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.
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.
It’s sad for me to hear Best Buy is in trouble. The consumer electronics chain, which played a key role in getting DVD off the ground back in the late 1990s, has seen a significant decline in same-store sales and says it will close 50 big-box stores this year. The culprit, the chain says, is that more and more customers are using its stores as a showroom to check out new products and then buying them, for less, online.
Not me. For the past decade, every computer, every iPad, every iPod, every printer, every printer ink cartridge and every TV I’ve purchased has been bought at Best Buy. I figure I spent upwards of $10,000 on electronic gadgets from Best Buy throughout the past decade, and nothing I’ve bought there ever disappointed me.
One reason I keep going back to Best Buy is the prices are competitive. The other is that I liked the look of the stores.
I have my own ideas as to why Best Buy is floundering, and they’re not the same ones CEO Brian Dunn cited in an analysts call.
For starters, I don’t like the new store layouts the chain has been rolling out. The old footprint was inviting and friendly; the new look appears cluttered and too focused on products like the iPad and mobile phones that, quite frankly, I can get elsewhere.
Putting entertainment software – Blu-ray Discs, DVDs and CDs – in the back also wasn’t a smart move. A big chunk of the packaged media business comes from impulse buys, which is why Target, for example, is now selling discs at endcaps near the checkout lanes.
Best Buy has a great assortment of packaged media, but you wouldn’t know it. It’s tucked all the way in the back. Out of sight, out of mind. Furthermore, as I understand it, the department has been outsourced, so the personal care and attention given to product choice, merchandising and display under the Joe Pagano/Gary Arnold eras is conspicuously absent.
Walmart’s embrace of UltraViolet underscores the mass merchant’s commitment to packaged media, which it always has recognized as a traffic driver. I can’t fathom why Best Buy isn’t taking the same approach. When packaged media sales started declining, Walmart did something about it. Best Buy’s tactic appears to be moving discs into the back, as though they’re being punished for something.
Customer service also has suffered. Don’t get me wrong – Best Buy associates still are helpful and generally well-mannered. The problem is, you can never find one – and there’s not much cross-departmental training so that if, for example, you approach the computer clerk with a question about TVs, he won’t be of much use. Associates should be trained about the entire product mix, and then rotated from time to time so that they can learn more about every product line Best Buy carries, instead of being stuck in one department.
I say this in the best spirit of constructive criticism. I’m a loyal Best Buy shopper, and I want to do what I can to make sure it stays afloat.
It’s almost a foregone conclusion that with the release this fall of Secret of the Wings, the next film in the enormously successful Disney Fairies series, Walt Disney Studios will have another popular video premiere title on its hands — and one that will again top the sales charts, like every predecessor in the franchise. With Secret of the Wings, however, Disney breaks through with another industry first: the first-ever home video premiere on Blu-ray 3D.
“We’re excited that this all-new feature-length CG-animated adventure with Tinker Bell and her fairy friends is the first direct-to-video title being released on Blu-ray 3D,” said Lori MacPherson, EVP of product management for Walt Disney Studios.
The three prior installments in the series, which was launched in 2008 with Tinker Bell, all have been huge hits, selling millions of copies on both DVD and Blu-ray Disc. The line is based on the Tinker Bell character, created by J.M. Barrie. Tinker Bell made her Disney debut in the 1953 animated classic Peter Pan, albeit with neither wand nor voice. Since then, Tinker Bell has become one of Disney’s most important branding icons, appearing as a “hostess” in much of Disney’s live-action programming, beginning with 1954’s “Disneyland” and continuing with “Walt Disney’s Wonderful World of Color” and other shows. She is also featured in the opening of all Disney films, flying over the Castle, and Disney gave her a voice with the release of the 2008 film. In 2010, Tinker Bell even got her own star on Hollywood Boulevard’s celebrated Walk of Fame.
Disney’s tradition of high-profile voice casting in its DTV titles continues with Secret of the Wings, which features the voices of Academy Award-winner Anjelica Huston, Timothy Dalton and, as the new fairy Periwinkle, Lucy Hale. Returning cast members include Mae Whitman, Lucy Liu, Megan Hilty, Raven-Symoné and others. The film is directed by Peggy Holmes, co-directed by Bobs Gannaway, produced by DisneyToon Studios and executive produced by John Lasseter.
Disney has had huge successes out of building franchises around animated classics and then issuing a series of sequels, years later, that are made expressly for the home-viewing market. The practice began in the middle 1990s with Aladdin and not only established Disney in the home entertainment franchise business, but also jumpstarted the nascent sellthrough business even before the advent of DVD thrust the gates to consumer movie ownership wide open. Long before the first DVD ever appeared in stores, consumers were already building extensive collections of Disney films on videocassette, many of them based on theatrical releases they themselves had watched as kids — and were now introducing to their own children.
“Secret of the Wings joins our consistent and successful line of Disney-branded direct-to-video titles and furthers our commitment to bringing high-quality storytelling to families wherever they enjoy them,” MacPherson said.
The Disney brand certainly helped, but Disney’s success in building franchises goes a lot deeper than mere brand awareness. To sustain a franchise, the quality needs to be top-notch, and observers note that the films in the Disney Fairies line — 2008’s Tinker Bell, 2009’s Tinker Bell and the Lost Treasure, 2010’s Tinker Bell and the Great Fairy Rescue and last year’s Pixie Hollow Games special on The Disney Channel — all have been marked by strong, compelling stories.
Jeanne Hobson, SVP of retail strategy and solutions for Disney Consumer Products, notes, “Secret of the Wings is a great addition to the Disney library and continues our rich heritage of storytelling for the whole family. The movie and the many Disney Fairy-related products create terrific cross-merchandising opportunities for a variety of retail channels and within the company.”
Walt Disney launched the Disney Fairies franchise in 2005 and has since scored successes with more than 1,400 different Disney Fairies and Tinker Bell books published in 33 languages. Visitors from around the world to DisneyFairies.com have created more than 40.5 million Fairies, and the characters also have been integrated into such Disney stalwarts as the theme parks and Ice Shows.
“The Disney Fairies franchise is a phenomenon among our many product lines and businesses in 57 countries worldwide,” Hobson said.
In the new film, Tinker Bell and her fairy friends journey into the forbidden world of the mysterious Winter Woods, where curiosity and adventure lead to an amazing discovery and reveal a magical secret that could change their world forever. Secret of the Wings comes out on Oct. 23, 2012, and will be available in a variety of combo packs including a four-disc package with 2D and 3D Blu-ray versions plus digital copy and two-disc Blu-ray/DVD packages in English and Spanish. A single-disc DVD version also will be available.
Today’s announcement by Walmart that it will participate in the UltraViolet project marks a turning point in the way a new entertainment product or technology is traditionally launched.
Generally the Hollywood-CE partnership takes aim at the early adopters, hoping to wow the tech heads and then ride their wave of enthusiasm into the mainstream where it either catches on like wildfire (DVD) or slowly builds over a period of years until it becomes the new standard (Blu-ray Disc).
With UltraViolet, the studios and their partners are taking an unprecedented approach: They are going directly to the masses, hoping to win over middle America right away. And they couldn’t have picked a better partner than Walmart, the country’s top DVD and Blu-ray Disc seller (40% market share) and biggest retailer, period, with more than 3,800 U.S. stores that each week are visited by about 100 million customers, representing nearly one-third of the country’s total population.
But having Walmart on board so early in the game isn’t just a marketing win. It’s a strategic win, a tremendous vote of confidence that underscores my belief that with UltraViolet, Hollywood truly has built a better mousetrap in which the big winner is the consumer.
Too often, I think, we lose sight of consumers, who want to pay as little as possible for as much as possible and, at the same time, are looking for the easiest, simplest way to get what they want. Walmart has always put the consumer first, studying consumer trends and habits and then reacting, as it did with $4 prescriptions. We all know how big a success that was, and with UltraViolet Walmart is gearing up for an encore. Forget all the naysayers who keep harping on home entertainment as being a business in decline. Walmart obviously sees bringing digital functionality to physical discs as a winning combination, both for our business and, more importantly, for the consumer.
I have to agree. UltraViolet began as a way to turn a Blu-ray Disc into the be-all and end-all of home entertainment. Consumers buy a movie once and then send a copy into their very own digital locker up in the cloud, where they can access it anytime they want, on any device they want, in perpetuity.
A brilliant concept — in my book it’s one of the smartest things our industry has ever done.
The only thing better — I remember thinking back when UltraViolet was launched — would be to provide consumers with a way to do the same thing with their existing disc collections. And that’s precisely what Walmart is bringing into the game.
The first phase of the transfer process will be limited to retail, but that makes sense. This is a revolutionary concept, and consumers will need a little hand-holding. Phase two will involve online transfers, something that’s already on the way courtesy of specially equipped Blu-ray Disc players from Samsung.
The transfer fees for disc-to-digital conversion are reasonable, and I think both segments of the UltraViolet business model — buying Blu-ray Discs with cloud storage included in the purchase price, and sending discs you already own into the cloud — will feed off each other.
Wearing my consumer hat, I’m thrilled. And once I explain the concept to my friends, most of them are equally enthusiastic, especially the ones who have accidentally mailed a Redbox disc to Netflix or downloaded a movie from iTunes only to lose it when their computer crashed.
UltraViolet promises to be one of our industry’s true transformational moments. And with Walmart onboard, the potential impact is huge. It’s all about keeping the customer satisfied.
Declining disc sales and the renewed strength of the rental business, which doesn’t make the studios much money, has created a stable of competent home entertainment executives who through no fault of their own lost their high-profile studio positions in the recent past.
Marshall Forster, Eric Doctorow, Tom Lesinski, Matt Lasorsa and Jeff Fink are just a few of the A-list executives who are smart, talented and hard-working – and available.
Now, their ranks have been joined by a veritable dream team of Summit Entertainment executives, led by Steve Nickerson, Bobby Gerber and Sandy Friedman – all victims of the independent studio’s purchase by Lionsgate.
If I ran a studio, I’d snap these guys up in a heartbeat – and if I didn’t have any open positions, which seems to be a common problem up in Hollywood these days, I’d create something for them. All of them.
Nickerson, Gerber and their associates are well-versed in marketing tentpoles and brought years of major-studio experience to Summit. As one of our reporters observed, they were “instrumental in driving 'Twilight' disc sales through the roof through innovative marketing efforts, midnight store openings, exclusive bonus materials, etc.”
And on the operations end of the business, Sandy Friedman is a human security blanket. You don’t get more competent, honest or forthright than this guy, who ran operations for eight years at DreamWorks before moving on to Netflix and then Summit.
The good news in all of this is that our executives seem to have this uncanny ability to reinvent themselves. Eric Doctorow’s the master of this: Since leaving Paramount a decade ago, he’s run a video game company (THQ) and then overhauled a struggling independent (Ventura) before returning to the major-studio fold as general manager of MGM.
And he’s not the only one. Louis Feola, Andrew Kairey, and a whole lot of others have all parlayed their studio careers into something just as lucrative, just as rewarding. One of my favorite reinvention stories is that of Stuart Snyder, who after Turner Home Entertainment was sold ran off to join the circus – literally. He became CEO of Feld Enterprises, which operates the Ringling Bros. and Barnum & Bailey Circus. (Snyder ultimately wound up back at Turner, tapped to run GameTap in 2005 and, two years later, appointed president and COO of Animation, Young Adults & Kids Media for Turner Broadcasting.)
I have no doubt the Summit Three – and whoever follows in their wake – will find work. As the saying goes, it’s hard to keep a good man down. And even in this economy, with record-high unemployment, there’s always consulting to bridge any employment gaps that might occur.
One thing our business has always been good at is taking care of our own. In this case, whoever snaps up Nickerson, Gerber and Friedman – either on a full-time basis or as a consultant – won’t be disappointed.
I feel vindicated. For quite some time I have been maintaining that one reason home entertainment disc sales are slumping is because of iPhone-mania and the preponderance of free apps. Pre-teens, traditionally among the biggest consumers of entertainment, are playing Angry Birds or Tiny Towers instead of watching the latest animated feature on DVD or Blu-ray Disc.
Last October, DreamWorks Animation, which derives more than 50% of its revenue from home entertainment sector, reported a 51% decline in profits.
And my hunch, at the time, was that the iPhone and its larger cousin, the iPad — along with other smartphones and, of course, the iPod Touch — are the culprits.
So now along comes THQ, the venerable video game developer responsible for such hits as Saints Row and Warhammer 40,000, which has just reported dismal financials. The company’s loss mushroomed to $55.9 million in the quarter that ended Dec. 31, 2011, from $14.9 million in the year-ago quarter. Its stock is in danger of being delisted. CEO Brian Farrell is taking a 50% pay cut and, in the latest development, THQ is shutting down its entire Japanese operations.
THQ attributes its woes to a botched attempt to broaden its base from hardcore gamers to the pre-teen set, a move highlighted by the launch of the uDraw Game Tablet and several licensing deals for children’s properties. “Our confidence was misplaced," Farrell said earlier this month, noting that not only is THQ killing the tablet, but it also is pulling out of the entire children’s game business. THQ said it recently ended negotiations with two licensors and is working out agreements with two more to spin off some titles.
One of the primary reasons for the pullout, Farrell said in a conference call earlier this month with analysts to discuss the latest financial results, is that the i-stable of products has taken the kids market by storm in the past year, “since kids can get thousands of apps for free or at low costs.”
If free apps could topple THQ, one of the most successful video game developers of all time, it’s easy to see the danger to our industry, particularly the children’s market, which remains the cornerstone of today’s sellthrough business.
The $64,000 question: Are iPhones and apps just another novelty that kids will eventually tire of, so that they’ll come back to home video? Or are they going, going, gone … for good?
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.