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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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17 Sep, 2009

Will There Be a Fifth Quarter?

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.

15 Sep, 2009

Managing Expectations in an Age of Uncertainty

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.

11 Sep, 2009

The Thin Line

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.

8 Sep, 2009

Why Aren't Computer Makers All Over Blu-ray Disc?

You've got to hand it to Toshiba. The consumer electronics giant, which was behind the ill-fated HD DVD format, has at last given up its attempt to kill Blu-ray Disc with its fancy DVD "upconverters" and is now going Blu itself. What's more, the company also is coming out with a new laptop, the Satellite P500, that's equipped with a BD-RW drive.

Kudos to Toshiba on both counts, but especially for the latter.

By coming out with a set-top Blu-ray Disc player, Toshiba is a definite latecomer. But by producing a Blu-ray Disc laptop, scheduled to hit stores in the fourth quarter, the company is returning to the leadership role it once commanded in the CE industry back in the early days of DVD.

Toshiba, you will recall, was the big driving force behind DVD, at least on the CE end, working with Warner Home Video to aggressively promote and market the format to consumers. Getting other computer makers on board, early in the game, was as significant a step as vanquishing Divx, the pay-per-play variant championed by the now-defunct Circuit City retail chain, so that there was only one type of set-top DVD player on the market.

With Blu-ray Disc, virtually every CE manufacturer is now on board. But computer makers are slow to the table this time around, and for the life of me I can't figure out why. You may recall that in early September, the technology research firm iSuppli estimated that only 3.6% of computers shipped this year, on a worldwide basis, have Blu-ray Disc drives. And even by 2013, four whole years from now, the total will only be 16.3%.

The reasons, according to various analysts, include price--computer prices are now so low that adding a Blu-ray Disc drive could easily double the total sales price--and the fact that the Blu-ray Disc picture is so good that most people won't want to watch Blu-ray movies on their computers. 

What's more, analysts note, DVD drives had a unique selling proposition because the packaged-media format DVD replaced, VHS, could never be viewed on a computer. So it was a novelty that brought added value. If you bought a computer with a DVD drive, you could not only only store a lot more data, but you could also--drum roll, please--watch movies!

Blu-ray drives, on the other hand, will have to live or die by data storage alone--and according to industry wisdom that's just not enough, at least not now, not even in 2013.

I disagree, and I urge computer manufacturers to go Blu, and go Blu in a big way, pronto. More and more people I know are burning their own home-video DVDs at home, and they're getting tired of only being able to put an hour or so of quality footage on a disc. I would argue that the storage question is a big deal; when DVD came out 12 years ago there was no such thing as a multi-gigabyte hard drive, and most of us still shot home movies on camcorders that used tape instead of enormous built-in hard drives.

And whatever happened to computers being on the cutting edge of technology? IT companies are supposed to lead us, not lag behind everyone else. The iSuppli research I saw also predicts annual set-top Blu-ray Disc player sales will rise from 9.1 million this year to 42.1 million by the end of 2013. That means a vast body of consumers will be aware of Blu-ray Disc. And you're going to tell them they can't get that in their computers?

Come on, guys. Get real. If Toshiba can suck it up and go Blu, so can you.

4 Sep, 2009

Blu-ray Disc Picture Quality Redux

Earlier this week I wrote a blog entry in which I said our industry needs to do a better job playing up the advantages of Blu-ray Disc over standard DVD, just in picture quality. I noted that the picture really is dramatically better, at least when viewed on a top-notch TV, and that we need to spread the word after several years of downplaying the difference in favor of hyping BD Live and other high-tech innovations.

So now, I'd like to share with you a post I unearthed from last March in which Eric Taub, a Gadgetwise blogger for the New York Times, talks about this difference, one that he frankly wasn't expecting. Taub wrote this piece when Toshiba, which just announced its first Blu-ray Disc player, was still hawking its DVD upconverters —and skeptics like Taub were saying forget about Blu-ray, DVD's just fine.

"I’m a big fan of the DVD format," Taub wrote. "It offers a quantum leap in picture quality as compared to videotape, longer-lasting media and random rather than linear access. But I’ve always questioned the benefits of Blu-ray; picture quality looks very good but I’m perfectly happy with standard-def DVDs. Unless you like Blu-ray’s extra features, like BD Live, the incremental difference in picture quality didn’t seem worth the expense. To check out my assumptions, I did two side-by-side tests. I connected Toshiba’s XD-E500 (a DVD upconverter) and Panasonic’s sub-$300 (discontinued) DMP-BD35K Blu-ray players to a 46-inch Panasonic 1080p plasma set, the TH-46PZ850U. I ran the same movie in both simultaneously, the De Niro/Pacino thriller Righteous Kill, using Blu-ray and standard DVD copies, jogging back and forth between the inputs to make instant comparisons in picture quality. Then I switched out the Toshiba for a simple Sony progressive scan DVD player that cost me $70 three years ago. The results: the XD-E image was better than the old Sony, but not by much. And both looked quite good. On the other hand, the Blu-ray machine simply blew away both standard-definition players. The difference was dramatic. The Blu-ray images were smooth, sharp and rich. Every scene “popped” with a clarity and presence never seen with standard DVD, making the scenes, whether daytime exteriors or heavily shadowed interior club scenes, come alive. The difference in picture quality between Blu-ray and standard-definition DVD was very obvious. But the difference is accentuated when you get the chance to flip back and forth between the two. Just as many owners of rear-projection DLP sets don’t notice that their picture is getting dimmer over time, many owners of standard-definition DVD players will be perfectly happy with the picture quality, and won’t notice what they’re missing, unless they have something better, such as Blu-ray, with which to compare it. Blu-ray player prices continue to fall.... The cost difference between the two is barely more than $100, and once that declines even further, there will be little reason for the average consumer not to choose Blu-ray when looking for a DVD machine."

For Taub's complete blog, click here.

2 Sep, 2009

It's the Picture, Stupid!

In retrospect, our industry took a big misstep back when Blu-ray Disc first came on the market, and we all downplayed the improved picture quality, telling ourselves it wasn't nearly as big a leap as the diference between DVD and VHS. I don't know what we all were smoking — and I'm as guilty of this as anyone — but now that our TVs have gotten better and more and more Americans, the economy be damned, are buying high-def TVs, it's time to revisit this. When my kids are watching a movie on my 65-inch Panasonic plasma, I know instantly whether it's DVD or Blu-ray Disc. The Blu-ray Disc picture is so much cleaner and sharper — to the point where even my kids would rather wait until a film comes out on Blu-ray Disc than watch it on DVD.

I remember the months surrounding Blu-ray Disc's launch. Everyone talked about the picture being better, and there were even side-by-side comparisons. But our collective thought was that the difference wasn't as pronounced as the difference between DVD and VHS and thus shouldn't be played up in marketing materials or sales-floor pitches. Instead, we focused on more and better extra features, picture-in-picture and BD Live, features few people could even access due to 1) the ridiculous progression of "profile" players that were obsolete almost as soon as they hit the market and 2) the CE community's failure to provide consumers with wireless Internet connectivity for standalone Blu-ray Disc players. BD Live was all well and good, but if you have to connect your player to the Internet with a cord you're simply not going to do it — not when you've had Wi-fi in your home for years.

So now we're hearing from consumers, largely through postings to tech forums, that the picture quality really is a key reason for their transition from standard DVD. And then we go back to our own TVs and, lo and behold, they're right. In fact, I would venture to say that the improvement in picture quality that Blu-ray Disc offers over DVD is comparable to the improvement DVD offered over VHS — even so-called "upscaled" DVD as seen through my Panasonic Blu-ray Disc player.

Now, it's up to us to spread the word — particularly since it's becoming clear that Blu-ray is the very best picture available, and that a lot of the cable stuff that passes itself off as "high-def" really isn't, or at least it's not 1080p, the proverbial cream of the crop.

As they say, if you've got it, flaunt it.

1 Sep, 2009

DVDs On Fire, Literally, at Wal-Mart, and Don't Fear the Reaper

DVD sales may not be on fire, but players certainly are. Durabrand players, that is, a budget line sold at Wal-Mart that has the unfortunate propensity to potentially burst into flames. The latest U.S. Consumer Product Safety Commission communique says Wal-Mart is recalling 4.2 million players because of this burning issue. Initially Wal-Mart recalled only 1.5 million silver DVD players made by Durabrand, but today the recall was expanded to cover pink and purple versions of the same device, for a total of 4.2 million players. According to the commission, the recall was triggered by 14 complaints Wal-Mart received of DVD players overheating, seven of which caused a fire that damaged property. Click here to read our coverage.

On another note — an uplifting one, I might add — Home Media Magazine's inaugural Reaper Awards are generating a ton of press all over the world. In case you missed it, we are launching a new awards contest, in tandem with the Dread Central horror Web site, that is honoring and promoting the top horror DVDs and Blu-ray Discs of 2008. Studios and suppliers also are being given the chance to promote their current horror releases, including those still in theaters but scheduled to arrive on disc in time for Halloween. Click here to read our story about the event — and if you're in the area, make sure you attend!

28 Aug, 2009

Tips for a Successful Fourth Quarter

Every year since DVD sales stopped posting double-digit gains each year we've been saying that the fourth quarter is make-it-or-break-it time, but it's never been more true than this year. DVD sales have been off by an alarming percentage for much of the year. And while that doesn't exactly paint a true picture of home entertainment consumption--consumers are simply opting for other means of bringing movies into the home, including renting, buying Blu-ray Discs and downloading movies over the Internet--it does ding the Hollywood studios' bottom lines, since DVD sales are far and away the most profitable business model they've come up with.

Short of unplugging every rental kiosk (take that, Redbox!) and convincing the postal workers union to go on strike (what are you going to do now, Reed Hastings?!?), studio executives are scratching their heads and wondering what more they can do to spur sales, short of spending even more money on the one surefire way to boost business, buying trade ads (I jest--sort of). So here are five tips I've come up with that make the captains of our home entertainment industry a little more jolly as we move into the holiday season.

1. Step up the counter programming. If your competitor slots a big kidvid release for the second Tuesday in November, immediately schedule your nearest chick flick for that same day. And consider talking to the competition about some joint marketing efforts for both titles. I don't care if it's never been done before--there's strength in numbers, and these are desperate times, to paraphrase two of my favorite cliches!

2. Don't cram everything into the fourth quarter. Each year Q4 is increasingly crowded, not just with hits but with everything else. Sooner or later the law of diminishing returns is going to come in. Consumers can't buy everything, and if there is too much product out there you'll find a particularly nasty development: Not only are rental kiosks cannibalizing DVD sales, but now DVD sales are cannibalizing DVD sales. It's much better to wait and save some of your strongest product for January. You'll still make money in Q4, and get the new year off to a good start, as well.

3. Put a moratorium on all TV DVD releases until after January 1. Last year I spent most of November watching season 8 of CSI. I missed a lot of good movies that came out around the same time because I was too wrapped up in those 26 hour-long episodes. I think we as an industry are throwing too much product at consumers, all at once, and then wondering why they aren't buying. The answer's simple: They don't have the time to watch everything!

4. Give consumers more affordable Blu-ray Discs. Launch value lines, something, but with Blu-ray Disc players selling for less than $250 consumers can't be expected to plop down another $30 or $40 for every new movie. Roll out catalog titles at $15--make 'em as vanilla as you need to--and get them hooked.

5. Buy more ads in Home Media Magazine. (Sorry. I had to throw it out there.)

24 Aug, 2009

Those Weinsteins!

If you believe the mainstream media, you'd think declining DVD sales were to blame for global warming, California's budget crisis and the apparent failure of President Obama's health care reforms. Virtually every day, some big newspaper or magazine, from the Los Angeles Times to the Wall Street Journal, runs a story in which something or other gets blamed on grim DVD sales.

The latest is a story in the Wall Street Journal on the Weinstein Co.'s continued financial struggles (to read the piece, click here). Brothers Bob and Harvey finally scored another box office hit with Questin Tarantino's campy Inglourious Basterds, but as the Journal points out "that still may not be enough to give the studio the boost it needs to climb out of its current financial troubles." The story goes on to note that after a string of theatrical flops the Weinstein Co. is struggling to stay afloat "in a harsh Hollywood climate where financing has dried up and home video sales have sunk."

Ironically, the Journal's assessment in blaming video rings more true here than in most instances. The house that Bob and Harvey built, after all, was funded largely on the premise that they would invest in a video company (Genius Products), that DVD sales would continue to soar as they did in the early 2000s, and that the result would be a huge influx of cash that would allow the Weinsteins to do what they've really always wanted to do: make movies, and make lots of them.

What everyone failed to note here, though, is that DVD sales of theatrical movies rely heavily on the box office success of these movies. If a movie flops theatrically, it's not going to be a No. 1 smash on home video, even in the glory days when consumer spending on DVD purchases was posting double-digit gains each year. And if your slate of theatrical DVDs aren't selling as well as you had hoped they would, you can't count on the rest--all the other lines and titles Genius picked up in the years the company was majority-owned by the brothers--to make up the difference.

You can have a wealth of secondary product you're bringing to market, but ultimately it's still your theatrical slate that carries the day, regardless of the state the economy's in.

That said, how do we get the media to stop saying such nasty things about our business? Why are we getting blamed for sinking all of Hollywood? Has anyone stopped to think of the idiocy of statements that blame DVD sales for creating a "harsh Hollywood climate?" At their very worst, sales of DVDs are down about 15% so far this year. Actual consumer spending on home entertainment is down maybe half that amount, when you factor in Blu-ray Disc--which is having a phenomenal year, despite the bad economy--and DVD rentals, which the studios don't like because for the most part they don't get a share of the action.

But even 15% isn't that bad when you look at most industries, from the automotive industry (auto sales are down by more than 30%) to tourism (hotel occupancy in the onetime tourist mecca of New Orleans was just 49.8% in the week ending August 15, a 22.8% drop from the same week last year, according to hospitality industry tracker STR) and publishing (don't ask!). And realistically speaking, you do have to factor in Blu-ray Disc sales and DVD rentals, as well as electronic delivery. Only then can you paint an accurate picture of how much consumers are really spending to bring movies, TV shows and other programming into their homes. And when you factor in all those things, hey, we're not that bad off.

Really, we're not.

21 Aug, 2009

Warner Planning 'Exorcist' Blu-ray

Hot scoop: Warner Home Video says that among its special Blu-ray Disc editions next year will be a new restoration of <i>The Exorcist,</i> feauring both the original 1973 theatrical release and the 2000 extended director's cut.

The transfers, just completed in July, were supervised by both director William Friedkin and director of photography Owen Roizman. The disc should be out in time for Halloween 2010.