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.
It was interesting to see the various news stories based on home entertainment spending numbers released yesterday by DEG: The Digital Entertainment Group. Most news outlets, including ours, really played up the rosy Blu-ray Disc numbers (to see our story, click here). Others, in particular the Los Angeles Times, chose to feed their own perception that packaged media is dying by focusing on the continued slump in DVD sales, which even with the mitigating factor of Blu-ray Disc are now down 13.9% for the year, slightly worse than the 13.5% deficit reported at the year's halfway point. Still other media outlets took the middle ground by noting that total consumer spending on packaged as well as digitally delivered media was down 3.2%, a modest drop given the troubled economy but still nothing to cheer about it.
Not one focused on what, in retrospect, is the real story: Consumer transactions, meaning purchases as well as rentals, rose a healthy 6.6%. That's a resounding vote of confidence in the core premise of our business, which, after all, is simply the act of bringing movies and other pre-recorded programming into the home (or the car, or the laptop) for at-will consumption. The transactions number does not distinguish between a purchase and a rental; both, it can be argued, involve a conscious decision by a consumer to go out and spend money on bringing a DVD or a Blu-ray Disc into the home. Now, studios don't like rental because they don't get as big a piece of the pie as they do from a sale. Heck, sometimes they barely get crumbs, if that.
But looking at things solely from a consumer interest angle, rentals are the same as purchases, and the fact that transactions are up 6.6% is a healthy indicator that consumers most certainly have not lost interest in home video. They're simply going back to their old ways--renting rather than buying--and they're doing so in record numbers.
What the studios need to do now is figure out a way to monetize that 6.6% gain so it doesn't continue to wind up as a 13.9% loss.
Richard the Plumber came by the other day to fix a toilet that's not holding up too well under three growing boys. He spied a DVD of the hit HBO series "True Blood" on the coffee table in my family room and told me his whole family is a big fan. What he said next surprised me. "You should get the Blu-ray version," he said. "You won't believe how much better it looks than DVD, and you've got the kind of TV where you're really going to notice the difference."
Two things about this exchange are worth noting: 1) Richard the Plumber has already invested in a Blu-ray Disc player, and 2) he just reaffirmed my belief that the picture quality, much more so than any novel special features or even BD Live application, should be the primary selling point in propagating Blu-ray to the masses. If Richard the Plumber notices the difference, and on a TV series, no less, then you can bet other people will, too.
Of course I didn't let the conversation end with that. Now that I knew he had a Blu-ray machine, I had to follow up with the big question home entertainment executives are all thinking about these days. "Do you ever watch BD Live?" I asked. His response echoed the sentiments expressed two weeks ago by members of the Home Media Tastemakers Forum. "Nope," he said. "My Internet's in my office and my TV's in the living room, and I sure as heck don't want to string a cable halfway across the house. You'd think they'd figure out a way to connect via WiFi."
You'd think, Richard. You'd think.
I told him the first wireless players came on the market in July and they're gradually rolling them out now. Richard's response: "I wish I would've knowed before I bought my player. Why are they always doing stuff like that?"
I didn't have an answer.
I trust you all saw the report from the research firm GigaOM that predicts enormous growth for the home 3D market, with projections that by 2013 some 46 million homes will have 3D HDTVs. What makes this projection even more startling is the fact that it's being issued at a time when 3D for the home is still in the development stages. Sony is preparing to release its first 3D Bravia TV sometime next year, along with a 3D option for all of its PlayStation 3 games. And Panasonic has announced plans to ship a 50-inch 3D HDTV with a plasma screen sometime in 2010, as well.
In a proverbial nutshell, the study bases its optimistic projections on the overwhelming success of 3D in movie theaters. The powers that be in our home entertainment industry have taken notice as well and, more and more, seem hell-bent on recreating in the home the first-class 3D experience that moviegoers get in theaters. That means no more red-and-blue anaglyph glasses; instead, viewers will have to don high-end polarized glasses and, by the way, stock up on a new TV as well. And the vehicle to bring 3D movies into the home: Blu-ray Disc. Indeed, there are some who believe 3D may be the elusive "killer app" that makes Blu-ray a must-have commodity--a killer app for which some of the best minds in our industry have been searching for years.
Here's how the 3D experience works in theaters, courtesy of Wikipedia: "The projector alternately projects the right-eye frame and left-eye frame 144 times per second, and circularly polarizes these frames, clockwise for the right eye and counterclockwise for the left eye. A push-pull electro-optical modulator called a ZScreen is placed immediately in front of the projector lens to switch polarization. The audience wears recyclable circularly polarized glasses to make sure each eye sees only its own picture...The result is a 3D picture that seems to extend behind and in front of the screen itself."
I've experienced this myself, several times, most recently with Final Destination--and let me tell you, I, for one, am hooked. But before we get all worked up about 3D in the home, there's an awful lot of work to be done, not just on the CE end but also on the studio end, making Blu-ray Discs ready for the third dimension. But from what I am hearing, everyone is working at breakneck speed to achieve this, and I am fully convinced that by the time the first 3D HDTVs arrive in stores there will be 3D Blu-ray Discs to play on them.
If there aren't, our industry is going to be in bigger trouble than anyone could have thought.
A controversial biopic on director Roman Polanski is being released on DVD to retail stores around the country on Oct. 20.
Damian Chapa, who directed, wrote and stars in Polanski Unauthorized ($25), says the film was initially distributed only to Wal-Mart and various Web sites through Terra Entertainment. But recently, Chapa said, he decided to expand distribution to other retailers through Victory Multimedia—just before the controversy hit over Polanski’s arrest on a 32-year-old sex charge.
“It was coincidental,” says Chapa, whose Amadeus Pictures produced the film in early 2008 and gave it a limited theatrical release.
The film casts a cynical eye on Polanski and explores in detail his life, from his early years in war-torn Poland to the 1969 murder of his wife, Sharon Tate, and his exile from the United States in 1977 after he pled guilty to having sex with a 13-year-old girl.
Another hearty kudos to Toshiba for its announcement this week that its upcoming Qosmio X500 line of laptops will come with built-in Blu-ray Disc drives as standard equipment. The laptops will start arriving in stores Oc. 22 (to read the complete story, click here).
As I mentioned in a previous blog posting, the computer industry is moving ridiculously slow in incorporating Blu-ray Disc drives into its PCs, mostly because of the additional expense. It wasn't this way with DVD, but then again computer prices have plummeted over the last decade and new PCs and even laptops can be had for a fraction of what they used to cost.
But still, why not offer a premium line of laptops and settops with a Blu-ray Disc drive--or at least offer Blu-ray Disc drives as an upgrade, the way car makers do with seat warmers and DVD players? I know, consumers can always add a Blu-ray Disc drive later, but come on--it's just not the same.
I'm more convinced that Blu-ray Disc is going to make it, and make it, big. Just look at last week's top home video seller, 20th Century Fox's X-Men Origins: Wolverine, the first of the year's big tentpoles to hit video. An impressive 27% of sales came from the Blu-ray Disc version, or 810,000 of the first-week sales tally of 3 million units.
The computer industry could really help lift Blu-ray Disc at a time the format needs it the most. And, conversely, Blu-ray, once established, could lift computer sales, just as DVD drives ultimately helped lift PC sales. Eventually there came a time when computer owners demanded DVD drives, and quite often bought new computers just to get one.
It's going to be the same with Blu-ray disc drives--but computer manufacturers need to take the first step.
Are we going back in time or what? I read our story about Blockbuster chief Jim Keyes' conference call with Pali Capital (to see it, click here) and immediately rolled my eyes and let out a chuckle. Apparently Blockbuster isn't putting its own DVDs into the 2,500 Blockbuster Express kiosks the chain plans on rolling out through the end of the year. Instead, Blockbuster's partner in the venture, NCR Corp., is in charge of feeding, and among the sources for its dollar-a-day rental DVDs is — surprise, surprise — Wal-Mart.
That took me back to 2000 and 2001, in the early days of DVD, when studios were once again going through one of their period bouts of consolidating distribution. Retailers and even other distributors shut out by studios such as Universal limiting distribution to Ingram and VPD would simply turn around and buy product, on street date, from the local Wal-Mart.
It was something they couldn't do in the days of high-priced rental cassettes, when the mass merchants weren't even in the home video business, for all practical purposes. In those days, you will recall, videocassettes were released with list prices of up to $100, with the express purpose of limiting sales to video dealers who would turn around and rent them to consumers. No one thought consumers would actually want to own hit movies released on video, except for a smattering of family and children's features that would likely be viewed repeatedly. Six months down the pike, the price would come down, primarily to give retailers a chance to replace their worn-out rental cassettes. Marketing these no-longer-fresh theatricals to consumers was merely an afterthought.
But DVD changed the equation, and studio attempts to consolidate distribution — a ploy to both feed the burgeoning sellthrough market by limiting rental availability and at the same time get a share of the rental action, since the retailers and distributors who made the cut had to agree to revenue-sharing arrangements — were consistently dinged by the Wal-Mart factor. Indeed, independent rental dealers as well as smaller distributors like Flash unabashedly stated they would not be stymied by the studio clampdown and simply buy their DVDs at Wal-Mart, Costco and other mass merchants who were doing cartwheels just to tap into the booming DVD sellthrough business.
Nearly 10 years later, the same thing is happening, although now Blockbuster has joined the disgruntled indies in shopping at Wal-Mart. Here's a novel concept for the studios to entertain: Why not just ship everything to Wal-Mart and let Wal-Mart be the country's sole distribution source for DVD? Wal-Mart is open early and even has a good number of 24-hour locations. The chain is fairly ubiquitous; according to Snopes.com, 90% of all Americans live within 15 miles of a Wal-Mart store. And the prices Wal-Mart charges for new DVD releases tends to be lower than some distributors charge.
Hey, I think we're on to something ...
Remember the "fifth quarter" studio executives used to salivate back in the early years of this millennium? Year after year, strong DVD player sales at Christmas led to huge DVD sales in January, as the thousands of new DVD households flocked to stores to find something to feed their hungry little machines.
With Blu-ray Disc player prices now at truly affordable levels — even the respectable Panasonic DMP BD-60 can be had for just $179 on Amazon — studio executives are trying to squeeze whatever optimism they can out of this shattered economy and DVD sales slump. Everyone in our industry, it seems, is searching for even a modicum of light-at-the-end-of-the-tunnel-year, and Blu-ray Disc player sales could be just the spark our industry needs if there's a last-minute rush by consumers to pick one up and put it under the tree.
It is doubtful we are going to see anything like we did in the 2002 or 2003 holiday seasons, when DVD player sales went through the proverbial roof. But there are signs player sales could be stronger than anyone right now is thinking. I am now at the point where I can't count the number of people I know, from all walks of life, who have bought a Blu-ray Disc player for one of two reasons: 1) their DVD player is shot and they figure they might as well replace it with a Blu-ray Disc player, "because that's where everyone seems to be going these days," in the words of a car mechanic I know; and 2) they just bought a home theater system anchored by an HDTV and just feel buying a Blu-ray Disc player is a no-brainer, either because they've been told by their home theater installer or (and this is the reason I'm hoping is the zinger) because they are smart enough to figure out that the only realistic way to get true high-definition is from Blu-ray Disc.
I wonder if studios that are holding back hot tentpoles until December have this in the back of their minds. Sure, they're reacting to lingering consumer purse-tightening and purchase delays until the last minute. But they're also playing right into the hands of the "fifth quarter" concept. Wait until week two or three of December to release a hot title and you not onlyi increase the odds of your title being picked up on DVD as a last-minute impulse buy, but you also position yourself to be right there the moment someone walks in to buy a Blu-ray Disc player as a gift, making it a fair bet the giver will pick up a Blu-ray Disc of that same title as a stocking stuffer to go along with the Blu-ray Disc player. You're also going to be fresh enough once Christmas passes and new Blu-ray Disc owners head to the stores for more discs.
It's sure shaping up to be an interesting fourth quarter.
Ah, how we long for the days of DVDs that sold 5 million copies or more their first week in stores. That sounds about as distant a concept these days as dollar-a-gallon gasoline. There's no question DVDs aren't selling as they used to, and one of the many culprits studio executives are fingering, aside from the troubled economy, are the ubiquitous Redbox kiosks and Netflix envelopes that are making it easier than ever for movie fans to be cheapskates.
Forcasting DVD sales has always been equal parts science and art. Sure, there are plenty of formulas: A movie that grosses between $25 million and $50 million in theaters will likely sell X DVDs, while a blockbuster with domestic box office earnings of more than $100 million will sell Y DVDs. There are plenty of variables: Action movies tend to sell better than comedies, comedies tend to sell better than dramas and films with lower box office grosses tend to sell more DVDs, proportionately, than movies with higher box office grosses. We've even got fancy terminology, such as "overindexing" (when a DVD of a movie does significantly better than expected in relation to the film's box office, and "VTR ratio" (video-to-theatrical, or a film's video gross divided by its theatrical gross).
But in the end, there's an art to predicting DVD sales, and for years our studio brethren have sharpened up their forecasting skills with an ample supply of gut instinct and become quite good at it, really.
Until now. Films that were expected to do well tanked — in some cases, missing target by as much as 30%. And films that were not expected to do well — well, lots of them did even worse, while some surprised everyone and did unexpectedly well.
"It's really become a crap shoot," noted one observer, an industry veteran who asked not to be named.
When DVD sales first began to slow in the second half of 2005, studio executives began realizing that they had to manage their expectations. The days of double-digit growth, year after year, were over, and studio forecasting models had to be stripped of multipliers and essentially held flat.
But then the economy tanked, and DVD sales began sliding downward at a faster pace than anyone wanted to believe. We've all lashed out at the bogeyman, Redbox, but no amount of screaming and shouting is going to make those sales numbers come back up.
So we have to contend with a declining market, and adjust our businesses accordingly. But that's easier said than done, simply because we have no idea what's going to happen to the economy — and the DVD-buying public has become increasingly fickle and unpredictable. It's hard to manage expectations when we issue what we think is a conservative forecast, only to discover we're still 15% or 20% off — while the other studio's title, which we had pegged as a real stinker, somehow catches on and sells millions of copies its first week in stores.
What's the answer? Sadly, there isn't any. And that's what makes being a studio executive with a home entertainment division so frustrating these days.
For years, the buzz in the consumer electronics world--and in Hollywood, for that matter--has been the convergence of TVs and computers. Remember WebTV about a decade back? The idea was to bring the computer, email and Web access and all, to the living room. Users had to buy subscriptions to access the Internet, and could then surf the Web from the comfort of their sofa. But the concept never really caught on, even as convergence talk continued and studios began making their movies available digitally over the Internet for easy streaming and not-so-easy downloading. The concept of digital copy also plays into convergence, under the premise people are increasingly on the go and may want to watch the rest of the movie they began watching on their high-definition widescreen on their laptop while waiting for a flight, or on the flight. And BD Live--hey, that's another convergence technology, this time harnessing the Web to make some wonderful things happen on the TV, provided you have a Blu-ray Disc player and, of course, a Blu-ray Disc.
But if you analyze what's been happening, you'll see that true convergence is no longer the goal. Rather, the goal is to bring some TV capability to the computer (watching a low-res copy of a movie, for example), and some computer capability to the TV (BD Live, which can offer the user limited chat-room or networking functions as well as the ability to grab some new content from the Web).
No one's talking about interchangeability anymore. No one's going to watch a whole movie on their home computer if there's a beautiful home theater system, anchored by a 65-inch plasma, just down the hallway. And, similarly, no one's going to check their email or surf the Web to scan CNN headlines on their TV, between Spongebob episodes. The teens among us may have a laptop with them in the family room so they can IM while watching the remake of The Last House on the Left, but one device for both? No way. We're just not culturally equipped to handle it.
And that, friends, was pretty much the message at CEDIA, as our senior reporter, Chris Tribbey, writes (to see his story, click here). The consensus at the Atlanta trade show was that while HDTVs will be connected to the Internet, they will never replace the computer. First and foremost, they are TVs.
As Dan Schinasi, Samsung's senior marketing manager for HDTV, told the traveling Tribbey, "It's a big challenge with a full Web browser, because it needs to be constantly updated. Then you have to worry about viruses, install a hard drive, licensing. That all increases the price."
So there you have it, folks. Convergence, at least from the perspective of today's paradigm, doesn't mean interchangeability. TVs will still be TVs, computers will still be computers, and while there will be some overlap they will never replace each other.