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.
Talk about the end of an era. I woke up this morning with a press release in my inbox telling me Rentrak has sold its Pay-Per-Transaction business to Vobile, a “worldwide leader in video and audio content protection, measurement and monetization services,” for $7 million.
Remember PPT, folks? That was the founding premise behind Rentrak back in the mid-1980s when a video retailer named Ron Berger founded the outfit, now a major media measurement and research company.
At the time, Berger ran a video chain called National Video, a major player facing stiff competition from Blockbuster and its policy of stocking up big on the hits. Berger devised Rentrak as a way for smaller retailers to even the score: they could lease titles rather than buy them outright and thus go a lot deeper on the major new releases than they otherwise could afford to.
Rentrak’s formula later was the model for studio “copy-depth” programs, which allowed retailers to buy more copies of hot new titles on the cheap in return for sharing a percentage of their rental revenues with the studios.
Revenue-sharing, as it’s now known, remained the studios’ preferred way of dealing with rental retailers through the DVD era right up to the rise of Redbox and Netflix.
Rentrak, meanwhile, used the profits from PPT to build its movie and TV measurement businesses, which have ensured the firm’s viability.
Using profits from the old to build the new is a smart business strategy, and one that’s kept industry – all industry – alive over the years. When IBM was faced with an onslaught of PC clones, the company’s fortunes suffered – remember that $8 billion loss in 1993? – until the firm wisely shifted course and began focusing on IT services and enterprise server solutions. Western Union survived email and texting by shifting from telegrams to money transfer services.
Here in Hollywood, we have a slightly different cycle. The core product – movies and TV shows – has long been the same. But the funding mechanism continues to change. First, it was theaters; then, syndication and TV rights. Home video became a potent funding force only after sellthrough triumphed over rental. And now the very same streaming services that threaten the viability of packaged media sellthrough are becoming a key movie and TV show funding source, thanks to the huge bucks Netflix and Amazon are willing to pay for original content as they aggressively expand beyond the United States.
Ah, the cycle of business. As one writer, for the How Stuff Works website, recently wrote, “A successful company is like a great white shark. In its prime, it chews up the competition, but if it dares to sit still for too long, it dies.”
Rentrak is a great example of this. As for the studios, it’s still too early to tell.
On the surface, it appears more than a little counter-intuitive: The same studios that a few years ago got into a tangle with Netflix and Redbox over renting new releases, a practice they said cannibalizes sellthrough, are now creating content specifically for Netflix and other subscription streaming services, which many see as the biggest threat yet to home entertainment sellthrough.
Not only that, but now Netflix will be getting The Interview, the controversial film about the assassination of North Korean leader Kim Jong-un, three-and-a-half weeks before Sony Pictures Home Entertainment releases the film on Blu-ray Disc and DVD.
Meanwhile, the subscription streaming juggernaut continues to snare consumer eyeballs. The latest numbers released by DEG: The Digital Entertainment Group show that consumer spending on Netflix and other subscription streaming services rose an estimated 25.8% to $4.01 billion, while discs sales fell nearly 11% to $6.93 billion.
Is our industry feeding the monster that threatens to devour it? Will producing content for a $9 monthly all-you-can-stream service ultimately undermine all existing distribution channels, including home entertainment — physical as well as digital sellthrough?
Studio executives say that’s a wrong assessment. Even though subscription streaming numbers are included in the DEG’s quarterly release of consumer spending on home entertainment spending, services like Netflix are much more like networks in that they buy TV content — a channel the studios have been feeding for years. Networks live off commercials; Netflix, off subscriber dollars. Both depend on viewership to keep the money flowing. TV production studios are in the business of creating, selling and marketing content, and Netflix, Amazon and the other streaming services are merely a new type of customer, now that they are scrambling for original content to keep their subscribers satisfied.
Are Netflix and Amazon luring viewers away from home video? No more so than a network with a hot new series everyone’s watching and talking about the next day at work. And as one studio executive pointed out, consumers are used to watching TV shows broadcast first and then being able to buy them, either on disc or as a digital download. The difference, of course, is the “on demand” angle — once, say, “The Sopranos” ran its course on HBO, that was it, whereas “Breaking Bad” can still be viewed in its entirety on Netflix, minimizing the need to rush out and buy the complete series on disc.
But from a truly big picture standpoint, these are all nuances. Any losses to the home entertainment divisions are more than offset by gains to the TV division — and in the end, it all goes into the same big studio pot.
If selling shows to Netflix and Amazon brings in huge wads of cash, studios would be foolish to not follow the money.
The bottom line, after all, is the bottom line — and a bottom that is then used to finance the next wave of content and keep the overall entertainment business healthy.
During a Digital Hollywood panel on which I participated, about the future prospects of OTT, the moderator asked each us how this year’s Consumer Electronics Show was different from past years’ events.
I was up first, but my prognosis easily rattled off my tongue: If you look at this year’s spotlight attraction, 4K Ultra-HD, there’s more cohesion and unity, and a greater focus on the whole consumer experience, than there’s been in years.
And that explains why studio executives are so optimistic about the future of home entertainment, despite DEG numbers that show disc sales fell 11% in 2014 and the continued dominance of subscription streaming in the electronic distribution sector of the business.
Everything seems to be coming together for 4K, and one reason is that consumer electronics companies are working not just on one aspect of the new technology but on the whole enchilada. It’s not just about a better picture, it’s about partnerships with content providers — a concerted outreach to make 4K available on all devices, from the most elaborate home-theater TVs to tablets and smartphones — and an all-out effort to make the 4K viewing experience quick and easy, despite the much-bigger size of the files and greater bandwidth requirements.
Everyone’s working together on home entertainment’s “Next Big Thing” — and I honestly feel we’ve learned a lot from past mistakes, from the bruising format war that dirtied the launch of high-definition discs to the disaster that was 3D. The year, not so long ago, when 3D was the show floor rage, all I remember is a plethora of incompatible formats — including those horrid Toshiba TVs with frames that reminded me of dog scratch collars — and mass confusion about eyewear. And then there was that nasty little problem about consumers maybe not wanting to watch everything in 3D, which no one seemed to have taken into account.
With 4K, it’s full speed ahead — and the alluring consumer promise to finally be able to replicate the movie-theater experience in their own home appears to be resonating. I was up in Arcata a week ago, renting an apartment for my oldest son, Justin, who attends Humboldt State University, and ran into a retired ranch hand who now works behind the counter at the Days Inn (yes, I’m living the life).
We got to talking, and when he found out I was in the entertainment business he just had to tell me how excited he was to get a 4K TV. “My friend has one, and it’s like a whole new world,” he said. “It’s a completely different viewing experience — much more so than Blu-ray over DVD.”
That’s not Mike Dunn or one of our other industry thought leaders talking. That’s Rich the ranch hand, your everyday, average Joe.
This year’s CES, much more so than past shows, was truly an invigorating, enriching experience. I left the show Thursday morning with the feeling that our business is back on track, and that we’ve not only developed a great new product that consumers genuinely will want, but we’re also bringing it to market in the right way.
It’s all about the consumer experience, you see. And if we keep that notion at the top of our minds and let everything we do be guided by it, I honestly believe we are destined to succeed.
It’s been quite a year, but one without any really big, transformational changes.
Netflix and streaming are still the way most people “rent” movies. Blu-ray Disc and DVD remain home entertainment’s cash cow. Electronic sellthrough, despite its fancy new “Digital HD” name, remains a small part of the overall business. And UltraViolet, in the minds of most people, still refers to those rays from the sun you want to avoid.
What’s in store for 2015? To echo those immortal words from the Beach Boys, God only knows.
The No. 1 goal among the content providers — the studios — is the same as it’s always been: to maximize profits from movies after they finish their run on the big screen. Streaming, much like its predecessor, physical movie rental, doesn’t really accomplish that, particularly under the subscription model — which is why Netflix, the king of the streamers, has so many old and little-known movies the studios don’t really care about.
The studios, of course, would like nothing more than to give up the hassles of manufacturing and distributing physical product — and, of course, dealing with returns — but the fact remains that selling discs to consumers continues to generate the most money, by far. EST promises incredible margins, but if we take off the rose-colored glasses I think we will realize that EST sales will never approach the magnitude of Blu-ray Disc, much less DVD. When DVD first came out consumers bought and collected movies and TV shows because they had never been able to do so before, at least not in an affordable, easy-to-store way; by the time Blu-ray Disc came around we collectively realized we don’t necessarily need to own every movie ever made, no matter how good the quality or how small the package. And buying a download just doesn’t have the same appeal as buying a physical product, particularly among the impulse shopper.
Which leaves us with streaming, of the subscription kind pioneered, and dominated, by Netflix. The studios, in their quest to sell movies to consumers, would like very much to put the streaming genie back into the proverbial bottle, but we all know that’s not going to happen.
This is not to say, however, that subscription streaming, and Netflix, will remain the dominant way consumers consume entertainment indefinitely. Just as MySpace was done in by Facebook, someone, somewhere, is going to eventually come up with an even more convenient way to bring entertainment into the home — and whether that someone is the studios or a savvy third-party player like Netflix is anyone’s guess.
If Amazon does, in fact, introduced a free video service, supported by advertising, as the New York Post reported last month, Netflix could be in store for serious challenge — or not. One reason home video took off in the first place is that we wanted to enjoy our favorite movies and TV shows without those incessant commercials. We didn’t mind paying for commercial-free programming then, and I don’t see that changing.
The only really big change I see in the not-too-distant future is the emergence of 4K Ultra-HD, which at last promises to bring a true theatrical movie-watching experience to the home. But, again, we don’t know how fast or how slow it will happen — or whether it will be a boom, like DVD, or a bust, like 3D (although I personally believe we may be on to something big, really big).
Changes, forever changes. That’s just how this business rolls.
If there are two things I’ve learned during all the years I have written about home entertainment, they are 1) no trend or cycle lasts forever and 2) having a calculated, well-thought-out next step is critical.
Back when video rental ruled, Blockbuster was the proverbial king of the hill. But there was no viable next step in Blockbuster’s strategy, just a series of misguided half steps, like the foray into satellite and Bill Fields’ confusing “One World, One Word: Blockbuster” strategy of a little bit rental, a little bit sellthrough, a little bit candy and popcorn, a little bit books and magazines. The proper next step, in hindsight, would have been to take a cue from the studios — who, with DVD and the transformation of the business from rental to sellthrough, did have a cohesive, sensible next step — and go sellthrough all the way, instead of effectively ceding it to the big discount chains.
Netflix, in contrast, shrewdly crafted a next step even when disc-rental-by-mail was still the big rage. The company jumped into streaming before most people even knew what the term meant, and through a content-centric approach (albeit one that is based more on quantity than on quality) and extensive in-your-face marketing became wildly successful in the brave new world of digital distribution.
Turning to the supply side, perhaps the most brilliant next step was the one the studios collectively took with the development of DVD. Sensing the novelty of renting movies was wearing off, the brightest minds of Hollywood were eager to rekindle that spark, and with DVD they presented to consumers not just a superior product, but also the first-ever opportunity to buy movies as soon as they were released for home consumption at an affordable price (remember, rental cassettes were priced high, in the $100 range, because the intended buyers were rental dealers, not consumers).
Emboldened by their success, and driven by fears that DVDs would not hold up in the new high-definition universe, the studios took the next step too soon, resulting in a bruising format war and the realization that slightly better quality would not prompt people to rebuy their movie libraries. In retrospect the studios should have taken a cue from the music industry, and the migration from CDs to compressed, low-quality digital music files. Given their choice, quality or convenience, consumers will always choose the latter.
Hollywood’s next step appears to be EST, even as consumers continue to stampede toward subscription streaming. The studio’s No. 1 goal is to turn the business back from subscription and make it transactional again, but there are serious doubts as to whether this can be done — although, in all fairness, it could be argued that the subscription model, too, is a trend that won’t last forever.
Meanwhile, Amazon, in my book, has come up with the smartest next step in our business: a free video service, supported by advertising. Granted, this has not been officially announced; it was reported by the New York Post, citing unnamed sources. But if true, this truly is a brilliant next step: a way to both undercut Netflix and lure customers to Prime. Netflix is cheap, but you can’t beat free; Wedbush Securities analyst Michael Pachter told the Post an ad-supported service could be a “Netflix killer.”
The only question now is, what’s Netflix’s next step?
It used to be you had to scrounge the Web for an advance peak at Walmart’s Black Friday circular, to get an eyeful of what the huge discount chain had in store for those post-Thanksgiving bargain hunters.
This year I didn’t have to look far at all — a copy was emailed to me by Walmart itself, and it came in my email on Thursday, Nov. 14 — two full weeks and a day before The Big Event.
I should say, events. Black Friday is no longer limited to one day. A few years ago, it crept into Saturday, then it expanded the other way, into Thanksgiving Day.
This year’s Walmart circular is the biggest yet, which explains, perhaps, why it was emailed out, as a PDF — and its 40 pages of rock-bottom prices are broken up into three separate Black Friday “events.” The first is 6-8 p.m. on Thanksgiving Day, the second starts at 8 p.m. on Thanksgiving, and the third and final “event” is Friday, Black Friday proper, beginning at 6 a.m.
The best deal is a 32-inch LED TV for $98, about half what my boxy 14-inch Toshiba ran me a decade ago. Consumers can pick one up during Event No. 2, Thanksgiving Day, beginning at 8 p.m. — while supplies last, of course.
I am hesitant to marvel at the wide assortment of DVDs and Blu-ray Discs available this year for the price of a super-size candy bar. The race to the bottom? We’re there, baby … I think it was 2011, maybe 2012, when DVDs first broached the dollar mark. And yet from the looks of the circular, the novelty of ultra-cheap discs has yet to wear off for Walmart, which I suppose is a good vote of confidence in the continued viability of the packaged-media business.
Bargain-priced discs go on sale at 6 p.m. on Thanksgiving, during Event No. 1 — which suggests Walmart has plenty of inventory and hopes to blow it out in a fast and furious manner.
All told, Walmart is offering 214 different DVDs at $1.96 and another 165 at $3.96. Among the former are Sherlock Holmes, Magic Mike, Titanic and Meet the Fockers; the latter group include more recent hits such as Fast & Furious 6, Grown-Ups 2, The Expendables 2, Bad Grandpa, Man of Steel and World War Z.
Blu-ray Discs start at $3.96, with “over 113 titles available at this price!” according to the Walmart circular. Among them are Men in Black 3, Horrible Bosses, Rise of the Planet of the Apes, Flight, 300 and Robocop. Another 104 Blu-ray Discs will be on sale for $6.96, including Man of Steel, Lone Survivor, The Mummy, Despicable Me, Scarface: Limited Edition and The Wolverine.
Another 42 DVD and 34 Blu-ray Disc titles are priced at $7.96, with the Blu-ray Disc crew including such recent hits such as Godzilla and Transformers: The Age of Extinction. Another 34 Blu-ray Discs top out at $9.96 — the cream of the crop, including Frozen, Divergent, Heaven Is for Real and Hercules. And then there’s 89 “complete-season” sets of popular TV shows, from The Walking Dead: The Complete Fourth Season to American Horror Story: Asylum.
We may have hit a new low for fresh product — some of these $9.96 Blu-ray Discs are less than a month old — but hey, moving huge quantities has always been Walmart’s modus operandi. And if the world’s biggest discount chain continues to use DVDs and Blu-ray Discs to lure people into its stores, who am I to complain?
Clearly, there’s still plenty of consumer demand. And for that, the staff of Home Media Magazine — and, if I can speak for them, the studios that pay our bills — truly have something for which to be thankful.
I may get strung up by my feet for suggesting this, but I am beginning to wonder whether electronic sellthrough, or Digital HD, is something akin to "The Emperor's New Clothes."
Every three months, DEG: The Digital Entertainment Group releases a new set of quarterly numbers, derived mostly from the studios, that show consumer spending on the various forms of home entertainment.
Each time, disc sales are down, EST sales are up and we hear lots of crowing about how consumers are finally grasping the concept of buying movies, TV shows and other filmed content as downloadable files instead of on physical discs, and what a great thing this.
Freed from the burdens of manufacturing and distributing physical discs, not to mention dealing with returns, the studios are crowing about how great the margins are, how lucrative this new business model is, and how consumers will no doubt soon be abandoning disc purchases altogether in favor of buying filmed content electronically.
But I question whether this brave new world will ever materialize, and whether all this happy talk about EST's remarkable gains is really just something we all want to believe so badly that we have somehow convinced ourselves that the more we talk about it, the more likely it is to become true.
The plain and simple fact is that while EST sales do keep inching up, they still account for a tiny fraction of overall home entertainment purchases — 18% to 82%, I believe the latest set of numbers indicate.
And while pushing EST through early release windows and digital lockers is certainly the smart thing to do, I believe a fair amount of caution is in order.
For starters, the disc business is still quite healthy. Sometimes I think those of us who live on the coast get too caught up in technological advances and trends — 3D, anyone? — to stop and think what mainstream America is doing. And the numbers suggest an overwhelming percentage of people still prefer to buy discs instead of downloads, in large part because of the old "if it ain't broke don't fix it" axiom but also because there's something about ownership that almost mandates a physical object. If we're going to buy something, we want something tangible, not ethereal.
Secondly, I think there's a misconception about the correlation between the rise of digital delivery and the decline in disc sales. Disc sales aren't going down because people are finally starting to realize they can buy movies as digital downloads without having to worry about cluttering up their homes with more "stuff"; they are going down because 1) younger people simply don't have the same desire for owning something that we older folks do (as seen in everything from music to cars and the rise of Uber and Lyft) and 2) the alternatives to ownership are so easy and cheap. Why spend hundreds of dollars on a boxed set of a hot TV show like "Breaking Bad" when I can access the same content at any time on Netflix?
If, as some pundits believe, eventually we will obtain all of our content electronically, then our home entertainment business will be in big, big trouble. If studio executives were stunned to discover people weren't rebuying their libraries in the transition from DVD to Blu-ray Disc, I believe they will be absolutely shocked to discover how few people are going to buy movies electronically that they already own on disc — particularly since so many of the films we have collected over the years are instantly accessible through Netflix.
That's why it behooves our industry to support, market, and promote discs as much as we can, as diligently as we can — lest this business wakes up one morning and finds itself stripped to its undershorts.
I'm writing this from the outdoor patio at the Ritz Carlton in Marina Del Rey, Calif., where I have just finished speaking on a panel discussion on OTT, subscription streaming and how Netflix, in the words of one panelist, "is eating everyone's lunch."
Reflecting on the 35 years that Home Media Magazine, originally Video Store Magazine, has been covering home entertainment, the changes in our business truly have been monumental since the late Stuart Karl launched a trade magazine to cater to the growing flock of video rental stores that were popping up in the wake of that pivotal moment the year before when Andre Blay licensed 50 movies from 20th Century Fox and released them on videocassette.
The very concept of "streaming" would have seemed like something out of “Star Trek” to the early readers of Video Store Magazine back in 1979, those Neanderthal days before the Internet and the personal computer.
"Connected" meant ties to organized crime, "content" meant you were satisfied and "digit" anything made you think of fingers and thumbs.
And yet, at the same time, lots of things have not changed — fundamental, bigger-picture things that call to mind the saying, "The more things change, the more they stay the same."
The studios, as lords of filmed entertainment, still want ultimate control over that entertainment — and they prefer clean, neat sales transactions directly to the consumer, with no middle-man, no sharing of the spoils. In 1979 they battled mom-and-pop rental stores over the right to rent; today, they're pushing electronic sellthrough to consumers in love with Netflix and that infernal subscription streaming genie the studios wish they could somehow cram back into the bottle.
On the distribution side, there's still someone who's eating everyone else's lunch — Netflix today, Blockbuster a generation ago.
And among consumers, there continues to be a rabid appetite for entertainment that seems to be increasing now that our TVs are connected and our smartphones function as mini-home theaters.
That, and a burning desire to have that entertainment delivered on demand as cheaply and as simply as possible. VHS opened the door to consumers being able to watch what they want, when they want, where they want. DVD made things even easier, with its low sale price (no need for a return trip to the rental store) and random access. Netflix simplified the process even more with its by-mail subscriptions — heck, now you didn't even have to leave your home. And with subscription streaming the process of watching on-demand entertainment is even easier and cheaper than it's ever been.
What's going to be the next step in this steady progression of ease and simplicity? I have no clue — and yet I can't wait to find out.
Kate and Joe Amodei
Our hearts go out to our good friend Joe Amodei, head of Virgil Films, whose beloved daughter, Kate, 29, died early in the morning Monday, Oct. 13, in Philadelphia. God bless you and your family, Joe, and may your precious little girl rest in peace until you see her again.
Kate's funeral will be held Friday, Oct. 17, 2014, at Woodside Presbyterian Church, 1667 Edgewood Road, Yardley, Penn. 19067.
Calling hours — 9 a.m. to 11 a.m.
Funeral service — 11 a.m.
There will be a luncheon following the burial service.
In lieu of flowers, the family is asking that donations be made in Kate's honor to Philabundance. Condolences may be expressed at the Hoffmann Funeral Home Bensalem website: www.hoffmannfuneralhome.com.
In charge of special markets/operations at Virgil, Kate Amodei was a graduate of Temple University and a proud activist who loved to help those less fortunate. She was also an EMT.
Kate is survived by her grandfather, Joe Amodei; parents, Joe and Ginger Amodei; sister and brother-in-law, Kristina and Matt Ulmer; nieces, Aubrey and Elena Ulmer; best friend, Sarah Hughes; boyfriend, Matt Eby; cousin, Dana Amodei; and many other friends, coworkers and family members.
This is not how it's supposed to work. Our children are supposed to outlive us. The pain Joe and his wife, Ginger, must be experiencing is unimaginable. On behalf of the whole home video community where Joe has long been an integral player, we extend our sympathies — and our love.
There’s only one thing that surprised me about Redbox pulling the plug on its streaming video joint venture with Verizon Communications, Redbox Instant by Verizon: Why did it take so long?
Back when I attended the big press conference at the Consumer Electronics Show in Las Vegas in January 2012, announcing the JV (it didn’t actually launch until March 2013), I had trouble understanding the business model.
Generally, if you take aim at a competitor — in this case, Netflix — 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 from the very start, Redbox Instant appeared to be a poorly conceived venture that consistently failed to take advantage of Netflix’s chief weakness: a limited selection of content, particularly on the movie side, which despite its grand success remains a depository for studio castoffs.
Of course, if Netflix couldn’t strike a deal with Hollywood for better product, what would make anyone think Redbox could do it? But even if the two services had similar (weak) content offerings, why has Netflix exploded while Redbox, well, appears to have imploded?
One factor was that Netflix already had an established base of customers accustomed to the subscription model, through its hugely successful disc-by-mail rental service. All Netflix had to do was migrate those customers over to streaming by making the viewing experience even easier and simpler, which it was able to do by eliminating the hassle of having to send back a disc.
The other advantage Netflix had was in brand awareness. When Netflix launched its streaming service, it was already known for sending movies and other content directly to consumer homes, albeit in physical form. Redbox, on the other hand, was known for its vending machines, a model in which consumers had to go somewhere to get their entertainment.
Netflix also marketed the hell out of its streaming service, to the point where Netflix became as iconic a name in home entertainment as Blockbuster had once been. Redbox hooked up with a cell phone company known for smartphones and data plans, not movies.
Redbox’s unique selling proposition was this: Subscribers didn’t just get unlimited streaming of movies and TV shows, they also got four DVD rentals a month from Redbox’s network of kiosks.
Big whoop. If you’re trying to sell someone a new car, you don’t throw in free horse-and-buggy rides.
In the official notice on its website announcing the demise of Redbox Instant by Verizon, the company said, “The service is shutting down because it was not as successful as we hoped it would be.”
That, my friends, is an understatement — and, in retrospect, Redbox has only itself to blame.