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.
Thomas K. Arnold (second from left) with Entertainment One's Griffin Gmelich, Michael Rosenberg and Wally Schmidt.
NEW ORLEANS — It’s the middle of July, the daytime heat is unbearably hot, the nighttime streets are awash with neon and crawling revelers, and everywhere I look people are talking about DVD and the home entertainment industry.
No, I haven’t time-warped back to the glory days of the annual VSDA convention in Las Vegas. I’m in that other party town, New Orleans, attending the annual sales conference of Entertainment One, a potent player in home entertainment — and one whose executives still believe, very strongly, in packaged media.
Entertainment One’s primary business, after all, is in music, and the music side of the company’s business is holding up quite well. Indeed: Entertainment One Music, as it’s officially known, has since its inception as Koch Records charted more than 100 albums on Billboard’s Independent Chart, more than all other U.S. indies, and was the No. 1 indie label, according to Billboard, for four years running.
On the home entertainment side, Entertainment One deals with the same big retail accounts as the studios, from Walmart to Netflix, and in recent years has hired several ex-studio big guns — including Griffin Gmelich (ex-Warner Home Video executive) as VP of video sales and Jeff Chapman (formerly with New Line) as regional sales manager, video — to pitch its DVDs and Blu-ray Discs.
In addition to maintaining its own home video label, Entertainment One distributes product for more than 70 affiliated labels, including Cinevision, Disinformation, Palisades Tartan and S’More Entertainment, the latter run by former Rhino honcho Arnie Schorr.
The grand get-together in New Orleans — all told, there are about 200 people here, mostly Entertainment One employees but also a few retailers, such as Lisa Nishimura of Netflix and Jeff Wyrick of Hastings, as well as distributors VPD and Ingram — is meant to reflect on the past year, look forward to the future and network in the present. About 50 labels are here presenting during the course of four days; at night there are gala networking dinners and parties, including tonight’s concert, featuring various Entertainment One Music artists, at the House of Blues, followed by “Elvira’s Movie Macabre” at The Dungeon.
If the business is hurting, as the quarterly studio numbers suggest, you wouldn’t know it here. The mood is decidedly upbeat, and while most of the product being discussed here is niche — from Tribeca Film Festival favorites to eclectic documentaries, concert films and TV shows — it’s clear there’s still a market for DVDs and Blu-ray Discs beyond the big-budget fare put out by the Hollywood studios.
Touching on a recent column I wrote in which I decried the fact that our industry, by and large, has lost its “human touch” — well, I’m happy to report there’s still quite a bit of it here this week in New Orleans.
The home entertainment industry, I’m afraid, has lost its human touch.
The social experience of walking into a video rental store and maybe chatting with the clerk or other customers before picking out a movie to watch that night has been replaced by a few clicks of the computer mouse to update your Netflix queue.
The rush to pick out a hot new movie the day it comes out on DVD or Blu-ray Disc, where you will likely rub elbows with other fans, has been replaced by complacency that further minimizes the human touch. We wait a day or two, maybe a week, and then toss the movie into our shopping cart as we race down the center aisle to pick up toilet paper and contact lens solution. Or maybe, judging from the way sales have been going, we just wait for it to come out on TV — or while away our evening with Angry Birds on our smartphones.
Inside the business, it’s no different. We don’t see each other much anymore; heck, we don’t even talk on the phone the way we once did, preferring to communicate via Facebook messages or an occasional text.
I miss the periodic events where you saw everyone — the key retailers, the studio presidents and their entourages, the frantic publicists and frazzled marketing executives. The annual VSDA convention is a distant memory; so is the Home Media Summit, two events that fell by the wayside because the studios no longer wanted to support them.
And has it really been a decade since “event marketing” was one of the big buzz words in our business? Grandiose DVD launch events were the norm for awhile there; how I long to see Craig Kornblau ride a camel, as he did for one of Universal Studios’ fabled launch events for The Mummy.
Granted, there are still some studios that do stage elaborate launch events, most notably Warner. But for most there’s barely a press release, and then we wonder why there’s no excitement, no pizzazz.
A lot of us are wondering where this business is heading, why sales are down and we’re no longer seeing record-breaking first-week sales for newly released theatricals. I think we need to look inside. If the movers and the shakers in the home entertainment business aren’t showing any passion, how can we expect the consumers to get excited about our products?
To quote from Bruce Springsteen, “I ain’t looking for praise or pity/I ain’t coming round searching for a crutch/I just want someone to talk to/And a little of that human touch.”
I was surfing the net, looking up new twists in the sordid saga of Rep. Anthony Weiner’s wiener, when it hit me: The slump in DVD sales is probably a result of an unprecedented torrent of entertainment options available for couch potatoes.
I’ve been itching to see Hall Pass, but haven’t had time, keeping up with the latest developments concerning Weiner: the original photo, the tearful confession, the new photo (hint: no underwear) and the various websites and forums where the Congressman’s misguided Tweet is being examined from all angles.
The Drudge Report, the Huffington Post, The Wrap, TMZ, Radar Online – heck, there’s plenty of stuff to keep me occupied for hours.
I’ve even gone to Weiner’s Twitter account to check out who, exactly, he is following – and at least as of this writing, there were still plenty of young women who don’t appear to have anything in common except for the fact that they are all rather attractive brunettes.
I’m not the only one in our house too busy to watch movies lately. My oldest son, who wants to see Hall Pass as badly as I do, has been busy with Facebook and YouTube. Middle son’s also got the YouTube bug – watching “South Park” clips, mostly. And little Hunter keeps snatching my iPhone to play Angry Bird and Zombie Farm. He’s downloaded so many apps I’m having trouble finding my email.
No wonder discs aren’t selling as they used to. We simply don’t have the time.
My hope, though, is that eventually the novelty of all these new entertainment choices, which seem to have sprung up right around the same time, will start to wear off and we’ll go back to our movies and TV shows on disc.
Kids are notoriously fickle. I think their absence is a key factor behind the slump in disc sales. One studio executive told me recently that while the VTR (video-to-theatrical ratio) for big animated feature films used to be between 60% and 70%, it’s now in the low 30s. They’re not watching movies at home because they’re too busy with Angry Bird, but, again, we’ve seen this time and time again over the years with each new fad, and in each case a slump is invariably followed by a resurgence.
Good sign: Hunter and his pals the other night enjoyed a Shrek marathon on Blu-ray. They watched all four films, one after the other, and then whined when I told them there wasn’t going to be a fifth.
It’s the adults I’m most worried about. It used to be the only real drain on home video came every four years when the Olympics were on TV.
Now, it seems, there’s always something.
This latest slump? Blame it on Weiner.
It's a pity the first quarter couldn't have ended a week later. The same week the news hit that disc sales had plummeted nearly 20% in the first three months of this year, Warner Home Video released Harry Potter and the Deathly Hallows — Part 1 and promptly triggered a disc-buying frenzy the likes of which we haven't seen in some time. Consumer spending rose by the double digits, and since Warner Home Video holds back its titles 28 days from leading rental outlets Netflix and Redbox, buying Deathly Hallows was the only way to see it — unless you happen to be lucky enough to still live by a brick-and-mortar video rental store.
Like it or not, DVD and even Blu-ray Discs are now seen as a commodity, not a novelty. Disc sales are going to live and die by their box office, although smart scheduling — tip o' the hat, Team Warner! — and strong marketing certainly can have an impact, as well. But the days when a studio could put any old movie out on disc and realize respectable sales are long gone. If a movie tanks at the box office, it's going to tank on disc, regardless of timing, regardless of marketing.
Theatrical dealt our industry a cruel hand in the first quarter of this year, and while our industry played it as well as it possibly could have, we still lost. Not only did disc sales to consumers take a nosedive, but the press jumped on the decline as just another affirmation of its belief that packaged media is a dinosaur and discs of all types — CDs, DVDs, even Blu-ray Discs — will soon go away. The disc-is-dead chant has become something of a mantra among the media, and I fear no amount of data or other evidence to the contrary is going to change that. It's sort of like the controversy over President Obama's birth certificate: all right, he's produced it, we've all seen it — and yet there are still those who insist the document must be forged and there's no way the President could possibly have been born in the United States.
We at Home Media Magazine — which is now part of the Home Media Group, a rebranding I believe better reflects all the different things we do in the area of content creation and aggregation, market research and analysis — will soon have before you a White Paper on Blu-ray Disc, coinciding with the format's fifth anniversary.
In a succinct, easy-to-digest format, we are presenting the facts about this remarkable format: software, hardware, what it is and what it does, why it was developed, and how it's doing. And if you take a step back and look at the parade of facts and figures that have accompanied the Blu-ray Disc format since its commercial birth in 2006, you witness a most compelling success story made all the more remarkable by its roots in a format war and adolescence during the worst recession since the Great Depression. Against almost overwhelming odds — certainly far worse conditions than DVD ever had to contend with — Blu-ray has revolutionized home entertainment and established itself as the "now" as well as "future" format for home entertainment.
Our white paper will be published at the end of May. Watch for it.
So what’s really going on here? The news that Osama Bin Laden had been killed put everything else on the media’s back burner, including the Southern tornadoes and, of course, our own industry report on first-quarter sales and rental numbers. The few stories that did surface blew right through the box office correlation – disc sales were down 20%, while the collective box office earnings of those films was down 25% — and jumped right back into their “discs are dying” mantra.
“Down, down, to obsolescence town – that might just be the broad-view takeaway from Los Angeles-based Digital Entertainment Group's recent sales report, which suggests new DVD sales in the U.S. plunged 20% over the past 12 months,” said Time magazine.
"Disc sales drop 20% as streaming video begins to take over,” observed USA Today.
And a blog posting in PC World proclaimed “DVDs are one step closer to extinction.”
Most stories reported the decline in box office value, as well as the absence of the Easter holiday shopping season in the first quarter of 2011. But no one gave either of those factors any credence, and why should they? It didn’t fit in with their preconceived notion that the disc business is dead.
The truth is, box office is very much a factor in the home video business, especially now that the business is primarily sellthrough. Back in the old days when rental dominated, mediocre theatrical performers tended to perform better on video, but these days, there’s a direct connection, and one that makes sense – if you’re not going to spend $10 to see a film in the theater, you sure aren’t going to plunk down $15 to own it.
The advent of Netflix and Redbox may have triggered a resurgence in rental, and here the old formula still works: total consumer spending on rental rose slightly, even with the down box office.
That said, we are seeing a new reality in disc sales. The novelty of being able to own every movie the day it comes out on home video, at an affordable price, has worn off. We as a society now realize we don’t want to own every movie that comes out, even if it’s priced at $15, or $10, or even $5. We simply don’t have the room.
And in the children’s animated category, the new reality has hit harder than practically anywhere else. Whereas in the past the video-to-theatrical ratio was in the high 60s and even low 70s (meaning an animated feature film that grossed $300 million in theaters could be expected to generate, on average, about $200 in consumer spending on disc sales), the VTR now is down to the low 30s.
Children’s titles are still inherently more “ownable” than most films, but the competition for 8-year-old eyeballs has gotten increasingly intense. There’s YouTube, Club Penguin, hundreds of game apps for Dad’s iPhone, and more.
As Francois de La Rochefoucauld, the famous French author of maxims and memoirs, once said, “The only thing constant in life is change.”
Granted, the latest disc sales numbers for the first quarter, which should be released later this week, don’t look good. And the barrage of media reports alleging that the packaged-media business is on the ropes seems to be intensifying, with even the movie-biz website The Wrap calling the DVD business “dying” in a story today.
But once again, I need to plead with everyone to stomp on the brakes. Packaged media may no longer be Hollywood’s bread-and-butter, as it was beginning in 2001, as DVD transformed us all from movie renters into movie buyers. But it is still the dominant method we use to consume entertainment into our home, and in all likelihood will remain so at least for the foreseeable future.
An NPD Group study released earlier this week put things into perspective: Consumers may be talking about streaming and downloading movies, but when it comes time to take action they’re still plunking down their money for a Blu-ray Disc or DVD (to read the original story, click here). The study, conducted in March, found that nearly 80% of consumers watched a movie on DVD or Blu-ray Disc during the past 90 days, and that nearly 80 cents of every dollar spent on home entertainment goes toward the purchase or rental of physical discs. Respondents said 78% of their home video budgets went to the purchase and rental of Blu-ray Disc or DVD, including online and in-store retail purchases and rentals, while 15% was spent on video subscription services like Netflix. Digital video downloads, paid streaming, transactional VOD and pay-per-view accounted for just 8%.
I’d like to further point out that almost since the day this business began, we’ve been using the collective box office strength of movies available on home video to gauge the strength of the home entertainment business. And if you tally up what the movies that came to Blu-ray Disc and DVD in the first quarter of 2011 earned in U.S. theaters, and then compare that to the total for films issued on disc in the first quarter of 2010, you’ll find the drop in box office is virtually identical to the decline in disc sales.
Digital may be cool, sexy, hip, and with it. But to borrow a line from the movie Jerry Maguire, “Show me the money.”
With Dish Network buying Blockbuster Inc. at auction for a bid of roughly $320 million, the digital delivery sweepstakes is about to get a lot more intense.
Dish is in a three-way battle for consumer eyeballs — eyeballs attached to bodies that want to watch first-run movies without making a trip to the rental store, the supermarket or even their own mailbox.
On one front Dish is fighting satellite rival DirecTV. Both get to offer most new releases for “transactional” viewing the same day they come out on disc. Up until now, DirecTV has had the edge, both in subscribers (19.2 million to Dish’s 14.1 million, as of the end of 2010) and in marketing. When studios began holding back hot new releases from rental leaders Netflix and Redbox, DirecTV launched a media blitz crowing about the street-date availability of first-run movies from Warner, 20th Century Fox, and Universal Studios — as did Blockbuster, before it ran out of money. Dish was conspicuously quiet.
On another front, Dish is fighting the cable companies that are scrambling to launch and improve their own premium VOD channels.
And on a third battleground, Dish is squaring off against the telecoms, who also are engaged in a continual game of streaming one-upmanship.
How can the purchase of Blockbuster give Dish the upper hand? It all depends on what Dish does with its new acquisition. And surely, but surely, there is a plan. As David Berliner, a consultant at BDO Seidman LLP in New York who specializes in restructuring and insolvency issues, told the Bloomberg news service, “It doesn’t make sense to buy a melting ice cube unless you’ve got a plan to increase revenue.”
My hunch is that Dish sees the $320 million it is spending to buy Blockbuster as an investment in its digital future. Dish didn’t buy Blockbuster for the stores, or for the inventory. Dish bought Blockbuster for the brand, and will leverage the brand to position itself as the No. 1 source of VOD. I wouldn’t be surprised it a name change, to something like the Blockbuster Movie Network, is in the future. Imagine this: “Blockbuster used to be the place where America rented its videos. Now, Blockbuster is the place where Americans watch their movies—in the comfort of their own homes. The old Blockbuster did away with late fees. The new Blockbuster is doing away with stores, vending machines and even your mailbox — so your lazy ass never even has to leave the couch.”
I jest, of course. But only in part. Rest assured that the Blockbuster brand will live on, even if the stores don’t. The vending machines — yeah, I think they’ll stay, too, considering NCR Corp. owns and operates Blockbuster Express kiosks under a license agreement. Redbox still does an awful lot of business, and this way Dish has some skin in that game, as well.
Dish may also use the fact that Blockbuster went belly-up owing tons of money to the studios to its advantage. “Hey, Warner. Hey, Paramount. Yeah, we’ll pay you. But what about those windows, eh? I know we get some movies the same day they come out on DVD and Blu-ray Disc. But it sure would be nice to get everything …”
These next few months should be interesting.
Be sure to pick up next week's issue of Home Media Magazine. It will contain one of our most important, and comprehensive, research reports yet.
In Digital Drivers, we take a look at who, exactly, is driving the transition from physical media to digital distribution, be it cable video-on-demand, Internet streaming, iTunes downloading or Hulu viewing.
If the adage “content is king” is true, and I believe it is, then it follows that the leading drivers behind the digital revolution are at the studios. Technology and digital distribution platforms are certainly key parts of the equation, but without stuff to watch on those platforms, they are little more than better mousetraps waiting to be sprung.
That’s why Time Warner CEO sneers at Netflix’s ambitious low-cost streaming plans, which at this point, due to a lack of financial incentives to the studios, don’t include any current hit movies. “It’s a little bit like, is the Albanian army going to take over the world?” Bewkes said recently in an interview. “I don’t think so."
The fact is, there’s more than a little truth behind the industry riddle, “When will digital delivery replace packaged media?” The answer: “When the studios want it to.”
Until there is a viable business model that makes sense for the content owners, they’re not going to give up on a sure thing. Sure, DVD sales are slipping, fast, and Blu-ray Disc sales aren’t playing catch-up fast enough. But until something else emerges in the digital space that generates as much or more revenue, don’t expect to see the disc disappear off into the sunset, as the VHS cassette did.
A sobering thought: Even though everyone and his brother is now downloading music, the majority of music industry revenues are still from the trusty old CD.
In truth, packaged media may never go away completely. When a viable digital distribution model does emerge that all the studios buy off on, it may be some sort of physical-digital hybrid like UltraViolet or Disney’s Studio All Access.
Regardless, our team here at Home Media Magazine spent the better part of the last three months researching, investigating and analyzing the digital distribution business and identifying the key players. We’ve given big play to the studios and independent suppliers, since they control the content. But we’ve also included the people we see as key digital drivers on the retail and technology side, the platform builders and the behind-the-scenes tech guys who are making digital distribution both possible and practical.
Give us your feedback. And if we’ve left anyone out, please let us know. I spoke with one studio executive a few weeks ago and asked him who the key digital drivers are at his studio. His response: “Good question.”
Maybe now, he’ll know.
Charlie Sheen's antics aside, entertainment news this week is dominated by a most interesting juxtaposition of the old face and the new face of the home entertainment business.
Blockbuster, for years the 800-pound gorilla of our business back when rental ruled, has been reduced to a feeble old spider monkey in the zoo infirmary. A trustee representing the Department of Justice is leading the charge to ask the court to force the bankrupt rental chain to liquidate its assets. Summit is suing Blockbuster over allegedly unpaid bills, while a Google News search this very morning found a rash of negative headlines, including "Blockbuster files notice of possible layoffs of 850 Dallas and McKinney employees," "Two of three [Racine, Wisconsin] county Blockbusters closing," "San Luis Obispo's Blockbuster video store to close April 10" and "Former Norwich Blockbuster to become bar and grill."
Down for the count? It's beginning to look that way.
Meanwhile, a fresh new face suddenly has emerged in the beleaguered home entertainment sector: Facebook, the social networking site that's made everyone's life a reality show.
Warner Bros. Digital Distribution yesterday began offering movies for purchase and rent on its Facebook movie page. Fans who “like” The Dark Knight will be able to use their Facebook credits to rent the title for 30 credits or $3. Currently, only U.S. consumers can rent movies. Warner plans to add more films in the coming months, with a purchase option promised as well (for the full story, click here).
The development prompted analysts to scramble over one another to proclaim Facebook the Next Big Thing in home entertainment. In a Financial Post story (click here to read it), Eden Zoller, principal analyst with Ovum Plc, said jumping into the nascent digital delivery sector of the home entertainment business is a "logical next step" for Facebook.
"A Facebook video/Web TV service does not exist at the moment but it is likely to do so in the near future and is a logical next step in the network’s growing service portfolio," Zoller said. "Facebook is rapidly evolving beyond its core communications focus to become a wider platform for distributing and consuming entertainment services, particularly in games. At the same time an increasing amount of online video viewing time is on social platforms, notably YouTube but also Facebook albeit to a lesser degree."
I don't think Zoller's too far off. Facebook already lets users upload and share video clips a la YouTube. The site is developing a strong mobile presence. And with the launch last year of Facebook credits, a virtual currency that at this point has a use limited to social games and the purchase of virtual gifts, the proverbial stage has been set.
As the Financial Post story pointed out, "Extending the use of Facebook credits to include access to premium content such as movie rentals will not only help Facebook achieve its goal of having sales of Facebook credits account for one-third of all revenues, but it also will help validate arguments of the virtual currency being the world's first truly global currency."
Zoller sums it up quite nicely. "These factors, combined with Facebook’s large, highly engaged user base of around 600 million members, will make it a very attractive distribution platform for video and TV services," he said. "It will also no doubt give established online video rental and distribution platforms like Netflix cause for concern."
Food for thought, certainly.
Oh, how the mighty have fallen....
The news this morning, that Blockbuster has begun an auction process that will be overseen by the once-mighty video rental chain's four top creditors, really isn't surprisingly. Blockbuster has seen its revenues hit by rivals Netflix and Redbox, both of whom effectively built better mousetraps in delivering rental titles to consumers, and last year filed for Chapter 11 bankruptcy. Since then, the chain has had trouble paying its bills, and in fact is being sued by Summit Entertainment for nearly $10 million worth of product.
We've also been hearing reports that Blockbuster is having trouble getting product from certain studios, and just last week I received a letter from a gentleman in Little Rock, Arkansas, that indicated just how dire the situation really is on the store level:
"I went into my local Blockbuster video store today and saw a big section on a wall reserved for copies of the movie Red. No copies were available, which surprised me for a Wednesday morning. I asked the store employee and she said they hadn’t received their copies yet, and she’d been told by her superiors that they didn’t know when they’d get any in. This is three weeks after the movie was released. I noticed a few other blank sections on the wall for new releases that hadn’t arrived yet. I saw this first happen a month ago with the release of The Social Network. It took over a week for this store to get their copies. I’ve been renting at Blockbuster nearly 25 years and I’ve never seen this happen before. They’ve always had the new releases on the day they were released. Any idea what’s going on?"
What's going on is this: Unless something dramatic happens, Blockbuster won't be around for much longer. Just writing this causes a lump in my throat, a burning feeling deep in the pit of my stomach. For years and years, Blockbuster not only has been the 800-pound gorilla of our industry, but it also has become a pop cultural icon, as much a part of American culture as Coke, Walmart and the iPod. I can't imagine life without Blockbuster, and as I've written in this space before I really think the chain has done everything it can in recent years to reinvent itself short of shutting down all its stores and investing the money in, say, enough computer terminals or kiosks to go head-to-head with Netflix and Redbox.
It's too late for that, of course. Netflix and Redbox both have become too entrenched for anyone to challenge their dominance in their respective sectors of the retail trade, and if either one of them fails it will be because their business model no longer appeals to the consumer--sort of the same thing that did old Blockbuster in.
Of course, the big millstone around Blockbuster's neck was its debt load, which prevented the chain from meeting the Netflix/Redbox challenge head on or even capitalizing on the exclusive availability of rental titles from four of the six majors on street date--a development Blockbuster should have marketed the hell out of but didn't, simply because it had no money.
Now, it's come to this. An auction. The creditors--all hedge fund firms, including Monarch Alternative Capital and Owl Creek Asset Management--have set the opening bid at $290 million, a fraction of what the chain once was valued at. If no bids are received by April 20, the four credits would end up owning Blockbuster.
What they would wind up doing with Blockbuster is anybody's guess. One wag on the Film School Rejects website suggested "somebody rich should scoop up this and MySpace and start a pop culture museum."