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.
The DEG numbers released May 1 were a pleasant surprise. Not only was total consumer spending on home entertainment up a solid 5% in the first quarter of this year, but spending on packaged media — Blu-ray Discs and DVD combined — was up as well from the same period last year, by more than 2%.
That’s significant because, for the first time since the format was introduced, Blu-ray Disc sales were strong enough to offset the continued decline in DVD sales and put the disc business back into positive territory.
I was also thrilled to see that electronic sellthrough (EST) posted a huge increase of 51%, comparing the first quarter of 2013 to the first quarter of last year. The actual dollar amount, $231 million, is still relatively small potatoes, but multiply by four and you’re getting close to 20th Century Fox chief Mike Dunn’s prediction several years back that once EST hits $1 billion in annual sales, “you’ve got a viable business.”
I can’t help but think that EST’s sharp gains were due at least in part to excitement over UltraViolet, the digital rights authentication and licensing system, based in the cloud, that lets consumers who buy content access that content anywhere, at any time, on any device. Currently, UltraViolet is available primarily to purchasers of Blu-ray Discs, but ultimately it will apply to digital purchases as well.
In the meantime, it’s a useful tool for transitioning consumers to the concept of owning something digitally — a tough nut to crack, particularly for oldsters like me who still like to get something they can touch and look at if they plunk down $15 or $20 for a movie.
Regardless, UltraViolet is certainly a wonderful concept, even if the execution still has some kinks in it — namely, an arduous registration process and a proliferation of proprietary websites instead of a one-portal-for-all that appeals to today’s “one-click” generation.
But that’s all in the works, and already UltraViolet has found a growing legion of fans. Indeed, it’s a fair assumption that the surge in online movie sales is due largely to the fact that Apple iTunes is no longer the only player in the game, even though it still dominates (65%, according to a study by The NPD Group that was released last month).
Looking at the overall increase, iTunes is certainly selling more movies than ever before, but so, too, are competitors such as Microsoft’s Xbox Video and Amazon’s Instant Video, both of which are aimed at consumers outside the Apple ecosystem.
And, again, UltraViolet is likely driving EST sales as well, simply by making people comfortable with the idea of digital ownership by tying it in with a disc purchase, a process with which they are all too familiar.
Once UltraViolet streamlines its process to the point where the one-click generation can actually watch a movie on a smartphone or tablet as easily as they can watch a disc on their home theater set-up, the studios would be wise to launch a major consumer outreach campaign, perhaps one that involves Blu-ray disc as well.
The studios are great at marketing individual titles, but could use a little help in coming together for a massive joint effort — even though the benefits, to me, are so obvious.
At last, some action on the UltraViolet front.
What I consider the best idea to come out of Hollywood in years has been stalled of late, mired by a complicated operational structure.
The concept — buy a movie once, then access it from the cloud anywhere, at any time, on any device — is marvelous.
The execution — navigate through a maze of proprietary websites and registration requests — is marvelously flawed.
But as Mark Teitell, GM of UltraViolet’s Digital Entertainment Content Ecosystem (DECE), tells us in our April 15 6Q feature, we shall soon have a new mechanism that strips away the complexity of UltraViolet and actually makes it simple and easy for consumers to use.
The UltraViolet Common File Format (CFF) will make downloading functionality consistent across all UltraViolet retailers and service providers. As Teitell told our senior reporter, Chris Tribbey, “It empowers consumers to transfer or copy downloaded files on any UltraViolet-compliant device or app, without re-downloading or using bandwidth.”
DECE is currently in a beta and interoperability testing stage for CFF deployments, and the final product is expected to become available in the United States later this year.
That’s a critically important development — even more important to the mainstream success of UltraViolet than the stepped-up marketing push Teitell promises also is around the corner.
Years ago, colleagues used to joke about what they called the “People magazine” syndrome. What was hot one week was not the next.
Since then, our attention spans have gotten even shorter. It truly is the “one click” era, where we expect new worlds to open to us with a single click of a button.
We don’t want to be told that for this movie we have to go to this website, while for this movie we have to go to another.
We want it simple, and we want it now.
Once CFF is available, there’s only one more sticking point left for UltraViolet: Get Disney on board. It’s high time the studio joined the consortium and made its movies available through UltraViolet.
Sitting out on a transformational opportunity such as the one presented by UltraViolet makes no sense, and I sincerely hope Disney comes around and joins the party.
It will be good for Disney, and it will be good for the industry.
Even more importantly, it will be good for the consumer.
I was looking at our website today and the top four headlines, in order, were “Dish Launches $1 Billion Bond Offering,” “Canadian Cabler Launches Rovi TV Removes,” “Epix Launches App for PlayStation 3” and “Popcornflix Bows on Xbox 360.”
It struck me that had a Rip Van Winkle-type fallen asleep 10 years ago, five years ago — heck, even a couple years ago — he would be scratching his head and wondering what exactly it is that he's reading.
Years ago, we were talking about convergence. Entertainment existed in silos, but there were signs different channels might converge at some point down the road.
Now, they have — in ways we never imagined possible. Pay-TV and home entertainment used to be bitter enemies. Now, they're part of the same food chain — not just coexisting, but intermingling.
Digital movies you could watch on your computer? They had to be bootlegs, pirated copies ripped off someone's disc. Now, a digital copy of a movie is a key component of virtually every DVD and Blu-ray Disc you buy.
Retailers screamed bloody murder any time studios handed over a movie to a cable pay-per-view service within 30 days of its home video release. Now, window staging is a critical part of our business, with most observers saying the exposure on PPV might actually help boost disc sales because it builds awareness.
Dish, the satellite service, used to be seen as The Enemy, cannibalizing home video sales and rentals. Now Dish owns Blockbuster.
The times not only have changed, but they keep changing — so much so that many of us who have been in the business for years have trouble keeping up with all the latest developments.
We remember when YouTube was launched and studios cracked down on video clips from their movies. Now, YouTube is an essential part of every movie's marketing campaign.
We remember when movies came out for the PSP and we thought it was the neatest thing ever — true mobility, at last.
We remember when words like “prebook,” “turns-per-copy,” “depth of copy” and “late fees” were on everyone's tongues, much like apps, UltraViolet and “combo pack” are today.
What will the future bring? What will the headlines on the Home Media Magazine website look like a year from now, two years from now, five years from now?
We shall have to wait and see …
The most interesting thing about consulting firm Deloitte’s latest “State of the Media Democracy” survey is that soaring tablet use will drive an increase in movie rentals at the expense of sellthrough.
According to Deloitte, 28% of survey respondents said they would rent a movie this year, while just 12% said they would buy one, either on disc or through a digital download. At the same time, tablet ownership shot up 177% over the past year, with tablet owners 70% more likely to stream movies than those who don’t own an iPad or similar device.
The conclusion that there’s a correlation certainly strikes me as a valid one. And for studios that continue to rely on sellthrough for the bulk of their daily bread, this is, indeed, cause for concern. Hollywood throughout the years has done everything in its power to pump up the sales market. Back in the early days of home video, they fought tooth and nail against the nascent rental industry, which the studios correctly charged was taking money out of their pockets.
The Walt Disney Company’s much-ballyhooed moratorium strategy put dollar signs in everyone’s eyes as they realized that consumers could, indeed, be induced to buy movies, and in huge quantities. But it wasn’t until the advent of DVD in 1997 that the studios finally came up with an insurmountable weapon that ignited the sellthrough market quickly and furiously — and ever since the market peaked in 2005, they’ve been trying to figure out how to regain the momentum.
Since then, however, we’ve become a much more transient society. Our inherent nature to own, to collect, to hoard, has diminished. We lease cars instead of buy them; we read the news online instead of buying newspapers and magazines; and when we do buy things it’s products that enable us to do things, like smartphones and tablets, instead of products we can actually use on their own merits.
These days, the things we can do with smartphones and tablets are practically endless. The commercial of the couple spending every second of their day on matching Kindles is beginning to ring true: Our smartphones and tablets have become integrated in our daily lives. Heck, I see it with myself, a 55-year-old geezer who texts like a teen and goes everywhere, even the beach, with his iPad.
So for studios that still, more than anything else, want to sell content, what’s the solution? As I’ve said many times before, we need to find some way to sync the consumers’ desire to watch movies with our desire to sell them. I’m convinced UltraViolet is the best way to achieve this, but it’s still way too complicated — and the fact that Disney isn’t on board is having a real chilling effect on its immediate potential.
It takes a village to raise a child? Heck, it’s going to take a village to save this business — all of us, working together and putting all our focus on understanding the consumer and his wants, needs and desires.
Hulu’s uncertain future illustrates the conundrum that so often surrounds “flavor of the month” home entertainment options: One day they’re The Next Big Thing; a short time later, they’re on the ropes.
It’s a conundrum that in itself reflects the fluid nature of digital delivery, and the fact that for all its knocks and reports of imminent extinction, packaged media has shown surprising resiliency.
And why not? When the computer crashes and the iPad’s out of battery power, when the Internet’s down or there’s no Wi-Fi, the physical disc works just fine on any TV, on any Blu-ray player.
Indeed, one reason I believe the disc will stick around a lot longer than many futurists think is that in this ever-changing world of streaming, downloading and new and supposedly better ways to consume entertainment, the optical disc has become something of a comfort food, a dependable, reliable standby that never disappoints or lets you down.
Back to Hulu, for a minute: According to a recent report published in the Wall Street Journal, two of the video-streaming service’s three big corporate owners — News Corp. and Disney – have begun discussing possible next steps in the wake of the imminent departure of CEO Jason Kilar and chief technology officer Rich Tom.
There’s a bit of a tug-of-war going on, the Journal says: News Corp. wants Hulu to focus on its subscription service, while Disney prefers the free ad-supported business model. Hulu currently juggles both a free service and a subscription business, Hulu Plus, which has more than 3 million subscribers.
Hulu is tiny compared to Netflix, which has 27 million subscribers, just in the United States. It mostly streams shows from its parent companies’ TV networks and in the past has had a competitive advantage due to special access to content from Disney and News Corp. – but now they’ve got deals in place with Netflix, as well.
Hulu has invested in original programming, but faces intense competition from Netflix, Amazon and, of course, YouTube, where everything’s still free.
The big buzz among young people that surrounded Hulu since its late-2007 launch — and was generating quite a clash as recently as last year — seems to be gone now, as far as I can tell. The kids have moved on, as they inevitably do, with Netflix and YouTube on the tip of everyone’s tongue – and bookmarked on everyone’s computer.
Meanwhile, those old-fashioned discs are still seeing plenty of action, at least in households with which I’m familiar ...
Our home entertainment industry finished 2012 on a quite robust note — consumer spending was up for the first time in five years — and yet a dark cloud of uncertainty continues to hang over us.
One home executive in December smiled and said, “Well, we’ve had a pretty good year. I hope we can stick around for another one.”
She was only half-joking — our industry has frequently been in periods of transition in the past, but never before has transition been a perpetual state, as it is now. We’ve seen our industry go from VHS to DVD, from rental to sellthrough, from DVD to Blu-ray Disc.
But in the rapidly changing times in which we live, with consumers embracing multiple devices, multiple formats and multiple electronic delivery mechanisms — on top of that old standby, packaged media — it’s anyone’s guess what our home entertainment landscape will look like a year from now, much less five years down the road.
I was mulling things over the other day with a good friend who works in a senior position at a major studio. We agreed that our vision of an ideal scenario would be some sort of “one click” or “one tap” mechanism that would make consuming entertainment as easy as, say, opening the refrigerator — or turning on the TV.
Imagine a world where I can start watching a movie on my home theater system in the evening, but it gets too late and I need to turn the movie off and go to bed. The next morning, I tap my smartphone or iPad against my TV, and I’m able to pick up the movie at the exact spot I left off the night before. I watch a few minutes over breakfast, then drive to work. I’m really eager to watch the rest of the movie, so I tap my smartphone to my computer and the movie instantly appears on my monitor, so I can finish watching it while I pretend to work.
The movie’s done; I liked it so much I call my wife, who’s out of town visiting her mother, and tell her she’s got to see it, as well. I click once on my smartphone, and all of a sudden it’s on her smartphone, for easy viewing or a simple one-tap transfer to the TV in her mother’s house.
From a consumer standpoint, movie consumption would be so easy, so simple, so quick, that I’m sure the end result would be we’d all watch more movies. And that’s a big win for the studios, as well, since the more we watch, the more we buy or rent or stream.
The only way I can see us getting to this point is through UltraViolet. The concept of a digital storage locker, up in the cloud, that gives consumers instant access to purchased content anywhere, at any time, on any device is probably one of Hollywood’s brightest ideas, ever.
But we still have a ways to go. We still don’t have all studios participating, we still have too many different websites and pass codes, and we still have too many things to click, press and type in. So let’s streamline and simplify, and get everyone on board. Only then will that nasty cloud go away.
Kevin Tsujihara’s selection as the next CEO of Warner Bros. didn’t surprise me in the least. As the studio’s longtime head of home entertainment, he’s proven that he knows how to make money. Home entertainment is still the biggest source of revenues to the studios, and Warner Bros. has been tops in market share since even before I began writing about home entertainment more than two decades ago.
But Tsujihara’s selection was not just a matter of dollars and cents — not by a long shot. In a Hollywood ecosystem where imitation is not just the sincerest form of flattery, but a way of life, Tsujihara has always been a maverick. He’s not only stood out from the home entertainment pack, he’s inevitably stood out ahead of it. He’s earned a reputation as a deliberate disruptor who’s never been afraid to try new things and if they don’t always work out the way he had hoped, well, that’s OK, let’s move on to something else.
And yet he’s not so much a gambler, a risk taker, as he is a shrewd and savvy entrepreneur — albeit one who has learned to operate in a corporate environment. He’s a leader of the pack who also happens to work and play well with others.
Tsujihara doesn’t so much roll the dice on emerging and even future technologies as he plays the field, carefully picking and choosing what he considers to have the best chance at success. He’s not looking to transform the business so much as he is out to reinvent it, rebuild it — in a sustainable way. And if one accepts sustainability as Hollywood’s true holy grail, then Tsujihara’s real trump card is twofold: He’s got the vision to see what lies ahead, and the courage, guts and acumen to follow through and get us there, in some way or another.
Tsujihara pioneered the concept of day-and-date video-on-demand. He was one of the first to recognize the power and potency of social media by first selling movies on Facebook and then spearheading the acquisition of social movie fan site Flixster. His latest triumph is still a work in progress: leading the industry charge to UltraViolet, a critically important next step in the ongoing evolution of home entertainment that allows customers to acces digital versions of their purchased content from the cloud.
UltraViolet at once future proofs physical media and creates a whole new business model for electronic sellthrough, which has been a slow go for the Hollywood studios.
Many observers have already said that in choosing Tsujihara as their next CEO, Warner Bros. board members made the best choice. In truth, they made the only choice if their studio — and others like it — are to survive, and even thrive, in the digital era.
I hate to be a downer here, but the writing’s clearly on the wall. Blockbuster, an icon of the home video industry since the early days of rental, is not going to survive much longer.
Dish Network, which bought the ailing rental chain out of bankruptcy in April 2011, announced it is closing an additional 300 U.S. stores, either ones with expiring leases or exceptionally poor performance. A year ago Dish announced the shuttering of 500 domestic Blockbuster stores. The latest closure leaves Blockbuster with maybe 500 locations throughout the country — a far cry even from 2009, when Blockbuster still had more than 3,600 U.S. stores.
Blockbuster has been earmarked for the grave for quite some time. Blockbuster made 24/7 Wall Street’s “Ten Brands That Will Disappear” list in both 2010 and 2011. Blockbuster defied the odds and managed to survive, but the latest round of closures suggests even Dish realizes now it made a bad investment. At the time buying the Blockbuster brand seemed like a good idea because everyone thought Blockbuster was associated with movies, but looking back, the Blockbuster brand merely reminded consumers of the hassles they had to go through back when renting a movie from a physical store was their only option — exorbitant late fees, return trips and not finding the movie they wanted.
Blockbuster made more than a few missteps throughout the years, but I think the biggest one was not jumping headfirst into sellthrough in the early days of DVD and thus allowing the mass merchants to take over that segment of the business. Another was taking a dismissive view of Netflix, and then belatedly trying to compete only after it became clear that the subscription model had caught on. Heck, back in 2000 Blockbuster even passed on several offers to buy Netflix for just $50 million, opting instead to sign a 20-year deal with a subsidiary of Enron (!) to deliver on-demand movies to consumer homes.
Blockbuster has managed to hang on for a lot longer than most observers thought, but its day of reckoning, I fear, is coming up. Even the proverbial cat with nine lives eventually runs out of time.
I read somewhere on a tech blog that only about half the products displayed at CES ever make it to market. That's a .500 batting average in the "promises kept" department, and quite truthfully I'm fine with that.
Part of technology's innovation process is separating the wheat from the chaff, and there's really no better way than throwing stuff out at CES and seeing how people react. Think of CES as one giant focus group, albeit one that's quite a bit more tech-savvy than the general public.
If something fails to excite the CES crowd, so the thinking goes, it doesn't stand a chance in the mainstream market. (Of course, lots of things excite the CES crowd that Joe Consumer couldn't care beans about, but that's a whole other issue.)
Walking through the show floor, here's a brief list of things I'd like to see materialize, drawn from a vast parade of products I either saw or didn't see and various press conferences touting, of course, The Next Big Thing.
• A website where I can get any movie I want, to watch on any device I want, in any format — so I can either stream it or download it right there, or order it on Blu-ray Disc, either to rent or to buy. Everyone's got bits and pieces; I crave the whole enchilada.
• A 3D TV that's simple to use — and one for which glasses are readily available, unlike the Panasonic I have hanging in my bedroom.
• A TV that won't be obsolete next year at this time.
• Universal studio support for UltraViolet. As we've seen with DVD and Blu-ray Disc, eventually everyone comes around. But for UltraViolet to really capitalize on its momentum and reach its full potential, we need everyone on board — now.
• Computers with Blu-ray Disc drives. My camcorder shoots in beautiful high-definition; to transfer it to disc I have to compress the files because my computer only burns DVDs.
• An iPad/iPhone with a removable battery (by me, not someone in Cupertino).
• A Blu-ray Disc player for my car (even though it's taken so long nobody watches DVDs in the car anymore; the kids all have their own tablets and UltraViolet accounts).
With the year rapidly coming to a close, my annual year-end analysis, which will appear on this site shortly, offers all sorts of interesting observations, discussions and dialog from industry leaders on the state of the home entertainment business and how we got here. The story ends with a look ahead, with projections on what 2013 may bring.
In this edition of T.K.’s Take, I’m going to add my voice to the chorus and share some of my own personal thoughts on where our business is heading — along with a handful of obstacles I think we need to fix or at least address, post haste.
I believe the bump in overall consumer spending we saw in 2012 will either lead to another slight uptick in 2013 or level out — but in any case, I don’t see any declines, at least not for a while.
On the physical side, disc prices are low enough that consumers are going to step up buying discs, particularly those who want the best-possible quality of both picture and sound and don’t want to mess with the logistics of downloading or streaming. I know, I know, digital is so easy that watching a movie is just a click away — but for a large percentage of the population, that’s one click too many.
And on the electronic side, the more options consumers have of watching movies, the more likely they will take advantage of those options. That’s why universal support of UltraViolet — the best value-proposition I think I’ve ever heard of — is critical at this juncture. So is studio support of Netflix and Redbox, both of which have proven themselves mighty fine little innovators capable of thinking beyond the physical disc. Stop fighting and make it work — and in the end, we’re all going to benefit.
I also see a return of young eyeballs to the movies. At this point everyone younger than 21 is still enthralled with YouTube and goofy clips and Web series. But inevitably the novelty’s going to wear off and I believe we’re going to see an uptick at the box office — provided, of course, that Hollywood continues to make good movies, as it’s done this fall with titles such as Argo, Skyfall, Flight and Lincoln.
So, yes, I’m feeling quite bullish right now — and yet, there are several areas of concern that could prove flies in the proverbial ointment:
• Pricing. The days of commanding a premium for Blu-ray Discs is over. Consumers need to be able to buy BDs for the same prices as DVDs, even new releases. The message two-tiered pricing sends is that DVDs are inferior and BDs are elite, so too often consumers end up buying neither. In the early days of the format it made sense, but no longer.
• 3D. It’s still too cumbersome and confusing. I have a Panasonic 3D TV, and a 3D Blu-ray player. I tried buying glasses for the TV but the guys at Best Buy gave me the wrong pair; when I went to return them and told them the model of my TV they said they don’t carry those glasses any longer. To top it off, I slipped Pirates of the Caribbean into the BD player and the screen said the player doesn’t recognize it as being 3D. I give up.
• Combo units: Our side of the business has done a great job with combo backs, allowing consumers to get a DVD and a BD in the same pack. Pity the CE industry hasn’t followed suit. I have yet to see a TV with a built-in BD player at Best Buy or Walmart, and am still waiting for a Blu-ray Disc player for my car.
• United we stand. When DVD was launched, not everyone was on board. When BD was launched, we found ourselves in a bitter and divisive format war. Now we’ve got UltraViolet. Can we all get in the same sandbox, for once?
That said, here’s wishing you a merry Christmas, and a happy new year, on behalf of the entire staff of Home Media Magazine.