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.
A few years ago, a wise studio executive — the home entertainment unit president of one of the six majors — told me that the industry is heading “to the point where one day, it will be all about windows.”
I think we’ve arrived.
The announcement by Walt Disney Studios CEO Bob Iger plans to impose a 28-day rental delay on new-release disc titles means four out of the six majors are holding back new releases from Netflix and Redbox, the top two rental outlets, in a concerted move to prop up the sellthrough market.
Given past experience, I highly doubt the two holdouts, Sony Pictures and Paramount, will hold out much longer. Sony already delays certain releases.
The strategy underscores the importance of windows and lends credence to the old saying, “timing is everything.”
Formats don’t matter nearly as much as when a movie becomes available on that format. Blu-ray Disc, DVD, download, streaming, VOD, iTunes, UltraViolet — the competition is no longer among formats, but, rather, maximizing the potential of each format through staggered release dates and, when the dust settles, hopefully create a roadmap certain types of movies will follow when their theatrical runs are over.
Redbox and Netflix will likely always be at the proverbial bottom of the barrel when it comes to getting new releases. Vending machines and subscriptions may be a gold mine, but not for the studios.
For Hollywood, the real money lies in getting a share of the spoils from each sale — be it direct dollars, say from each Blu-ray Disc or DVD they sell to Walmart, Best Buy or Target, or lump-sum payments through licensing content for digital distribution.
First Sale is well and good, but the retailers get the prize — which is why studios have never cared for the rental model, not when it was brick-and-mortar nor now when it’s done over the mail or through kiosks. They’re not in control, and when you’re not in control. you’re not sitting in the locomotive of the money train.
Fortunately for the studios, there are all sorts of other distribution mechanisms either available now or in the pipeline, in addition to the good old packaged-media standbys of DVD and Blu-ray Disc.
And if it’s all about windows, there’s nothing Hollywood would like more than to shut the window for good on rental.
Maybe it’s human nature to complain, to find fault with new products and technologies. But the criticism that has been leveled at UltraViolet — the revolutionary “digital locker,” backed by five of the six major studios, that lets consumers buy content once and then access it whenever and wherever they like, on a wide array of devices — strikes me as petty and nitpicky.
Disney’s not onboard. You have to register on two websites and download new software. UltraViolet isn’t compatible with the iTunes application. Studios are slow to release content. Retailers are reluctant to jump in.
Man, oh man. Talk about not seeing the forest for the trees. Growing pains are expected; heck, it took Walmart two years to even begin carrying DVD, the biggest tech success story along with Apple’s iPod, iPhone and iPad.
You have to look beyond the challenges and obstacles that are inherent to any new product launch — none of which are insurmountable, by the way — and, like DVD, look at both the motivation behind the product and what benefits it brings to the consumer.
In DVD’s case, the motivation was to get people to buy movies rather than rent them and thus increase the studios’ take. The benefits to the consumer included the convenience of picking up movies at Walmart or Costco, at an affordable price, and never having to return them, as well as owning these movies forever, on an archival format with no moving parts, like the clunky videocassette.
The motivation behind UltraViolet is very, very similar: more money for the studios, and a convenience for the consumer.
Studios pump up Blu-ray Disc sales because all of a sudden that disc is a lot more than something you stick in your Blu-ray player and watch on your home theater. In effect, you can lift that content off the disc and do with it what you like. Fall asleep during the last half of The Hangover Part II? No problem, watch the rest on your notebook on the plane — or your computer at work while the boss thinks you’re working on budgets. That increases the value proposition behind buying a Blu-ray Disc, which should eat into rentals.
Before, when Joe Consumer had to shell out $15 or $20 to buy a disc he can only watch on his home theater, he was cautious and selective. But opening up all those viewing options — and, wink, wink, the potential to share — is quite an incentive, no matter how tightfisted Joe might be.
So let’s get past the expected bumps and see UltraViolet for what it really is: A revolutionary way to bring entertainment to the consumer, offering the consumer the ultimate in flexibility and convenience without watching some third party like Netflix or Redbox walk away with the lion’s share of the dough.
This thing’s going to be big — really, really big.
Consumer home entertainment spending numbers, released Jan. 9 by DEG: The Digital Entertainment Group, should have Hollywood studio executives jumping for joy.
Sure, total consumer spending on home entertainment for 2011 was down about 2% from the previous year, with a surprisingly strong third quarter followed by a disappointing fourth quarter.
And, yes, spending on packaged media — still Hollywood's bread-and-butter — once again declined in the double digits, albeit not as dramatically as in the last two or three years.
But let's take a big-picture view of what happened. For starters, a 2% drop is virtually inconsequential, given the explosion of the app market in 2011 and all those eyeballs caught up in the novelty of playing Zombie Highway or Tiny Towers on their iPhones and iPads.
What's more, the box office value of movies that came to home entertainment in 2011 was off 8.7%, and that's traditionally been a spot-on indicator of how the home entertainment sector will fare.
As for the decline in packaged-media sales, I wish to make two points: First of all, did any of you happen to wander into a Walmart, Target or Best Buy during the holidays? Recent Blu-ray releases were selling for less than $10, while DVDs could be bought for as little as $3. Heck, I'm surprised consumer spending isn't down a lot more, given the record deep-discounting we saw in the last three months of 2011.
Each year we talk about the "race to the bottom," but based on what I saw on my own excursions to retail land in the weeks leading up to Christmas I fear next year we might find retailers giving consumers free discs just for walking through their doors.
Secondly, consumers are firmly in a state of transition. The movie collecting habit, fueled by the novelty of DVD a decade ago, is definitely waning — a product, I believe, of consumers opening their cupboards and seeing stacks of movies still in their original shrinkwrap. DVD triggered a feeding frenzy, and today, consumers, older and wiser, have simply come to realize they don't need to buy every movie that comes out just because they can.
That's why the biggest gains in 2011 were on the rental side, both physical (kiosks) and digital (VOD). Those gains, in fact, prevented the year from being a disaster, faithfully offsetting declines in sellthrough.
So, in a nutshell, consumers are by no means turning their back on bringing movies into the home. In fact, in terms of sheer transactions, I have a hunch the numbers are up, way up, despite apps, iPads and all the other distractions.
It's just the delivery method that's changing, with consumers opting to watch movies instead of also choosing to own them.
The mainstream media, no doubt, will again zero in on the drop in disc sales and proclaim the home entertainment industry to be at death's door. It's what they do.
But we know better. And if you happen to run into any skeptics, pass this column along to them. A little education never hurt.
I am about to install a new DVD player in my car, to replace the old broken one that came with the SUV when we bought it back in July 2005.
That’s right, a DVD player.
I’d love to put in a Blu-ray Disc player, but, alas, every car place I called said there isn’t one, primarily because the inability to make a 10-inch screen show true high-definition. “It’s at least eight to 10 years off, from what I hear,” one installer told me.
That got me to searching the web, and I became increasingly frustrated. Several stories about manufacturers producing Blu-ray Disc players for cars popped up, but try to buy one and you’re out of luck. At the 2007 Toyko Motor Show, Panasonic unveiled the first Blu-ray player to be used specifically inside an automobile. No further word was heard until April 2009, when Panasonic said it was getting ready to launch the world’s first “in-car Blu-ray player” in Japan. At the same time, Mitsubishi said it was getting ready to offer an in-car Blu-ray Disc player, as well.
Fast-forward to January 2011. Engadget carried a report headlined “Audiovox shows off the industry's first in-car Blu-ray player, the AVDBR1.” The story said the player is “due in the spring with an MSRP of $349.99,” and “is even BD-Live compatible with optional WiFi upgrade, available after a firmware update arrives later this year.”
All right, everyone. You have whetted my appetite. I want to buy one. I’d gladly fork over “MSRP of $349.99,” or whatever else I need to.
So why can’t I buy one? The inability to manufacture the right kind of screen is a sorry excuse. At least give me a car player that will play my Blu-ray Discs, even if the monitor isn’t HD. It’s a convenience thing, and I think we as an industry are sending consumers a very bad message by not giving them an in-car device that will play Blu-ray Discs. It fuels the “this is a half-baked format” perception, and coming more than five years after the format launched is simply, utterly, completely ridiculous.
I know there are other options. We can buy a combo pack, store the Blu-ray Disc with our home theater and pack the DVD in our car. Or we can download a digital copy and watch it on our notebook or smartphone. But that isn’t the point. We are being told Blu-ray Disc is the format of the present, and that DVD is obsolete. And yet we still can’t buy a Blu-ray Disc player for the car; if we want to keep the kids happy during a long road trip, we need to take a step back in time and buy a DVD player.
It simply makes no sense.
We’re not going to promote it, in a big way, until January.
But I’ll let you in on a little secret: We now have our very own mobile magazine, or “Mozine,” which can be accessed on any smartphone via a free downloadable app (just search for “Home Media” and it will pop up).
It’s essentially a simplified form of our magazine, aimed at always-on-the-run executives who want to check out the top home entertainment stories, blogs and research while they’re running to a meeting, riding the elevator or stuck in traffic.
For me, the best part about the Home Media Mozine, produced for us by a company called Thumb Media, is that I don’t have to put on my dang reading glasses to see it. Yes, it’s tailor-made for those tiny smartphone screens, and it’s the latest in several innovations you can expect from Home Media this year as we rev up our transformation from a trade magazine to an information source.
I believe Home Media is more important than ever to our business. When we began more than 30 years ago, we primarily were a selling tool, a way for the studios and independent suppliers of home video product to communicate with retailers.
Today, we are a messaging tool, a way for the studios and independent suppliers to communicate with everyone, from the still-vast network of independent retailers with whom they do not have direct relationships to influential consumers, bloggers, Wall Street analysts, Hollywood’s creative community and even their peers.
Let’s face it – the home entertainment industry has never before had so many opportunities and so many challenges, all converging on us at the same time. There are myriad ways for content to be delivered into the home, and at the same time the definition of “home” is changing to include all sorts of mobile and portable devices, from tablets to smartphones. It’s really personal entertainment, not home entertainment , and I believe, quite frankly, that someone needs to be out there to help us make sense of it all.
That’s what we’re all about. Our mission is to be the central clearinghouse for all things home entertainment, encompassing news, research, analysis, interpretation and education. To effectively do our job, we need to be ubiquitous, omnipresent. We need to embody the spirit of 24/7; we need to be “always on,” to borrow the title of business strategist Chris Vollmer’s bestselling book.
So check out our app – and keep in mind, this is only the beginning.
Last year’s Black Friday was a Roman candle of joy for Hollywood studio executives — bright, but short-lived. If you will remember, Blu-ray Disc and DVD sales soared dramatically the day after Thanksgiving, and everyone’s initial reaction was that the industry was finally on the verge of recovery. But by the time the holiday weekend was over, sales were back down to previous levels, and subsequent analysis revealed the boost was due primarily due to deep discounting — not just of hits, not just of in-demand catalog special editions, but of everything.
I’m hoping this year’s Black Friday will bring better news. What all of Hollywood is hoping for, of course, is that consumers will step up their disc purchases not because prices are so low that they can buy a movie for just a little more than they can rent one, but because they’re getting excited again about owning and collecting movies.
Granted, this may be a little too much to ask for, given the fact that the novelty of buying movies on shiny little five-inch discs has worn off and there are so many other home entertainment options available. But it certainly is a worthy goal for which to strive, and underscores the drive for “added value” studio marketers have been mouthing almost from the day the disc business was born.
So how do we get consumers excited? If I had the answer, I’d be up in Hollywood right now, proclaiming myself the new Warren Lieberfarb. But I do have a few hunches, beginning with the notion that the sellthrough business is actually two different businesses, with two very different audiences.
The first is the new-release business. These consumers tend to act on impulse; they want what’s new, and they want it now. If they see it first in the Redbox machine, great, they’ll rent it; if they spot it first inside Walmart or Target, they’ll buy it. The key here is to maintain the window from rental — although I’d let physical rental stores get new releases on day one, since they generally sell videos too — and at the same time boost advertising, both traditional and viral, stressing not just the movie but the value of ownership. To pay for the extra advertising, I’d cut back on extras — sorry, folks, but for new releases, special features just don’t mean that much. To borrow a quote from James Carville: It’s the movie, stupid.
The second sellthrough business is catalog. Here, I’d just take a look at what Jeff Baker and his team are doing at Warner and copy it. Sorry, but that’s about it — Warner takes the proverbial cake when it comes to dressing up old movies, both in terms of extra material, like rare behind-the-scenes footage and documentaries, as well as packaging, with such nifty items as watches, reproductions of actual programs and coffee-table books.
As the Apple iPhone has proven, even in a down economy, people will still spend money. You just have to cater to your audience and, as the song says, keep the customer satisfied.
For the fourth consecutive year, Home Media Magazine salutes the women of home entertainment with our annual tribute to the most influential female executives in home entertainment. When we launched this project in 2008 the industry was at a crossroads, with DVD sales flattening, Blu-ray Disc acceptance lukewarm, and digital distribution more a pipe dream than anything else.
At the time I wrote, “As our industry buckles down to weather the transition, we find a significant percentage of top industry executives are women. … I found some similarities among the honorees. Specifically, they are well-educated, well-rounded and in positions of increasing importance, both at their own company and within our industry.”
The industry has changed a lot over the past three years. DVD is clearly a mature, and declining, format, while Blu-ray Disc, after a rocky start, is finally being embraced by mainstream consumers the way we could only dream it would be in 2008. As for digital distribution, well, let’s just say that no one back then could have imagined there would be so many channels to bring entertainment into the home, and that Facebook — at the time an upstart challenger to MySpace in the nascent social networking space — would be among them.
One thing that hasn’t changed is that physical media continues to be the dominant distribution method for home entertainment. Another thing that’s remained the same: the caliber of our women executives. As I wrote back then, our list includes “more than half a dozen business and marketing leaders who essentially call the shots at their respective studios, from developing and implementing an overall Blu-ray Disc strategy and overseeing every stage in the product distribution cycle to acquisitions, packaging, sales and marketing, and fulfillment.” And, once again, we also have our fair share of “trendsetting retailers” and “entrepreneurial mavens who have been taking pot shots at the proverbial glass ceiling for years.”
The 2011 edition of our Women in Home Entertainment tribute is running in our Nov. 14 issue, and for the second consecutive year we are producing a gala luncheon to honor these women the day after the issue debuts — this year it’s on Tuesday, Nov. 15, in Beverly Hills, Calif.
I’d also again like to issue a special callout to our own women of home entertainment: Stephanie Prange, Angelique Flores, Julie Savant, Renee Rosado and Ashley Ratcliff. They’re a critical part of the Home Media team. Julie has been with us for longer than I have, and I’m celebrating my 20th anniversary here this month. Renee and Stephanie came along shortly after I did, while Angelique joined in 2004 and Ashley, our newcomer, joined our team last year.
This year also saw the passing of veteran home entertainment publicist Maria LaMagra, who spent nearly 30 years in the industry. She worked 11 of those years as head of publicity for what now is Universal Studios Home Entertainment and, as an independent public relations consultant thereafter, worked for just about everybody else. LaMagra died Aug. 7, 2011, at her home in Sherman Oaks, Calif. She had been battling cancer and was under hospice care. To Maria, the once and forever queen of home entertainment, we will dedicate this issue.
Herman Cain may have his 9-9-9 plan to remake the tax system, but the Hermanator’s plan is nothing compared to my plan to remake the home entertainment business.
The big problem, these days, is that studios aren’t making enough money because too many people are renting discs from Netflix and Redbox, and the return to studios from rental isn’t nearly what it is from sellthrough.
So here’s my three-part remedy:
Consumer electronics manufacturers immediately stop making DVD players and only manufacture Blu-ray Disc players. The margins are better, and if they tout the fact that these players not only play high-definition discs but also are backwards-compatible – and make standard DVDs look better – I think they’ll do all right. As any first-year marketing student knows, consumers need to be educated, and if we’re concerned that too many people are still living in DVD land, then maybe a forceful eviction is what’s needed.
At the same time, computer manufacturers need to stop putting DVD drives in new computers and also adopt an all-Blu-ray Disc approach. Again, they can tout the backwards compatability angle, as well as the fact that Blu-ray Disc offers far greater storage capacity – which in this era of increasingly large photo and video files should be a great selling point.
The third thing that needs to happen is for studios to release movies on Blu-ray Disc a month before they release them on standard DVD. They can charge full price for the Blu-ray Disc, and then a month later offer bare-bones single DVDs for maybe $5 a pop. The idea here is that consumers who don’t want to wait, as well as movie collectors, will rush out and buy the new release on Blu-ray Disc, while those who are less enthusiastic won’t mind waiting a month to buy it for $5 a DVD.
This second category of consumer is the rental crowd, and they already are accustomed to waiting a month to get their movies from Netflix or Redbox – which they don’t mind doing, because it’s only costing them a few dollars.
By imposing a similar window on DVD and charging just a little more than the average rental fee, I believe many of these consumers will migrate back to the purchasing habit, particularly since buying a movie at places like Wal-Mart and Target is so convenient.
It’s a way for studios to take back the rental business, once and for all, and not have to share with anyone. Netflix and Redbox can still rent movies, but under this scenario the playing field between sellthrough and rental is leveled.
As for physical video rental stores, they can do it all: They can sell new Blu-ray Disc releases, rent them, and then after a month do the same with standard DVD. I believe video stores will regain at least some of the market share they’ve lost over the years, and at the same time get a crack at the lucrative sellthrough business that for the most part has eluded them.
What do you think?
I ran across an interesting statistic the other day. Netflix accounts for about 25% of total consumer spending on home entertainment — figuring rental is half the market, and Netflix is half the rental business. And yet if you talk to any studio president, you’ll hear that Netflix, at best, accounts for only 5% of the average studio’s total home entertainment sales.
That’s clear evidence of just how much money the studios left on the proverbial table when all of Hollywood was touting the rapid rise of sellthrough in the late 1990s and early 2000s while completely ignoring the rental transactional end of the business. Left on the sidelines in our collective glee over escalating buy rates and what we mistook for a dramatic change in consumer behavior, the rental business mutated and evolved with nary a notice from Hollywood, which is why a smart guy like Reed Hastings was able to come in and in a few short years virtually “own” the business, hastening Blockbuster’s demise and, years later, putting a crimp in sellthrough now that the novelty of owning movies is over and consumers are a lot more selective in what they choose to buy.
The 28-day window three, and sometimes four, studios imposed on Netflix and its fellow rental renegade, Redbox, in an attempt to spur sales, hasn’t really been working all that well, my sources tell me. Back in the gaga days of DVD, when up to 60% of inventory sold through within a week and everyone rushed out to buy the week’s hottest new releases bright and early on Tuesday morning, 28 days was a lifetime. But as the business matured, that sense of urgency gradually went away, to the point where first-week sales are way down. People don’t mind waiting a few weeks to rent a movie from Netflix or Redbox, particularly at a time when the economy is still shaky and entertainment options are at an all-time high. There’s plenty to do in those weeks before a movie hits the Netflix queue, from updating Facebook to beating your kid at Angry Birds.
But after four weeks people are going to start getting a little antsy, which is why all eyes right now are on Warner Home Video and its still-unconfirmed intent to lengthen the window from 28 to 60 days — and perhaps include all classes of rental trade, including brick-and-mortar. If Warner’s new window is, indeed, the tipping point, the right amount of time for consumers to say something along the lines of, “Screw it, I’m tired of waiting, I’ll just buy the damn movie,” you can bet your state-of-the-art 3D Blu-ray player that other studios are going to follow suit.
And while the obvious goal is to boost sales, the other is to put the brakes on the Netflix phenomenon (although Reed Hastings has been doing a pretty good job of that himself). You can’t blame the studios for that: when 25% of consumer dollars flow into a business that only gives you 5% back, you’ve got to do something, anything, to at least even the score.
I’ve gotten a lot of calls today concerning the shakeup over at Paramount, ranging from “What the hell happened?” to “What does it mean?”
What happened is this: Paramount put all channels bringing entertainment into the home under one roof, in a new division, Paramount Worldwide Home Media Distribution, headed by Dennis Maguire, previously president of Paramount Home Entertainment.
What does it mean? It means the powers that be at Paramount are exhibiting a great deal of common sense.
One thing we learned earlier this year, when we were compiling our “Digital Drivers” section: The studios are all over the place when it comes to categorizing digital distribution. Some put it under the TV group; others, home video; and still others, on its own platform, separate but equal to TV and home entertainment.
In creating its new Worldwide Home Media Distribution division, Paramount has taken a bold step toward integrating its various into-the-home distribution channels and putting one guy, an industry veteran known for his team-building and ability to work well with others, in charge. Dennis Maguire is hardly a polarizing figure; he’s a universally respected, and accepted, executive who doesn’t have sharp elbows and, quite frankly, knows his stuff. He’s worked his way through the Disney home entertainment boot camp — which has produced myriad other talented executives, from Universal’s Craig Kornblau to Paramount’s own Mary Kincaid — and emerged as something of a statesman, if you will, in our industry.
Of course, he’s got a monumental task ahead of him, figuring out the direction our business is going and aligning the various delivery and distribution mechanisms now under his control to maximize value to both studio and consumer.
But at least he’s got a starting point, a general direction from which to begin.
As one observer put, Paramount finally has a blueprint. Now, it’s time to start building the house. And while there may be many design changes up ahead, at least there’s a solid framework for what’s to come.