of  “Have Yourself a Merry Little Christmas.”

While viewing such a classic in any form is a treat, seeing the film restored and presented on Blu-ray is especially rewarding, allowing the family to experience it without the graininess and blurriness that could mar the experience.

The restored Blu-ray version helped my kids, 13 and 9, see the film as it was meant to be viewed, and allowed them to appreciate a nearly 70-year-old masterpiece even though they live in a world far removed.
It has now become one of their favorite films, and I’m sure we will be watching it again next holiday season.

While grainy YouTube videos and streaming may be garnering attention at the moment, I want to hail the quality experience of Blu-ray Disc. A quality restoration on Blu-ray is a great tool in introducing new generations to old classics, allowing the films to truly shine despite their age.