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Thomas K. Arnold is considered one of the leading home entertainment journalists in the country. He is publisher and editorial director of Home Media Magazine, the home entertainment industry’s weekly trade publication. He also is home entertainment editor for The Hollywood Reporter and frequently writes about home entertainment and theatrical for USA Today. He has talked about home entertainment issues on CNN’s “Showbiz Tonight,” “Entertainment Tonight,” Starz, The Hollywood Reporter and the G4 network’s “Attack of the Show,” where he has been a frequent guest. Arnold also is the executive producer of The Home Entertainment Summit, a key annual gathering of studio executives and other industry leaders, and has given speeches and presentations at a variety of other events, including Home Media Expo and the Entertainment Supply Chain Academy.


TK's Take
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25 Jul, 2016

Netflix's Pricing Dilemma


Netflix’s latest financial report can be taken in one of two ways. Cynics may read the report, in which the streaming service reported missing its growth projection by 32%, as a precursor of impending doom. They might take issue with CEO Reed Hastings’ assertion, in a shareholder letter, that market saturation in the United States isn’t a factor, and that the slower-than-expected growth was largely a reflection of a price increase in monthly subscriptions — a price increase Netflix badly needed to remain competitive in acquiring, and producing, content. In fact, one might argue that if the U.S. market isn’t saturated, then why bother to raise the price? As for international expansion, growth projections there weren’t met, either.

Cynics see this as a clear indicator that Netflix has some serious headwinds to contend with, headwinds that will only grow stronger as time marches on. The most pessimistic among them believe Netflix is living on borrowed time, and — just like so many trendy products and services, may ultimately shrink (like MySpace) or vanish completely (like Blockbuster, which ironically was deep-sixed by Netflix effectively building a better mousetrap).

Personally, I don’t see much cause for alarm in Netflix’s latest numbers — at least, not yet. Subscription growth may be leveling out, but I don’t see churn increasing significantly anytime soon, as long as Netflix keeps future price hikes in check. It’s sort of like gym memberships — the gyms that charge 10 bucks a month are flourishing because the amount is too small for most people to notice each month when it’s automatically charged to their credit cards or taken out of their bank accounts.

Saturation is a bigger concern, both in the United States and globally. While a flattening out of Netflix revenue would still see the company in serious money, investors aren’t generally drawn to slow and steady. They want growth to continue, as evidenced by the 15% plunge in Netflix’s stock price in the wake of the earnings report’s release.

Another challenge Netflix is facing is competition. Dozens of OTT rivals have sprung up, and Netflix is finding that while its logo is popping up on more and more TV screens, so are those of other services, from Amazon Prime to Hulu. And despite Netflix’s push toward original programming, Netflix fatigue will become a bigger factor over time — which means the company will have to spend even more money on content, money that at some point in time will be harder to cough up.

It’s a classic case of damned if you do, damned if you don’t. Netflix will need to keep raising prices to remain in the game, but it can’t raise prices too much or else subscribers will jump ship and go elsewhere — particularly as the pool of alternatives continues to expand.
 


27 Jun, 2016

Happy Birthday Blu-ray!


I’ve long felt that Blu-ray Disc hasn’t gotten the respect it deserves. Yes, it was birthed during a bruising format war, followed by the Great Recession. And in its adolescence it had to contend with a consumer rebellion against the buy-everything mentality that gripped the public during the halcyon days of DVD.

And yet Blu-ray Disc continued to grow, although its true upswing was obscured by the industry’s tendency to lump all packaged-media sales together, a move that softened DVD’s precipitous plunge but also hid the fact that even during Netflix’s meteoric rise Blu-ray Disc adoption continued to increase. In the first quarter of this year, Blu-ray Disc unit sales were up 3% from the previous year’s first quarter, while consumer spending rose 6%, according to Home Media Research estimates.

As it celebrates its 10th birthday, Blu-ray Disc has passed the $15 billion mark in consumer spending, which equates to nearly 750 million discs in the market.

If DVD was to home entertainment what the album Thriller was to Michael Jackson, then Blu-ray Disc is Bad. Thriller sold 65 million units worldwide, while Bad did about half that, 32 million units. Now, 32 million is certainly nothing to sneeze at; Bad was Jackson’s second-biggest seller and ranks as one of the 10 top-selling albums of all time.

But, it came after Thriller, and that was an exceptionally hard act to follow. The same can be said about DVD, the most successful consumer electronics product launch in history.

And yet DVD was, in some respects, a one-trick pony. It transitioned our business from rental to sellthrough, and turned millions of Americans into movie collectors — and yet capacity and resolution limits cut short its glory days with the advent of HD.

Blu-ray Disc, on the other hand, was designed to be future-proof from the very start, both on the software side, with its incredibly higher capacity than DVD, and on the hardware side, with consumer electronics companies wisely looking ahead and seeing a connected future. The Blu-ray Disc was smart a good year before the first iPhone; Blu-ray Disc players were connected at a time when skeptics were still wondering how to string an Ethernet cable into their family room.

As a result, Blu-ray Disc not only offered consumers the highest-quality high-definition viewing experience, but now makes the same boast for Ultra HD. Let the cable companies and streaming services talk up “4K” until they are blue in the face (pun intended); pick up an Ultra HD Blu-ray Disc, with High Dynamic Range, and you’ll see what’s passed off as “4K” is all too often a weak, and meek, pretender.

At the same time, Blu-ray Disc players are universally hailed as the best streaming machines in the business.

So happy birthday, Blu-ray Disc. You had some growing pains, and you were raised in the shadow of DVD, our industry’s “perfect child.” And yet while DVD flamed out, you’re blazing ahead as brightly as ever, a true technological marvel that is once again on the front lines of home entertainment.


30 May, 2016

The Power of Disruption


“Disruption” is one of those buzz words that everyone uses, but few really know what it means.

Like two earlier buzz phrases, “paradigm shift” and “out-of-the-box” thinking, it tends to get applied far too often to retain its inherent impact. A disruptive innovation is not simply a better product, or a more efficient way of doing something. It’s a new product, or a new way of doing something, that addresses an inherent problem with the old product or way of doing something.

Blu-ray Disc was not a disruptive innovation — it was merely a better disc, with a sharper picture and greater capacity. DVD, on the other hand, was a disruptive innovation — it allowed consumers to buy movies as soon as they hit home video, instead of having to wait six months, as they did in the VHS days, and watch them on a format with all the nifty digital advantages, like random access, they had come to know and love through the CD.

Capitalizing on these advantages, the DVD changed how we consume entertainment at home — as did the other big disruptor of our industry, Netflix. Reed Hastings took advantage of a major consumer frustration, having to make return trips to the video store or incur a late fee, and came up with the subscription model, first with discs delivered and sent back by mail and then with streaming. You might say with streaming, Reed disrupted his original disruption — in an even more pronounced way, shaking up not just how entertainment is delivered to consumers but how that content is made.

Netflix has gone from being just another window for studio content to a distributor of original content — much of it now custom-crafted and based on data analytics that provide insight on exactly what it is that consumers want to see. As Root, the data center company, noted in a recent blog post, “Data analytics throws the traditional process of scriptwriting, casting, production and marketing on its head. Using content intelligence, Netflix is able to create shows tailored to specific target markets. They found that Kevin Spacey and the films of David Fincher were popular among subscribers. Meanwhile, the classic but horribly outdated British ‘House of Cards’ had developed a cult following in North America. Their research gave them a certain level of confidence as they committed to the big-budget program. Instead of deciding how to market content after it’s completed, producers now use a business case to build a show from the ground up. The process continues right to marketing and distribution, with Netflix deploying trailers tailored to different sub segments of their target audience. Mr. Spacey fans will see him featured prominently, while anyone who has watched The Social Network and Fight Club will see more of Mr. Fincher’s dark style. … Where once executives tried to guess what people wanted, big data means they already know. ‘Narcos,’ about Pablo Escobar and the DEA agents hunting him, was released to coincide with Netflix’s major expansion into Latin America. …”

In our feature this month, we have come up with a subjective list of the top disruptors in home entertainment. Granted, none of them have had quite the impact of Netflix, which even outside of our business is an oft-cited example of disruption. But they have all, in one way or another, not just improved on something, but shaken up a business model — from Comcast’s digital movie store to 20th Century Fox’s brave new world of virtual reality.

According to Clay Christensen, the Harvard Business School professor credited with bringing the term “disruption” into the business world in his 1995 book The Innovator’s Dilemma, there are actually two types of disruption.

A new-market disruption addresses a market that previously couldn’t be served. DVD allowed consumers to build movie libraries, something they couldn’t do in the VHS days because cassettes were too big and clunky and cost too much out of the gate. A low-end disruption offers a simpler, cheaper or more convenient alternative to an existing product. Netflix, in its original form, was cheaper and more convenient than going to a brick-and-mortar video store, particularly if late fees were involved. Only later, with streaming, did it evolve into a new-market disruption.

But enough with the tech talk — follow this link to our list of top disruptors and let us know what you think.
 


20 May, 2016

Remembering Rick Doherty

Rick Doherty
Rick Doherty

I was saddened to hear of the passing of Rick Doherty, the celebrated CE journalist and analyst who moderated nearly all of the panel discussions on OTT for Digital Hollywood that I was on, including one just last January at the Consumer Electronics Show.

Doherty, most recently cofounder and director of The Envisioneering Group, a 20-year old international consultancy, died May 12 of a heart attack at the age of 64.

He was not only one of the most brilliant people I have encountered in my nearly 30 years as an entertainment and technology journalist, but also one of the most charming, charismatic and humble. I still get a chuckle when I read the email he sent out before one of our many panel discussions on OTT: “If you have a burning topic you'd like asked and the audience seems shy, tell me before 8:45 a.m. please.  I'll have a few extra passes for your associates at 8:30 a.m. … This is about my 230th panel for Victor [Harwood, creator of Digital Hollywood]. Don't worry.”

The terseness of the email belies what a conversation with the man was like — and we had many of those, both before and after our half-dozen or so panels together. Doherty was a walking, talking encyclopedia of CE, and yet he was remarkably up to date on the latest technological developments affecting our industry — the rise, and impact, of OTT; the importance of data analytics; and the various advances in the connected home, the connected car, the connected everything.

Doherty lived in, and worked out of, Seaford, N.Y., a little town on Long Island. He launched his company back in 1983 and grew it into an international team of super-smart professionals dedicated, according to the Envisioneering Group website, “to providing our public, subscriber and client audiences with the best possible news, data and trend research possible — to better enable them to engage with existing and emerging markets.” According to his official bio, Doherty “directs laboratory testing of technologies, products and services; oversees publication of the Envisioneering newsletter and market research reports; and provides senior executive counsel on market development and intellectual property protection, portfolio management and licensing opportunities. Doherty's prime focus is on researching and articulating the impact of advanced digital technologies, services, products, industry initiatives and standards efforts on consumers, industry and society.”

Before that, Doherty spent 13 years as the Senior Technology Writer for Electronic Engineering Times, a trade publication for design engineers, managers and business and corporate management in the electronics industry.

Doherty, an electro-physicist, has dozens of U.S. and international patents to his credit in computing, communications, medical electronics and other fields. He was a member of the Society for Information Display, Society of Motion Picture & Television Engineers and various other technology and professional business industry associations. He was a senior member of the Institute of Electrical and Electronics Engineers and was active with its Biomedical Engineering, Solid State Circuits Society, Consumer Electronics Society, Broadcast Engineering, Magnetic Technology Society, Technology & Social Policy and other I.E.E.E. societies.

Prior to launching his own company he was Director of the Urban Vehicle Design Group at Pratt Institute, an engineer for Data General Corporation, Chief Engineer of Lourdes Industries Inc., and founder and President of Optronic Labs.

He was a smart man, a kind man, and quite honestly I can’t do his memory any better justice than by quoting from an excellent piece in EE Times written by Junko Yoshida, the publication’s chief international correspondent: “Rick’s life touched every aspect of consumer electronics. He explored and explained the growth of computing, communications and digital media that brought a genuine revolution to the way we live today. … Rick was appreciated by many in the media because he was always generous with his time, giving us what we needed to know when we needed, on deadline. Rick knew deadlines. But we all loved him beyond that because he was always such a kind soul. Whether we shared a bus ride with him on a press trip, bumped into him in the press room at a tradeshow, or spotted him in the front row at a huge press conference with his video camera in hand, he always had a smile and a hug and asked how we were doing. He was personable and affectionate. He reminded fellow journalists of the importance of the personal connection, when you’re trying to get to the bottom of a story. … Rick’s interest and his knowledge were always beyond bits and bytes. He knew people. And he loved them. He was a class act.”

He sure was.


25 Apr, 2016

The Growing Dominion of Digital Distribution


Back in 2011, when we launched our annual Digital Drivers feature in Home Media Magazine, our intent was to spotlight the executives behind the “transition from physical media to digital distribution,” according to a column I wrote back then introducing the new feature.

A lot has changed since then — to the point where there is no longer any transition. I don’t know of anyone who hasn’t streamed or downloaded a movie; moreover, to all of us, digital distribution is a habit, a way of life.

In our own family, we still watch a lot of movies and TV shows on disc, but invariably we will simply press a few buttons on the remote and chill with Netflix. If there’s been a change over the last year, it’s that we’ve broadened our scope. We watched season one of “How to Get Away with Murder” on Netflix, and then, for season two, alternated between Hulu and Amazon Prime, paying a $2.99 premium per episode to watch the newer shows in high-definition.

All three are competitors, but in our household they are simply ways to bring the entertainment we want to watch into the home, existing quite peacefully alongside both each other and the pristine Blu-ray Discs and DVDs we have filed away in our little walk-in “library” off the family room.

We have a wider, broader selection of programming than we’ve ever had, and while in our household at least we still consume new films on disc at a rapid clip, streaming has effectively replaced regular broadcast and cable television.

The digital transition, then, has already happened — and efforts in both the entertainment and technology industries are focused on making the experience even easier and more satisfying for the consumer. Of course, none of this is being done for altruistic purposes; on the content side, studios continue to experiment with ways to get people to buy more movies and TV shows online, since the transactional purchase model is a much better value proposition for Hollywood than third-party streaming.

Meanwhile, the cable industry is grappling with an announcement the FCC made in February about its new “Unlock the Box” campaign, which seeks to free consumers from having to rent a set-top box to get cable. The FCC wants to force cable operators to open up the set-top box market and let Google, Apple and other companies get in on the action. Just this month, Comcast announced its intent to do what Fortune calls an “end run around the FCC” by launching a new feature for its Xfinity service that will let consumers watch their cable through Roku streaming boxes and Samsung Smart TVs.

No, it’s never dull in digital distribution land — which is why the need for innovation and vision has never been greater.
 


28 Mar, 2016

Saluting the Top Retailers


For the first time in nearly two decades, Home Media Magazine is spotlighting the top retailers in the home entertainment space. And for those of you who might remember the annual Top 100 ranking we compiled each year back when we were still known as Video Store Magazine, our Top 10 for 2016 will be a real eye-opener, underscoring how dramatically, and how drastically, our business has changed since the Top 100 days when retailers were ranked by how much income they generated by renting VHS videocassettes to consumers.

Indeed, the Top 10 for 2016 reflects the diversity of home entertainment options consumers have today as well as the disruptive business models that ultimately toppled Blockbuster Inc., which for years was perched at the very top of our Top 100, and also paved the way for digital delivery, both streaming and download sales, which most observers expect will soon dominate the business.

The big sellers of the digital video disc, both Blu-ray Disc and its older, standard-definition predecessor, DVD, continue to be a formidable force in home entertainment, both as a source of revenue for studios and other content owners and as a way for consumers to get the movies and TV shows they want. Walmart continues to lead the physical disc sellthrough charge, and while both Target Corp. and Best Buy no longer seem as enthused about the category as they once were, they continue to pump huge quantities of discs out into the market — and are largely responsible for the 8% increase in Blu-ray Disc sales our industry saw in the fourth quarter of 2015.

Not to be dismissed in the physical disc arena is Amazon, which despite its Amazon Prime Instant Video service is still a prime mover of Blu-ray Disc and DVD. Thanks to the free shipping offered to subscribers of Amazon Prime, consumers who want movies and TV shows on demand are also more inclined to buy their hot new disc releases from Amazon. I know — I’m one of them.

On the streaming front, you will notice that we have included Netflix as one of the Top 10 retailers. Despite the company’s attempts to position itself as a TV network, we continue to regard Netflix as a retailer, first and foremost — following the basic premise of home entertainment, which is to let consumers watch specific movies and TV shows where and when they want to, with the ability to pause, fast-forward and rewind — just like Blu-ray Disc, DVD and, way back when, the videocassette. Streaming is the new rental, and Netflix, in many ways, is the new Blockbuster.

We’ve also included iTunes on the list — the pioneer in selling movies and TV shows electronically, and still the dominant seller of downloads. In fact, one high-ranking studio executive recently told me that iTunes is now a bigger source of revenue to his studio than Target.

Because estimating revenue is such a specious proposition in this era of subscriptions and deep discounting, we have elected not to rank these retailers. Instead, we have relied on extensive research and interviews with studio executives, analysts, researchers and actual retailers to come up what we believe is an accurate list of the Top 10 home entertainment retailers, and have listed them alphabetically.

We’re already getting some great feedback, so in all likelihood we’ll do this again next year. And who knows — perhaps this will become an annual tradition, just like our Top 100 once was.


26 Feb, 2016

Time for Redbox to Go Digital Again


Redbox has always been a successful fluke — a company that began renting discs at a time when everyone else was selling them, out of vending machines long after such a concept had been tried, tested and tossed by grocers back in the VHS era.

But Redbox confounded the “experts” and was a smashing success, playing into those key drivers of consumer habits, convenience (right outside Walmart or inside the supermarket) and cheap (a buck a night, initially; now $1.50).

I remember when Redbox used to give studio executives almost as many headaches as Netflix, triggering sales bans, lawsuits and, ultimately, the current wave of 28-day holdbacks from Warner Bros., 20th Century Fox and Universal Pictures.

But after years of flying high, Redbox has begun a rather rapid descent. Outerwall, Redbox’s owner, recently announced that in the fourth quarter of 2015 revenue was down 17% and movie rentals were down by an even higher percentage. Rentals are expected to decline an additional 15% to 20% in 2016, prompting Outerwall to scale back its fleet of vending machines, cutting out as many as 2,000 of its 35,000 red kiosks.

What I can’t figure out is why Outerwall doesn’t tap into its most precious asset — gobs of consumer data — and do something with it. Oh, sure, the company has jumped on the data analytics bandwagon like everyone else and is using a data visualization tool to figure out the best places to put new kiosks.

But that only affects the company’s current business model, which shows every sign of cratering.

Redbox/Outerwall needs a strategy session in which the company can figure out a smart, sensible approach to tap into the digital marketplace. I know, I know — the last time Redbox tried getting into electronic delivery things didn’t work out so well. In partnership with Verizon, Redbox in March 2013 launched a subscription streaming service that was a disaster, chiefly because the ill-conceived venture took aim at Netflix without any sort of superior value proposition. As I wrote in October 2014, when “Redbox Instant by Verizon” — catchy name, eh? — was mercifully shuttered, “Generally, if you take aim at a competitor, you build a better mousetrap, as they say. Apple entered the cell phone market with the iPhone; Sony jumped into the video game business with the PlayStation.”

But now, opportunity is knocking once again. Electronic sellthrough and transactional VOD are good options to deliver to Redbox's 35 million emails, although questions remain about how tech-savvy their customers are. Regardless — I’m sure the studios would wholeheartedly support such a move, since they’ve been trying for years to develop a viable EST business through early release windows and other incentives to the consumer. So far, there’s been just one real success story, Apple’s iTunes.

Redbox could harness its many years’ worth of consumer data and offer its customers the chance to buy (or stream, on an a la carte basis) movies in a way that’s even simpler, and easier, than sticking a credit card into a vending machine. It would take time and a smart, measured approach, with data-driven micromarketing and sensible pricing.

But it’s certainly worth considering, and soon. Time is running out. The smaller Redbox’s existing business gets, the less consumer data there is to mine. And while Redbox vending machines won’t disappear overnight — it’s a still a cheap and easy proposition, compared to other entertainment alternatives — the digital migration is accelerating.

And businesses that want to be around five, three, even two years in the future had better climb board — now.


25 Jan, 2016

A Visionary Alliance for a Clearer Picture


4K Ultra HD was once again the star of the CES event in Las Vegas this year, just as it was in January 2015.

But the twist, this time, was two-fold: The appeal to consumers promised not just more pixels (four times as many as HD), but better pixels, thanks to high dynamic range (HDR), a technique that is used in imaging and photography to produce brilliant highlights, vibrant colors and greater contrast on compatible displays — and that much more closely mimics what the human eye actually sees than conventional imaging and photography.

To deliver this vastly improved viewing experience to consumers, at least initially, content owners and consumer electronics companies are looking to the Blu-ray Disc, which has the capacity to do the format justice, whereas electronic delivery — in particular, streaming — still has bandwidth issues to contend with.

Two days before the show opened, the year-old Ultra HD Alliance (UHDA) held a packed press conference in which the consortium unveiled specifications and a new logo to identify to consumers devices, content and services capable of delivering the premium viewing experience.
And in a panel discussion after the press announce, Man Jit Singh, president of Sony Pictures Home Entertainment, excitedly said he believes the transition to 4K Ultra HD will be smoother than the introduction nearly 10 years ago of Blu-ray Disc, which has a launch that was marred by a brief format war with HD DVD. He said development of the logo and specifications are critically important “because we have to be careful not to confuse the consumer.”

In just a year, the UHDA has made a significant step toward combatting that confusion. The mission won’t be easy. The overwhelming success of Netflix shows that consumers are willing to give up quality and choice if they can get content cheap enough and easy enough. But the UHDA is leading the charge to remind consumers of just how wonderful their home theater systems can be if they can watch the latest hit movies at a level of quality that far surpasses even HD and rivals what they see in the movie theater.

It is for this reason that Home Media Magazine is honoring the UHDA with its 2016 Home Entertainment Visionary Award. In the coming year, the association will be on the front lines of the 4K Ultra HD launch, a launch home entertainment executives believe will revitalize their industry — our industry.

As Ron Sanders, president of Warner Bros. Worldwide Home Entertainment Distribution, said at the UHDA event, 4K Ultra HD is “going to become ubiquitous,” with analysts expecting full household penetration within 10 years.

He added, “The exciting thing about this is that we are going to be first – there is not a lot of broadcast out there.”

With a partner in the UHDA, the industry has found yet another way to deliver top quality home entertainment to consumers.


6 Jan, 2016

Netflix Still Part of the Home Entertainment Family


The Reed Hastings many of us saw Jan. 6 at the opening keynote of the Consumer Electronics Show was a little older and a lot richer than the Reed Hastings I remember from more than a decade ago, asking some of us who are now home entertainment old-timers what we thought of letting consumers rent discs by mail.

Since then, Netflix has become one of the entertainment community’s biggest-ever success stories, a subscription streaming service with nearly 70 million members in more than 60 countries and a market capitalization of more than $46 billion — nearly the same as General Motors Company.

And yet the company’s basic premise is the same: letting consumers watch specific movies and TV shows where and when they want to, with the ability to pause, fast-forward and rewind — just like Blu-ray Disc, DVD and, back in the Stone Age, the videocassette.

Streaming is the new video rental, and Netflix is the new Blockbuster — on steroids, as they say.

In light of this, I find it odd that some analysts and journalists maintain Netflix numbers should no longer be counted in the quarterly tally compiled by DEG: The Digital Entertainment Group. The three reasons that keep getting cited are that 1) Netflix is eating home entertainment’s lunch; 2) Netflix consists mostly of TV series; and 3) if you count Netflix, why not count premium cable channels like HBO, Showtime and Starz.

Yes, subscription streaming revenues for 2015, mostly from Netflix, are up 25% from 2014, while total sales of movies and TV shows to consumers, on physical discs and electronic sellthrough, are down by more than 6%. But when DVD came of age and disc sellthrough began chipping away at video rental, there were no calls to take DVD sales out of the mix. Observers realized the commonality between video rental and disc sales — which is that in each case, the consumer made a conscious decision to watch that specific movie or TV show.

Sure, Netflix offers consumers the viewing equivalent of an all-you-can-eat buffet — but we’re still deciding whether to go with the shrimp or the crab claws. Blockbuster and other video rental chains also experimented with block pricing — and in the early days of home video there were chains that sold monthly memberships, just like Netflix sells monthly subscriptions.

As for the fact that TV shows are driving Netflix viewership, again, it comes down to a question of choice. Consumers are choosing which shows to watch, and when — just as they did in the halcyon days of TV on DVD, which at one point was a $4 billion a year business. I don’t recall anyone saying, back then, that consumers who pick up a season set of “The Sopranos” or “West Wing” aren’t contributors to the home video revenue stream.

As for the contention that if the DEG counts Netflix, why doesn’t it count other premium channels — good point. Maybe the organization should include all transactions that involve consumers choosing to watch specific programs “on demand,” because this is precisely what has always been home entertainment’s distinguishing feature: the consumer choice to watch something at his or her discretion.

It should also be noted that many of the movies that show up on Netflix were sold to the streaming service after, or in lieu of, a disc release — easy to understand, given the huge money Netflix has been offering studios for content.

And now with original programming, delivered to consumers on demand, Netflix is again doing what Blockbuster was doing in its final days — cutting deals to offer exclusive content to its customers.

Reed Hastings may be hailed as a great innovator, a great disruptor — and he certainly is.

But he’s also one of us, a home entertainment guy who simply managed to come up with a clever twist on the concept of renting a movie.


18 Dec, 2015

The New Face of Home Entertainment


Home entertainment is dead. Long live home entertainment!

In the nearly 30 years that I have been in this business, the one constant has been change. Cassette to disc, rental to purchase, physical to digital.
And yet our definition of home entertainment is as crystal clear to me as it’s ever been: the act of bringing a movie, TV show or other filmed content into our home for personal consumption where and when we want it — with the ability to stop watching and resume watching at our discretion, without relying on a commercial break.

Subscription streaming has thrown something of a wrench into the traditional home entertainment business model, which has always been transactional — the consumer pays to watch a specific movie or other program.

\Subscription streaming is effectively a twist on the cable model of bundling: You pay one price and get access to a wide assortment of programming.
But the similarities end there. With cable, you get access to channels, which is why cable is concerned part of the television world.

With subscription streaming, be it Netflix or Amazon Prime, consumers select specific shows to watch — just as they did in the old days when they walked into a video store and grabbed cassettes from the shelves.

It’s clearly home entertainment — a matter of choice.

So, on the “rental” end of the business, Netflix is the new Blockbuster (and let’s not forget: Netflix began as a DVD-by-mail rental service, and that’s how it effectively killed what was once referred to by industry insiders as “Big Blue”).

On the “sellthrough” side, consumers also have broken through the digital divide and taken to buying movies electronically, over the Internet — but if the sale of digital downloads hasn’t been anywhere near as big a success as subscription streaming, keep in mind that Blu-ray Disc and DVD sellthrough is still a big, big business. To be sure, it’s not as big as it was a decade ago, or even five years ago, but if you take a holistic view of home entertainment you’ll see that the total amount of dollars spent has remained remarkably constant over the years, despite a proliferation of new technologies, online services and gadgets — from Facebook to YouTube and “Words With Friends” — that are now competing for consumer eyeballs.

Numbers provided every quarter by DEG: The Digital Entertainment Group attest to this — and they don’t factor in Amazon Prime, with the rationalization that we don’t really know how much money subscribers are spending to stream content because many people subscribe just to get free two-day shipping.
One other constant in home entertainment, aside from consumer choice, is the quest by the studios, who own the content, to get the biggest bang for the buck. Nearly 40 years ago, when the business began, they fought retailers who wanted to rent their movies and pocket the spoils; the studios lost that battle but ultimately got a piece of the action through revenue-sharing. They also successfully shifted the business toward sellthrough with the advent of DVD, the ultimate model from a studio revenue standpoint.

Now, there’s a very similar battle being fought. The studios want to sell movies electronically, or at least be able to get a piece of each “streaming” transaction – something that’s impossible to do under the subscription model. And yet they’re not protesting as loudly as one might presume because of the big-dollar front loads – the amount of money Netflix and Amazon are paying for ‘B’ movies.

But they realize this isn’t going to last forever, as subscription streamers move more and more into original content – which is why we are going to see a renewed push into “sellthrough,” both physical (with the arrival of Ultra HD Blu-ray Discs) and digital (with enabling technologies like Vidity, which allow buyers to actually possess the movie files they buy).

Yes, it’s a topsy-turvy world out there, an increasingly challenging environment for studio executives who simply want to maximize the amount of money they can generate from their content. But with every challenge, it seems, we’re also seeing a new opportunity.

And as long as there are TV screens, recliners and comfy slippers, that’s not going to change. Home entertainment will survive, and even thrive, regardless of the environment. We just have to figure out how to make it worth our while.