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.
With the fourth quarter fast approaching, it will be interesting to see how the two facets of our sellthrough business — packaged media and electronic sellthrough — play into each other.
The fourth quarter, of course, is prime gift-giving season, a time period in which studios traditionally generate about 40% of their annual home entertainment revenue. And a prime driver behind pre-holiday DVD and Blu-ray Disc sales is the impulse market. That’s why you see such a hullaballoo around dating. Some studios want to be out early, hoping repeat impressions will get customers to pick up their title or titles. Others, fearful of being pulled from prime shelf-space spots after three or four weeks, choose to wait until December, hoping to snag choice positioning just as the harried last-minute gift shopper enters the store and frantically begins filling his shopping cart.
Digital downloads have never really been a factor. There’s less perceived “gift value,” if you will, of a $25 or even $50 iTunes gift card slipped into a stocking in comparison to a neatly wrapped DVD or Blu-ray Disc of The Amazing Spider-Man or The Dark Knight Rises.
But with both VOD and video streaming finally gaining traction and electronic sellthrough, buoyed by UltraViolet, promising to become a real business rather than an afterthought, studios are looking more and more toward digital distribution for future growth of the overall home entertainment business.
And in their enthusiastic push of fancy new DVD and Blu-ray Disc configurations of the big summer tentpoles, as well as elaborate gift sets, catalog collections, TV series and other programming aimed at holiday gift buyers, they’re going to have to be careful not to give digital the proverbial short shrift.
My hunch is that studio marketers are going to look for common ground, a way to continue to promote digital without taking focus away from the hot packaged-media commodities that will generate the lion’s share of their fourth-quarter revenue (and profit).
And finding that balance won’t be easy, particularly with so many bundled gift sets either already out there or waiting in the wings. After all, it makes more sense for Warner Bros., to cite just one example, to promote Batman Begins and The Dark Knight on disc when The Dark Knight Rises arrives in stores. Similarly, Sony Pictures would be smart to promote the previous “Spider-Man” trilogy on disc when The Amazing Spider-Man makes its DVD and Blu-ray Disc debut this fall instead of steering customers to the digital versions.
It may take a whole new way of looking at things. Just as in the old days, just before and right after DVD, when we pegged certain movies as a “rental title” or a “sellthrough title,” we may have to categorize movies as bringing optimal value back to the studio in either physical or digital form.
That won’t be easy — but in this business, it seems, nothing ever is.
I just got back from Germany, and aside from the wonderful Weissbier I wish I could have brought back with me some of the German peoples’ enthusiasm for packaged media.
My cousins live in an 18th century farmhouse in the small resort town of Ubersee, on the Chiemsee, about 50 miles southeast of Munich and 30 miles northwest of Salzburg, Austria.
We stayed in an apartment in the attic of the main house, and to make us feel comfortable Peter – the grandson of my cousin – brought the boys a PlayStation 3 and an armload of video games.
Turning to me, he said, “I’ve got a big collection of Blu-ray Discs – so let me know if you want to see a movie.”
We talked a little about what I did for a living – I haven’t seen him since my last visit to Ubersee back in 1991, when I was a newlywed and he was 3 – and he said he ditched his DVD collection a long time ago in favor of Blu-ray, which he absolutely loves.
“And I’m not the only one,” he said. “Blu-ray is big in Deutschland. Just go into any store and you’ll see.”
I did. And in every general merchandise store I visited the Blu-ray Discs were laid out in prominent locations, often face up. I hardly saw any DVDs. And there were always people checking out the latest Blu-ray Discs, picking them up, turning them over, reading the backsides, and then marching off to the cash register.
When I got home, I visited the Blu-ray Disc Group Deutschland’s website, and chuckled to myself as I read the introduction, which quotes French poet Victor Hugo – “Nothing else in the world...is as powerful as an idea whose time has come.”
These words, the website said, apply to technology as much as anything, and they have certainly rung true for Blu-ray Disc.
They certainly have. As Home Media Magazine noted in a December 2011 article, European BD sales ballooned 42% to 63 million, driven chiefly by “strong adoption in Germany.”
Futuresource analyst Jim Bottoms told Home Media, “Sales of discs in Germany are outstripping sales in the U.K., which is almost unheard of.” Among the reasons he cited were strong retailer support and little HD programming on German TV.
I’m still too jet-lagged to discern whether there’s a lesson somewhere in all of this that we could apply in the United States, or perform an indepth analysis of the German home entertainment market in the hopes of possibly adding to, or expanding on, Bottoms’ conclusions.
So for now, at least, take this as a cheery little tale – a positive note at a time when studio executives here in the United States are becoming increasingly nervous as another fourth quarter draws near.
Michelle Horak and her father Mark Horak, of Warner Bros.
Last week’s Los Angeles Home Entertainment Summit was a grand success. Suppliers met with key disc and game retailers for intimate two-hour discussions. They played a little golf and were treated to a first-class outdoor shindig on the Warner lot.
From what I hear, not only did a lot of business get discussed, but $400,000 was raised for the Cystic Fibrosis Foundation, a charity near and dear to the heart of Mark Horak, president of Warner Home Entertainment, the Americas. Two of his three daughters have CF.
The timing was great: right after Comic-Con, and just as everyone’s putting their fourth-quarter strategies to bed.
And the turnout was amazing: Not only were all the big studios and game companies represented, but we also saw a lot of independent suppliers and, most importantly, gobs of retailers and distributors. Walmart alone sent more than a dozen top execs, including from the United Kingdom, Canadian, Vudu and Walmart.com teams. Other heavyweights came from Target, Best Buy, Amazon and others.
Frankly, I couldn’t help but think back to those other huge July networking events our industry used to have: you know, the ones in Las Vegas, organized by the Entertainment Merchants Association (EMA, formerly Video Software Dealers Association, or VSDA). I ran into at least a dozen industry leaders I haven’t seen face-to-face since the last EMA show in Las Vegas back in July 2008.
I also was stopped by several people who said, “Hey, you’re the guy in the magazine.” Talk about déjà vu — again, that’s something I haven’t heard since the glory days of what we still fondly refer to as the “VSDA show.”
I believe it is incumbent on our industry to make this event an annual one. We are desperately in need of networking events. In the old days we had the VSDA show, the East Coast Video Show, the Home Entertainment Summit and all sorts of regional shows. Now, the only annual event where we see each other are the Entertainment AIDS Alliance’s Visionary Awards dinner and Variety’s Hall of Fame — and even those two events are notoriously shy on retailers, who remain the true drivers of our industry.
And the fact that this event has such a meaningful and important charity attached to it only makes it more worthy of our support.
Let’s work together to make the Los Angeles Entertainment Summit not a one-shot deal, but an annual event that gets bigger and better each year. Everyone needs to get involved. Our industry needs it.
I still feel a bit of residual stress every time July rolls around. That’s because for so many years of my life, each July meant a trip – generally, but not always, to Las Vegas – for the Video Software Dealers Association’s annual convention and trade show.
My first VSDA show was in 1989, back when the studios still poured heaps of money into the annual show in a bid to woo the thousands of independent video rental dealers who generated the lion’s share of revenue. Back then, the annual show drew upwards of 12,000 retailers to Las Vegas and was marked by lavish exhibits on the show floor and even more extravagant parties. My first VSDA party, in fact, was held on a football field and sponsored by Paramount; there were food booths, each with a different ethnic theme, and so much free liquor I don’t remember how I got back to my hotel room that night.
I had just begun freelancing for what was then Video Store Magazine, one of four trade publications in the market at the time. We had a huge staff whose sole purpose in life was to put out a monthly print magazine – and, of course, get in as much face time as we could with studio executives as well as retailers at the home video industry’s big annual event. We sponsored a dance party attended by thousands of retailers; we moderated panel discussions on such hot trends and topics of the day as lower pricing for ‘B’ titles, the rise of the erotic thriller and the battle between the two leading national chains, Erol’s and that aggressive little comer from Dallas, Blockbuster.
Over the years, as the business changed, the show changed with it. Consolidation among rental dealers, and the studios’ growing desire to deal directly only with the emerging national chains, began to cast a pall onto the show by the middle 1990s, heightened by a flattening of video rental spending by consumers to whom the novelty of renting movies was wearing off. The parties grew smaller and less elaborate; A-list stars like Michael Douglas and Steve Martin gave way to aging Hollywood “legends” and TV has-beens.
The launch of DVD breathed new life, new excitement, into the show, but attendance continued to decline as retail power was further consolidated into a handful of dominant sellthrough players, including Walmart, Best Buy, Costco and Target. The spacious Las Vegas Convention Center was abandoned in favor of the smaller Sands as the confab adapted a “suites” model that gave studios a pass from the expensive show floor booths of the past; the focus shifted from stars and parties to more business-like networking functions and expanded lineups of workshops and seminars.
But the magic was clearly gone, and everyone knew it. The show limped on until the plug was mercifully pulled after the 2008 affair, which by then had moved to an off-strip location where one of the highlights was a meet-and-greet with a quartet of aging TV Western stars.
Yes, I miss it. Sure, it was a big expense, and a rude interruption to my summer. But it was also a very useful event, the one chance each year I had to connect, on a personal level, with the key players on the supply, distribution and retail fronts, not to mention all sorts of journalists and analysts, all in one place, all at one time.
The convention historically took place a week or two after the Fourth of July holiday. This year, I think I’ll celebrate by going to my town’s one remaining video rental store and seeing if they have Ishtar.
Oh, those were the days….
Ah, that wonderful old expression, “There’s no such thing as a free lunch.” It’s true as ever, as consumers of entertainment well know. Watch free TV and commercials; if you don’t want the ads, buy a disc or watch a movie on premium VOD. Either way, you pay — in the first case, with your time; in the second, with your money.
Even YouTube, that great leveler, has been bitten by the ad bug. The number of clips with opening ads has risen significantly in just the past year, and it’s not just for professional content. I just finished watching a car crash video — don’t ask — and it was preceded by an ad for the movie Savages.
I don’t mind this one bit. As a lifelong journalist, I realize — perhaps better than most — the costs involved in creating content, be it a story, a movie, a piece of music, a work of art. And, frankly, I don’t mind paying for it, one way or the other. I don’t watch much network TV, preferring to watch series like “The Sopranos,” “Deadwood,” ”The Shield” and, now, “Jericho” on disc, with a clearer picture, better sound and no commercial interruptions. And when I do watch TV — or listen to the radio, or watch YouTube videos, for that matter — I no longer tune out (or, in the case of YouTube, hit the “skip” button) the commercials, as I used to do. If there’s a price to pay, so be it. It’s only fair.
The “free lunch” concept is hitting a fever pitch right now, as the major television networks square off in court over Dish Network’s Hopper DVR, which has a feature that allows users to instantly skip commercials for primetime shows. CBS, Fox and NBC are each suing Dish, arguing that skipping commercials violates their copyright. Of course the real reason is financial: They fear a significant loss in advertising revenues if people start skipping commercials en masse.
After all, media advertising is all about the eyeballs.
Dish, in turn, is now suing the four major networks, asking a judge to find that its DVR technology is perfectly legal.
The latest developments: The Hollywood Reporter has reported that sources say ABC is talking to major law firms about filing a suit.
And DirecTV has announced that it has been sitting on ad-skipping technology for about five years, but hasn’t yet seen any need to implement it.
I have a hunch the networks will prevail on this one. They make a very valid point, arguing, in essence, that sitting through commercials is the price viewers pay for free, broadcast TV. And while you can’t stop someone from hitting the bathroom during a primetime commercial break, stopping an enabling technology like Dish’s AdHop is a very real possibility, much like the courts more than a decade ago in ruling against music file-swapping.
This isn’t quite the same as having to fast-forward through the ads as on a regular DVR, where viewers still see the promos as they zip by on the screen. AdHop doesn’t let the viewer see anything, which runs contrary to why the ad is there in the first place.
If it hurts the content creator and the copyright holder, it’s not going to fly. There’s no such thing as a free lunch, especially it means you may starve someone else.
For the life of me, I cannot fathom how a responsible a media outlet like The Financial Times would commit one of the most serious blunders imaginable in the world of watchdog journalism: Take two random data points, connect the dots and draw a half-baked conclusion.
But that’s just what the august FT has done, with an article that essentially asserts a slowdown in electronic sellthrough means the imminent death of UltraViolet.
That makes about as much sense as saying that New York Mayor Michael Bloomberg’s proposal to ban super-size sodas in New York City means sales of French fries at California McDonald’s are in trouble.
The FT cites a report from IHS Screen Digest, a media research firm, that revenues from subscription rental services such as Netflix are increasing, while sales of feature films on Apple’s iTunes — which by some estimates controls upwards of 90% of digital movie sales — have slowed.
“With consumers turning away from buying films online in favor of renting them digitally, the outlook is bleak for UltraViolet, a new industrywide, cloud-based locker system that Hollywood hopes will stimulate purchases of film content,” the FT asserts, quoting Dan Cryan, author of the IHS Screen Digest report, as saying, “When consumers go digital, they go to rental. There’s just no interest in owning anything.”
Uh, no, Dan. Analyzing trends we’ve seen materialize throughout the last couple of years clearly indicates that consumers want their movies two ways: To simply watch, they stream — it’s easy, convenient and cheap. But to own, they still want something tangible, something they can hold, look at and file away — like Blu-ray Disc and DVD.
The two markets are co-existing quite nicely, and the latest numbers compiled by DEG: The Digital Entertainment Group on behalf of the studios even indicate the slowdown in disc sales has been arrested.
What’s happening is nothing more ominous than market segmentation, much like the book industry years ago splitting into the paperback and hardback camps — or, more recently, gamers splitting into console and computer factions.
Cryan is correct in saying that when consumers go digital, they go to rental. In the music industry, digital downloading worked because it’s cheap and easy — you can buy single songs for 99 cents, the same price for which we used to buy vinyl singles back in the pre-CD era. The entire downloading business, in fact, was birthed by a blindsided and arrogant music industry that first took away consumers’ sampling mechanism, the single, and then jacked up the price of CDs to more than $20. Consumers didn’t want to spend $20 for an entire album on which they might only like one or two songs, so they rebelled and began swapping song files over the Internet.
The movie business is different. We don’t buy movies like we buy music. In music, the lure is individual songs; in movies, you don’t buy individual scenes you happen to like. You buy the whole enchilada. And when you’re buying an entire two-hour movie rather than a couple of three-minute songs, you’re not going to want to buy something fleeting and ethereal that could very well disappear with your next computer crash — particularly when you’re paying 10 times as much as you would for a single song.
UltraViolet is simply a way to extend and expand your purchase of a physical disc by giving you access to that content on a wide range of mobile and other devices. You’re not replacing a physical product with a digital one; you are enhancing it.
It’s silly, therefore, to say that because people aren’t buying digital copies of movies, UltraViolet is a flop. You still need a disc to tap into the promise of UltraViolet, at least at this point. And last I checked, the studios were still selling an awful lot of discs.
Our job in the media is to carefully and thoughtfully analyze and interpret the news.
Invariably, that means pouring water on the flames of hysteria and debunking any “sky is falling” notion some may harbor — not perpetuate it.
Walt Disney Co. CEO Bob Iger is absolutely correct when he blasted Dish Network’s new Auto Hop commercial-skipping DVR. Advertising is, indeed, critical for great TV shows — or any TV shows, for that matter — to exist. And if we keep finding ways to circumvent commercials, eventually we'll come to the point where the number of eyeballs they attract is so insignificant that advertisers will say, "Why bother?"
There was a point in time when technology was not yet so advanced that everything was in balance. If you wanted to watch TV shows for free, you were at the mercy of the networks (for new shows) and the syndicators (for the old shows). If you wanted to avoid commercials and enjoy your favorite shows with no interruptions, you turned to home video. For a lower price you could rent your show; for a higher price, you could buy a copy. Either way you were no longer a slave to a schedule or a sales pitch, but either way there was a cost attached to this freedom, this perk.
Music file-sharing first brought the concept of free entertainment to the masses, and we were hooked. Morals, ethics and the belief that there is no such thing as a free lunch went out the door. We loved the music but didn't care beans about the musicians or record companies that brought us this music. In effect, we bit the hand that fed us — and we've kept biting and biting ever since. Each new technological marvel — DVRs, streaming, YouTube — brought us another hand, and another opportunity to draw blood.
I blame this something-for-nothing mentality for the slowdown in disc sales. It's not just that consumers keep getting more and more entertainment options; it's that consumers keep getting handed more and more opportunities to access entertainment for free —some of it legal, some of it not.
And while content owners used to have to contend primarily with third-world pirates, now the enemy to the chain of commerce is everywhere, including Silicon Valley.
I applaud Bob Iger's resolve, and even the specter of litigation that is being raised by other fearful content-side executives. But the whole thing is beginning to resemble a game of "Whack-a-Mole" — no sooner do you squash one threat when up pops another one.
What we really need is a collective conscience, an old-fashioned pang of guilt. I've made it a point to no longer switch radio stations during a commercial break or skip the front-loaded ads on YouTube videos.
But I fear I am something of a lone voice. All of us need to collar that destructive dog that lurks within so many of us and train it to not bite — no matter how many tasty hands come before us.
If we don't, eventually we're going to wind up with an empty hand.
I find it most disconcerting that Microsoft will no longer support DVD playback on its next incarnation of operating software, Windows 8.
The House of Gates came under fire recently when it acknowledged the move. Microsoft initially said the move was based on changing consumer habits. As Home Media Magazine noted, “In a May 3 corporate blog post, Microsoft said ‘telemetry data’ and user research suggest consumers primarily consume video on the PC and related mobile devices from streaming sources such as YouTube, Netflix, Amazon and Hulu. … The software giant also cited recent data from IHS that claimed consumption of movies online in the United States will surpass physical video in 2012.”
Microsoft later came back with another argument: in essence, that including DVD playback would be unfair to buyers of ultrabooks and tablets because of royalty costs associated with decoder technology — costs that would be passed on to consumers even if their devices don’t have optical disc drives.
Only the pricier Windows 8 Pro will offer DVD playback, according to Microsoft.
Either Microsoft is simply trying to save a buck, or else drive consumers to buy the more-expensive Windows Pro.
Either way, it’s a disturbing development — and one that feeds right into those who are of the mindset that the physical disc is an antiquated technology and everything is headed into the cloud.
I stand firm in my belief that there will always be a market for a physical product. Some of us like to watch movies on our computers, and welcome the ease and convenience of simply sticking a disc into our laptops — a disc we’ve already paid for, a movie we already own.
And what about home movies we’ve burned to DVD, or slide shows of family photos?
I’ve been waiting patiently for Microsoft to support Blu-ray Disc. I kept waiting for an announcement — and now, this. Microsoft has gone in the opposite direction.
I was an avid Mac user until the early days of the Internet, when some sites couldn’t be accessed on Apple products. That drove me right into PC Land.
Now, I’m thinking about going back to Mac.
Writing on ZDNet, Adrian Kingsley-Hughes sums up my sentiments exactly. “I feel that Microsoft is making a big mistake here,” he writes. “While Apple has a streamlined one-size-fits-all OS X edition that contains everything users need, Microsoft is once again juggling features in order to make the higher-priced edition of Windows more superior and desirable than the cheaper option, while at the same time giving OEMs yet more reason to install third-party crapware onto new systems.”
I tend to agree with a recent blog posting by NPD Group analyst Stephen Baker that maintains Best Buy, despite it's recent troubles, isn't headed for the scrap heap just yet.
Sure, the consumer electronics chain's big-box stores have become something of a showroom for price-sensitive web shoppers. They visit a Best Buy store to get a close-up, hands-on look at the merchandise, and then head home to place their order from an online merchant with better prices and no sales tax. Maybe they even place their order on the spot from their smartphone, while they're still inside the Best Buy store.
Ouch. But as Baker points out, this isn't a unique challenge in the CE space. It's happening across the broad spectrum of retailing, from furniture stores to clothing boutiques. The same goes for other forces that are putting a dent in brick-and-mortar spending, from the still-troubled economy and sky-high unemployment to high gas prices, which are leading to a decline in car trips.
What Best Buy has working in its favor is a recognizable brand, reputation for quality and, quite, quite frankly, the fact it is the last major CE chain standing.
If you think about it, there are always pairs of brand leaders: Home Depot and Lowe's, Staples and Office Depot, CVS and Rite-Aid, Walmart and Kmart. In strong economies, both thrive; when things are bleak one invariably emerges as the victor. Walmart already pretty much has vanquished Kmart, and if our economic malaise continues much larger I would expect the other weaker-of-the-two links (Office Depot and Rite-Aid, especially) to stumble and perhaps fall/fail, as well.
As for Best Buy, it's already won, having triumphed over the weaker link in the CE world, Circuit City, right around a decade ago. Do I agree with recent decisions Best Buy has made, like redesigning stores to mimic Apple and Verizon storefronts, turning over software management to a third party (Anderson Merchandisers) and placing discs in the back of the store, where the chance of an impulse buy goes way down? Not at all.
But I'm not at all ready to write off Best Buy just yet. First of all, as Baker correctly notes, the situation at Best Buy isn't nearly as dire as it's been made out to be in the mainstream press. The stores are still moving an awful lot of merchandise, at healthy margins.
Moreover, many of the problems the chain is facing can be easily dealt with — including a marketing campaign in which low online prices are met and matched, and an overhaul of store layouts by some smart merchandising consultants with years of experience in the retail trade. Heck, hire Baker, hire some smart studio marketer like Mary Daily or Lexine Wong or Jeanne Hobson - get someone in there who knows consumers and their habits and listen and learn from them.
But act quickly. The clock is ticking — and the worst thing Best Buy can do at this point is stand by and do nothing.
Walmart’s big disc-to-digital conversion program, which launches April 16 in more than 3,500 stores, could be the answer to packaged media’s sales slump.
The giant retailer is breathing new life into consumers’ tired old DVD collections, offering to unlock a digital version on a remote server that can be accessed at any time on a wide selection of devices, from computers to tablets and even smartphones.
That’s simplifying the process, of course, but quite honestly that’s how it needs to be presented to Walmart customers, who truly represent mainstream America. Concepts like “cloud” and “digital storage locker” are beyond most Americans; we in the business have a jaded sense of what people should comprehend simply because we’re immersed in it, day in and day out.
My plumber, my gardener — heck, even my 10th grader’s history teacher, my realtor, my doctor and my lawyer — don’t want technical specs, jargon or complicated explanations of how things work.
They want to know what they can do, and the simple fact of Walmart’s initiative is exactly as I described it above: Hand the clerk your disc, fork over $2 for a regular transfer or $5 for a super-clear high-def upgrade, and before you know it you can watch whatever’s on that disc wherever and whenever you like, on whatever electronic gadget you happen to be fooling around with at the moment.
As the great journalism instructor Jacques Barzun once said, the key to getting a point across is to be “simple and direct.” And if anyone can master the art of simplicity and directness, it’s the associates at Walmart, since they’ve been dealing with mainstream consumers — as opposed to highbrow Hollywood types — for years.
Studio executives would be wise to follow Walmart’s lead when they start ramping up marketing for the other side of the UltraViolet equation, new Blu-ray Discs that are enabled with the technology, off the shelf.
Make matters as simple and uncomplicated as humanly possible. Make it easy to understand, and easy to execute.
This is a big, big chance Hollywood has to get the disc business rolling again, pun intended. Let’s not blow it by focusing too much on the message and making sure we’re saying the right thing. In the end, the right thing isn’t always necessarily the smart thing.