The home video industry is at war with itself, and the bloodiest battlefield is the friendly neighborhood Wal-Mart store.
It's no secret that DVD sales are slumping, victims as much as anything else of the troubled economy. The first quarter ended with sales down 15% from the first quarter of 2008 and the second quarter, from the preliminary reports I've heard, wasn't much better. Of course, in this economy being down 15% is hardly a disaster, but even so studio executives can't help but grimace when they see reports that video rental, thanks to the mushroom-like proliferation of Redbox kiosks and the continued surge of Netflix, is holding steady and may even be trending upward.
The collapse of revenue-sharing deals means the studios no longer share in any of the spoils, so they are understandably edgy when they see sales go down while rentals go up. They can't help but feel that in this Great Recession we're in, people are looking for bargains, and renting a movie all of a sudden makes a lot more sense than it did in the old days when everyone was rolling in dough and the average consumer didn't think twice about picking up the latest new release at $15 a pop.
Nowhere is the spectre of cannibalization more vivid than in Wal-Mart stores, where Redbox kiosks are sprouting up in the entryways and, conventional wisdom holds, seducing consumers with the promise of dollar rentals before they can even walk into the store and browse the new release DVD sales section.
Pleas to Wal-Mart that the chain is only hurting itself seem to be falling on deaf ears, according to what I'm told. Apparently a completely different party controls the front of the store than the rest of the store, and as long as that party pays its way Wal-Mart management is not going to interfere--regardless of how this may affect the chain's regular retail business.
Now, you know damn well this is a bunch of hooey. If Wal-Mart seriously believed Redbox kiosks were cannibalizing their DVD sellthrough business, they'd shut them down in a heartbeat....unless they didn't care.
That's the only logical explanation, supported by Wal-Mart's conspicuous, and continued, lack of effort in merchandizing Blu-ray Disc. It's almost as though the chain, which made tons of money during DVD's boom years by using the category as a loss leader to drive traffic into its stores, has lost faith in packaged home entertainment.
Dumb move. Blu-ray has the potential to be every bit as big as DVD, and I am convinced that once the economy starts to recover it will quickly gather the steam it needs to really take off. And standard DVD, meanwhile, will be one of the first consumer products to bounce back.
Wal-Mart executives have been through this once before; home video was going through a similar slump in the late 1990s, before DVD came along. Back then, Wal-Mart took a gamble, got behind DVD in a big way and emerged a big winner.
Hasn't anyone over there heard of history repeating itself?
Either dump the kiosks or really step up DVD/Blu-ray Disc departments and storewide promotions. Let's put an end to this war that no one can win.
Ralph Tribbey has an interesting way of looking at things. If some people look at the world through rose-colored glasses, then Tribbey, publisher of the weekly The DVD Release Report (and, in the interests of full disclosure, dear old dad to our senior reporter, Chris Tribbey), looks at our business through a pocket calculator.
He's by the numbers, for the numbers, heck, maybe even of the numbers. It wouldn't surprise me one bit if he selected his son's name based on numerology. Let's see, C-H-R-I-S-T-R-I-B-B-E-Y.....
This week's newsletter shows some interesting industry trends, based on, yes, the numbers.
For starters, the DVD business is now officially in six-figure territory, with the total number of DVD titles in release since the format's inception 12 years ago at 101,119, a gain of 257 from the previous week.
Warner Home Video is the top distributor of Blu-ray Discs, with 222 titles on the market, or 15.3% of the total. Sony Pictures is No. 2 with 210 titles, although so far this year the studio has brought out more Blu-ray Discs than any other studio, 46 (to 20th Century Fox's 44 and Warner's 40). Overall, 20th Century Fox is a distant No. 3, with 146, followed by Walt Disney Studios (109), Paramount (91), Lionsgate (71) and Universal (59).
New theatrical releases account for 43.4% of all Blu-ray Discs that have been released since the format launched in June 2006. Theatrical catalog is a distant No. 2, with 17.4%, followed by special interest at 10.7% and music at 7.3%. The total number of Blu-ray Discs that have been released over the last three years is 1,583, with 34 titles already discontinued.
On the regular DVD front, despite talks of theatrical-to-video windows getting longer again, the numbers show continued shrinkage. For all titles this year that grossed at least $25 million at the box office, the average has come to DVD just 119 days after its theatrical bow, a new low. Last year the average was 127.8 days; in 2007, it was 126 days; in 2006, it was 129.2 days; and in 2005, it was 141.8 days.
You've got to love the doldrum days of summer. Studios take a break from releasing high-profile theatricals so consumers can focus on what's at the movies, and that leaves the charts open to some interesting alternatives. Topping Home Media Magazine's rental chart this week is The Code, a direct-to-video thriller from First Look Studios starring Morgan Freeman and Antonio Banderas. The Code also debuted at No. 8 on the Nielsen VideoScan First Alert sales chart, while Disney's Confessions of a Shopaholic, a comedy with just $44.3 million in theatrical earnings, was the week's top seller. For the full chart story, click here.
Here are the week's top 10 sellers, according to First Alert, with percentage of sales coming from the Blu-ray Disc version. As you can see, Blu-ray certainly is picking up steam--quite a far cry from even a year ago, when the average title drew maybe 3% to 5% of its total sales from Blu-ray Disc.
1. Confession of a Shopaholic, 5% BD
2. Gran Torino, 15% BD
3. Transformers, 21% BD
4. Tyler Perry's Madea Goes to Jail, not available on BD
5. Inkheart, 13% BD
6. Pink Panther 2, 7% BD
7. Family Guy Volume 7, not available on BD
8. The Code, 15% BD
9. Friday the 13th, 17% BD
10. Taken, 20% BD
Big industry buzz today about a Financial Times story that says Paramount Pictures is looking to merge its home entertainment division with that of another studio and is in fact in "advanced talks" with Sony Pictures and 20th Century Fox. The Financial Times story quoted "several people familiar with the situation" but had no on-the-record comments from anyone at any of the three studios.
According to the story, "The talks have focused on combining DVD production, distribution and back-office functions. One proposal would see Paramount begin using Sony’s DADC DVD production system rather than Technicolor’s system, which the studio currently uses. ... Following the merger, Paramount and its partner would outwardly continue to operate as separate entities. The two studios would also keep their own marketing and sales operations."
My take: There's probably an element of truth to the story, although I think calling it a "merger" is a stretch. And I do have it on good authority, from someone who works on the Paramount lot, that a replication change may be coming down the pike. "I see the Sony DADC guys running around there practically every week," this person wrote to me in an email. "Since they replicate with Technicolor, there's no reason for Sony to be there unless some distribution discussions are going on."
Wagging tongues say a third studio may also be in talks with Paramount: Universal Studios.
The merger rumors follow by two weeks a report by Reuters that a leading investment firm thinks Paramount Pictures could itself merger with another studio. "Today there are seven or eight motion-picture studios. A round of consolidation will occur in the next six to 12 months because of the costs of financing, prints and advertising, the benefits of globalization and such,” Reuters quoted CEO Mario Gabelli of investment firm Gamco Investors Inc. telling Barron's. "We hear talk of something going on."
To see Home Media Magazine's coverage of the Reuters story, click here.
Smart move by E1's Dan Gurlitz to make his company's upcoming season one release of the Sci-Fi Channel series "Sanctuary" more rental friendly by including an extra copy of the first disc. That gives each store that buys a copy two chances to snag viewers, not just one, and then hopefully get them hooked enough that they'll want to rent the three additional discs, each packaged individually, as well (see Chris Tribbey's story here
It's nice to see a supplier reaching out to the much-maligned rental dealers, who certainly haven't been getting the respect they deserve for years, at least not from the major studios. From the day a cadre of pioneering rental dealers birthed the entire home video industry back in the late 1970s, studios have been doing what they can to stamp out rental, or at least share in the spoils. When the revenue-sharing deals that at last gave them part of the action expired, chiefly because the business shifted from $100 videocassettes to $20 DVDs, the studios renewed their unspoken campaign against rental, a campaign we now see intensifying because of the success of Netflix and Redbox.
The fact that Netflix uses a subscription model irritates the studios to no end, since it's no longer neat and easy from an accounting standpoint. Revenue-sharing monies would be hard to track and even harder to predict — assuming revenue-sharing deals are still in place. Redbox, with its ubiquitous kiosks, is a whole other beast; if the studios can't stand Reed Hastings, chairman and founder of Netflix, then the executive team at Redbox is collectively branded as Public Enemy No. 1. Not only does Redbox not share any revenue at all with any studio, but the company also rents DVDs for a buck, which studios say devalues their product. Adding insult to injury, kiosks are popping up all over like mushrooms after a rain, including in Wal-Mart stores, where they provide would-be DVD buyers with a much cheaper and more convenient way to watch movies, particularly in this economy.
Publicly, studio executives will issue platitudes like "Rental continues to be an important part of our business." But privately, they are dissing rental with uncharacteristic rage, their anger fueled in part by the fact that DVD sales are down while rentals, by most accounts, are up.
When a certain trade publication wanted to do a tribute to Reed Hastings, not a single studio bought a congratulatory ad. And Blockbuster, the traditional queen bee of the rental business, also is in the crosshairs, in the Paybacks-are-a-Bitch Department.
In the late 1990s, before DVD and sellthrough forever changed the equation, Blockbuster was the top video retailer in the world, and the chain promptly used its clout to bring the studios to their knees, squeezing favorable terms out of them to allow it to bring in significantly more copies of hits on the cheap.
Ultimately, Blockbuster was outsmarted by the studios, who turned this ploy around and ended up with lucrative revenue-sharing arrangements. But the studios never forgot Blockbuster's arrogance, and when the chain fell on hard times — due to the rise of sellthrough on one side and the emergence of new business models, like Netflix and Redbox, on the other — there's not even the slightest trace of sympathy in Hollywood. Indeed, rumors are wide that studios are cracking down on credit, squeezing Blockbuster at a time when the chain can least afford it.
Blockbuster continues to fight back, however, most recently by rolling out its own fleet of kiosks (I can just imagine studio executives frothing at the mouth over this) and now by announcing new releases will rent for just $1 a night, the same as Redbox (see our story here
Studios, it's your move. I can hardly wait to see what comes next.
I wanted to share with you some tidbits, thoughts and observations as the week gets underway, three-dot style ...
I get it now why studios are in a tizzy over kiosks that rent DVDs for a buck. For starters, from what I understand, there are no revenue-sharing deals between any studios and Redbox, the largest supplier of kiosks. Secondly, speculation that rental and, in particular, kiosks are cannibalizing sellthrough is perfect understandable, given than so many Redbox kiosks are now in Wal-Mart stores. I went to the local Wal-Mart on Saturday to get some gear for a trout-fishing trip the next day and saw a line of people waiting to rent a DVD from the Redbox kiosk. Meanwhile, at the sales counter, the only activity was around the DVD dump bin, where movies had been cut to two for $10 (from $7.50)....
Speaking of Wal-Mart, the big chain's supposed efforts on behalf of Blu-ray Disc are laughable. Blu-ray is still locked up in an endcap display case, virtually invisible to casual passers-by. Come on, Wal-Mart. You have as much at stake in the success of Blu-ray Disc as any of us do, so why not give it a little more of a push? At least dedicate a row of regular shelving to Blu-ray Disc — just don't hide it away behind lock and key. This approach might work for video games, but gamers have come to expect it. Movie buyers want to browse; they want to feel and touch the merchandise. Wal-Mart didn't lock up DVD in the early stages of that business, so why do so now?
Congratulations to Eisuke Tsuyuzaki on his promotion to chief technology officer at Panasonic Corp. of North America (click here to read our full story
). Eisuke was previously managing director of Panasonic Hollywood Laboratory, where he led Panasonic's charge into first Blu-ray Disc and now 3D. He's an amazing guy who truly becamse the CE community's point person in their efforts to promote Blu-ray Disc in tandem with the studios, and we just hope there's a little Eisuke waiting in the wings to carry on his fine work.
I thought I would pass on an email I just received from Corporate Advocates about a recent survey on high-definition packaged media. It reads as follows:
As you may have seen, there has been some recent reporting on the results of a Harris Interactive survey that arrived at some highly questionable findings on the number of Blu-ray Disc and HD DVD players currently in US households. By way of background, the recent Harris Interactive poll asked consumers whether they owned an HD DVD player, a Blu-ray Disc player, a PS3, etc. The survey has garnered some media attention despite the fact that, according to analyst groups that regularly track Blu-ray Disc hardware sales (as well as HD DVD sales before the format was pulled from the market), the survey results don't square with the actual shipping and sales numbers.
Given the grossly inaccurate results with respect to HD DVD sales (many times greater than those previously reported by the HD DVD group itself), and given that the sales-based numbers and the dramatic increase in Blu-ray Disc hardware and software sales clearly indicate that the format has in fact reached critical mass (surpassing even DVD penetration at the same point in DVD's lifespan), we thought it important to take a moment to provide you with actual data based on manufacturers' shipments and retail sales.
The 2008 sales data and the latest 2009 projections from Adams Media Research are as follows:
* As of December 31, 2008, 2.7% of US TV homes had a Blu-ray Disc set top player, and by the end of 2009 that number will have grown to 6.2% of US TV homes (6.1% and 11.0%, respectively, of HDTV homes)
* As of December 31, 2008, 5.6% of US TV homes had a PS3, and by the end of 2009 that number will have grown to 10.0% of US homes (12.5% and 17.6%, respectively, of HDTV homes).
* As of December 31, 2008 7.8% of US TV homes had either a Blu-ray Disc set top player, a PS3 or both, and by the end of 2009 that number will have grown to 14.8% of US TV homes (17.5% and 26%, respectively, of HDTV homes).
* As of December 31, 2008 0.3% of US TV homes had an HD DVD set top player, and by the end of 2009, that number will have shrunk to 0.2% of US homes (0.7% and 0.4%, respectively, of HDTV homes).
The estimates reported by Adams Media Research are based on its research into actual manufacturer shipments to retail and actual retail sales to consumers, and are significantly different than the survey-based numbers reported by Harris. In fact, the Harris numbers don't even square with the numbers reported by the HD DVD Promotions Group toward the end of that format's lifespan. As of the end of 2007, some 50 days before the announcement that the HD DVD format would be discontinued, the HD DVD Promotions Group was reporting set top sales of less than 1 million units….nowhere near the 9% of households that Harris claims based on its survey results.
As for the discrepancy between the survey results and the actual data, Tom Adams, president of Adams Media Research notes:
"The media industry has long known you can't trust the average survey respondent to correctly identify the high-tech devices in their homes; this finding suggesting that HD DVD player penetration grew from 6% to 9% in the period since the Blu-ray victory in the format war simply can't be right. Our research on shipments and retail sales of players suggests that some 340,000 homes had an HD-DVD player by the end of 2008 v. 3.1 million homes with a dedicated Blu-ray player, and 9 million homes with either a dedicated player, a PS3 or both. So far, despite the recession, sales this year put dedicated Blu-ray players on track to be in 7.2 million homes by year's end, with the number of homes having a BD-Player, a PS3, or both growing to 17.1 million. Meanwhile, HD DVD machines are long gone from store shelves and household penetration is shrinking dramatically. By way of comparison to what had been the most successful format launch in consumer electronics history, at the same point in DVD’s lifespan (four years in, at the end of 2000), DVD-enabled homes (set-tops or game machines) numbered 13.7 million”
Reaction in Hollywood is mixed to the move by the Academy of Motion Picture Arts and Sciences to broaden the field of best picture nominees from five to 10, but I for one am a strong proponent of this — and everyone else in home entertainment should be, as well. We've all written about the "Oscar lift" that sees consumer interest in Oscar-nominated titles soar once the nominations are announced, particularly those getting a nod for the most coveted of all the awards, best picture. Lots of people out there want to see all the nominated films before the winner is announced — and each year at least some of the nominated films are already out on DVD/Blu-ray Disc when the noms roll out. See my point?
That's the commercial T.K. From an artistic standpoint, I also believe it's a good thing, since best picture nominees typically hog the spotlight and all the Academy is doing is casting the spotlight on a wider assortment of films that otherwise might have been overlooked. Academy members, after all, typically don't vote by box office. They do tend to choose quality films, for the most part. Now, they just get to pick more of them.
Interesting buzz today about Toshiba potentially going Blu-ray. Apparently outgoing Toshiba president Atsutoshi Nishida, in a company shareholder meeting, said the Japanese consumer electronics giant may finally have a change of heart regarding the victorious high-definition optical disc format.
"It makes no sense to decide not to enter the Blu-ray market simply because we lost the DVD format war," he is reported to have said. "We cannot change the fact that we lost." (Check out our story by Erik Gruenwedel by clicking here
If true, it's about time! I've always felt Toshiba was acting irrationally by refusing to go Blu after the bitter defeat of its HD DVD format in January 2008. I hate cliches, but this truly was a case of cutting off one's nose to spite the face. Toshiba is a great company — all my DVD players have been Toshiba — and the company probably lost a lot of momentum, and business, by sitting on the sidelines while Sony, Panasonic, Pioneer and others were busy producing Blu-ray Disc players, especially since Toshiba's first course of action was to rev up its DVD "upconverters," a silly ploy that only made it look foolish and petty. "The other high-def format won and ours lost, so you know what? Maybe we don't need any high-def format! DVD is just fine! Take that, Blu-ray!"
Until last year, I've always considered Toshiba a first-class CE company. Let's hope Toshiba does the right thing and starts producing Blu-ray Disc players, like just about everyone else.
Stop the presses! Monday begins with the earth-shattering announcement from the Pew Internet & American Life Project that a new study shows that 97% of all teens between the ages of 12 and 17 play video games. Gee, who would have thought....
What I find interesting, though, is that while the study says 90% of gamer parents know what they're kids are playing, just 13% believe that video games have a negative influence on their children's behavior.
I'm definitely in that 90%--my oldest son, 13-year-old Justin, loves Call of Duty, while the two younger boys, 11-year-old Conner and 7-year-old Hunter, like Wii Fitness and anything SpongeBob--but I'm not quite in the majority who believe there are no negative ramifications. The principal of my sons' school, Denise Coates, has an interesting view that makes more and more sense the more I think about it. The problem with video games, as she sees it, is that the only way to gain something--to win a prize, gold coins, advance in the game, you name it--is by hurting someone else. This can be as benign as SpongeBob zapping some strange sea creatures, or as realistic as the Call of Duty soldiers lobbing a grenade into an enemy encampment. In any event, it doesn't exactly send a good message to our children.
I ran this by another parent and she nodded in agreement, but then added, "I don't know what's worse, though--when we were kids we didn't blow each other up in video games, we shot each other with toy guns."
She's got a point, but I can't help but feel too much exposure to violence does tend to desensitize kids. I'm not for censorship of any fashion, mind you--just some parental control. And that's the approach I am taking. I'm not banning my kids from video games, but I am limiting their time in front of the screen and encouraging them to read, ride their bikes, play in the pool, etc. And when I'm home, I make sure we engage in some form of physical activity, from going to the beach and swimming, surfing or paddle-boarding to hiking, biking and kayaking. I'm also taking the boys to museums, to the zoo, to the harbor--anywhere that's part of the real world, not the virtual one.
And you know what? All this extra exercise and mental stimulation--heck, we even drove up to the Ronald Reagan Library and Museum a few weeks ago--is making me feel better, as well, both physically and mentally. Why, the other day I even let a little old lady merge into my lane instead of speeding up and honking had she tried to cut in.
I wonder if the boys would like to try gardening?