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.
While final numbers or even preliminary numbers aren't in, early reports indicated Black Friday was a huge day for the home entertainment industry, with consumers crowding into stores like Walmart, Target and Best Buy and leaving with armloads of heavily discounted DVDs and Blu-ray Discs.
The deluge indicates one thing: Disc sales have become increasingly price-sensitive, although maintaining this pace will bring us closer and closer to the tipping scale, where it's more profitable for studios to sell fewer downloads than mass quantities of uber-cheap discs.
The one saving grace is that retailers, not studios, took the hit this time around. But while we may exult at the gobs of DVDs and Blu-ray Discs that were snapped up by bargain-hunting consumers, we must also accept the sobering thought that selling DVDs for under $2 and Blu-ray Discs for $5 is simply not sustainable.
We don't want to train consumers that this is the new reality, that this is all that discs are worth. But I think consumers are smart enough to know that Black Friday means some truly incredible deals--heck, Walmart was selling laptops for less than $200, while Best Buy had a Toshiba Blu-ray Disc player for $59.99--and that once the post-Thanksgiving discount madness is over, they will once again be charged more realistic prices.
For the sake of our business, I'm hoping Black Friday rekindled the emotional bond consumers in the not so recent past developed with their movies and TV shows. The concept of owning and collecting, after all, was an outgrowth of DVD, a relatively new habit. When our collections began to spill out onto the floor and laundry room cabinets, we applied the brakes, and while many of us do intend to replace at least our favorite movies with Blu-ray Discs, the troubled economy has prevented us from doing so.
Black Friday turned even the most cautious collectors into hoarders. At Best Buy, I saw lines of people with huge stacks of DVDs ($3.99) and Blu-ray Discs ($7.99-$9.99) in their arms; at the Target store in Oceanside, Calif., that I visited, every single $7.99 Blu-ray Disc was gone by 10 a.m.--and we're talking catalog titles such as Serenity, Taken, Wanted and the three Lord of the Rings films, which from what I'm hearing were the first to go. Walmart was an utter zoo, thanks largely to more than 90 DVD titles--including Ice Age, Sex and the City and the Bourne and Lord of the Rings trilogies--priced at just $1.96 apiece. Walmart also blew out some 60 Blu-ray Disc titles at $5, including Batman Begins, Live Free or Die Hard and The Dark Knight.
Obviously, these prices can't last, but they sure caught the consumers' attention. And with economic recovery, true economic recovery, still months, if not years, away, we need jolts like this to keep packaged media in the spotlight--and in the home. We need mass feeding frenzies to ensure consumers don't lose their appetites for buying discs, for owning and collecting movies.
We just can't do it all the time.
I can't even count the number of high-ranking studio executives who over the last few weeks have told me that they won't really have a good handle on how DVD and Blu-ray Disc sales are faring this holiday season until after Black Friday.
The Friday after Thanksgiving, of course, marks the unofficial start of the holiday shopping season. It's a day when retailers stumble all over themselves trying to lure consumers into their stores through steep price breaks and other incentives, in the hopes that once they get a taste of the amazing bargains each retailer has to offer, they'll come back again and again and again.
In the world of home entertainment, Walmart, Best Buy and Target are on the front lines of Black Friday DVD and Blu-ray Disc sales. Costco, Sam's Club and Fry's are not far behind.
Each year, word of what awaits consumers at these and other retailers seems to leak out earlier and earlier. This year, word is that Walmart will sell wireless Blu-ray Disc players for as low as $69. That's a big development for our industry, since one of Blu-ray Disc's killer apps, as far as studio marketers are concerned, is BD-Live, which relies on Internet connectivity to deliver new and updated extras. The problem is, most Blu-ray players currently in homes aren't wireless, which means there's a fat chance that player will ever be connected to the Internet.
Walmart also is reportedly going to offer up to 60 Blu-ray Disc titles for $5 each. To me, that's an even bigger boon for our business, since one of our biggest challenges right now is to get consumers to rebuy their movie libraries. I've spoken to lots of people who are hooked on Blu-ray, and they'd like to eventually replace all their favorite DVD catalog titles with high-definition discs. The problem is, they can't afford to do so.
Just last week, I received a letter from a gentleman who said he's "been working on switching my whole DVD collection (some 500+ DVDs counting TV show seasons)." He bemoans the fact that so many films have not yet been released on Blu-ray Disc but is "really glad the studios are starting to get off their butts" and releasing more catalog titles on Blu-ray Disc. Referencing a recent column I wrote on catalog titles on Blu-ray Disc, he had this to say: "You mentioned that they will need to unearth some more extras to hook us but in truth I never watch any of the extras on a DVD and I'm sure many people would be happy to forgo the 'extras' to get the movies quicker and possibly cheaper. The reason I've converted to Blu from DVD is the superior picture quality over DVD and the fact that Blu-ray Discs are more durable. No more scratches making the movie freeze or skip! Watching movies on Blu-ray is a lot closer to the 'true' movie experience since the HD format looks near enough to the quality of the movie as seen in the theaters that I never feel the need to go out to see a movie unless it's one I want to experience on the larger screen. The only extra worth increasing cost over is the addition of the digital copy, since most people now want an easy way of playing their movies on wide variety of portable players without the need to 'rip' the disc."
So I think I speak for many studio executives when I say Black Friday can't come soon enough. Sure, it's unlikely retailers nor studios will make much money from Blu-ray Disc sales on Nov. 26. But if they can get consumers hooked on the Blu-ray Disc experience--and price, as well as title availability, seem to be the key here--I honestly can't think of a wiser investment.
One of the more interesting panel discussions at today's Blu-Con 2010 conference in Beverly Hills was the one on marketing classic movies on Blu-ray Disc. Theatrical catalog, you may recall, has taken a precipitous hit these last few years, as the DVD format has matured and studios have pretty much run out of marketable catalog titles to release, and re-release, on disc. There are, after all, only so many times you can get the average consumer to buy the same movie, regardless of how many new extras you put on the disc. This year alone, by some accounts, the theatrical catalog business is off by something like 40%, accounting for the lion's share in the overall decline in DVD sellthrough.
I've felt for some time that theatrical catalog and Blu-ray Disc are an ideal match, with one igniting interest in the other. And with Blu-ray Disc now crossing the 20% penetration mark, according to figures provided at the conference by Pioneer's Andy Parsons, studios are starting to release their marquee catalog titles on Blu-ray Disc, as exemplified by such recent releases as The Sound of Music from 20th Century Fox, The Bridge on the River Kwai by Sony Pictures Home Entertainment, The Exorcist and The Maltese Falcon by Warner Home Video and The African Queen by Paramount Home Entertainment.
Panelists spoke of the challenges they face in marketing these films, and agreed the value proposition has to be right--they need to not just clean up the print to the point where the picture, and sound, are virtually perfect, but they also need to unearth more extras to really hook the movie fan.
I happen to believe selling classic movies on Blu-ray Disc will soon get a lot easier. The early adopters who bought into Blu-ray two or three years ago focused on the new hits and recent hits, but at this point they are ready for more. We may not see a full-scale conversion of libraries as we saw when DVD replaced VHS--I think a lot of us have quite a few movies in our homes that cause us to scratch our heads and say to ourselves, "Do I really need this?"--but by the same token we don't want to parse down our collections to just a handful of films.
I speak from personal experience. Four and one-half years after the format was launched, and three years after I brought Blu-ray and high-definition into my home, I am finally dumping most of my DVDs--and the ones I am keeping, I am eager to get rid of as well. Once they come out on Blu-ray Disc, I intend to do so, and it's not just the better picture and sound. It's an emotional thing; those DVDs in their "keep cases" are beginning to look every bit as clunky as my videocassettes did when I began collecting DVDs. I just pulled out a boxed set of 20th Century Fox's "The Omen" movies and replaced it with a slim Blu-ray collection. "Look at how much less space it takes up," I remarked to my oldest son--then thought to myself, "Man, that's the same reaction I had when I got rid of all my VHS tapes."
One hallmark of us collectors is uniformity. And I am at the point where I no longer want bulky DVDs cluttering up my rows of neat little Blu-ray Discs. Think I'm alone? Just you watch. There are a lot of Blu-ray Disc fans out there, and eventually they'll come to the point where they will no longer settle for anything less. They may not repurchase all their movies, but I believe they'll replace enough of them to give our business a significant boost.
Great article in the Chicago Tribune on the gradual disappearance of the brick-and-mortar video store. Click here to read it.
I came across an interesting story in The Wrap that alleges Netflix could have wound up being owned by the very same studios that are greedily eyeing the subscription rental service's 36% share of the home video rental market.
According to The Wrap story (to read it, click here), when Reed Hastings launched Netflix in the late 1990s, he cut a deal with Warner Home Video to share revenues on DVD rentals in return for warrants in his company. Other studios soon cut similar deals, The Wrap says, citing "two individuals with knowledge of the deal." But in 2002, when Netflix went public, the studios began selling their stock in the young company, and a year later all had given up their ownership stakes.
Talk about the one that got away. If The Wrap story is true, the studios would have been wise to hang on to Netflix, since it effectively controls the rental business and, what's more, its stock is now valued at tenfold the IPO price.
But those were different times, and one can hardly blame the studios for selling out when they did. For starters, the only reason Warner and the other studios got involved with Netflix in the first place was to attempt to rein in Blockbuster, which at the time was making what the studios considered unreasonable demands on product pricing and availability. Blockbuster wanted more copies of the hits at a reduced rate, and the studios worked themselves into a tizzy trying to placate Blockbuster while at the same time not running afoul of the law by offering similar copy-depth deals to all retailers. Netflix, with its revolutionary new model, was regarded by Blockbuster as a threat, and that's probably the only reason Reed and his team even got the studios' attention.
Fast forward to 2002. DVD had come onto the scene five years earlier, but hadn't really hit its stride until the turn of the millenium. As consumers flocked to stores to buy discs and sellthrough kept posting double-digit year-over-year gains, the rental business appeared to be on its last legs. DVD sales would flourish forever and rental was doomed to extinction, so why would any studio want to even be associated with a company whose primary business was renting videos?
The first signs of trouble didn't appear until the fourth quarter of 2005, when sales growth slowed from the double digits to the single digits. Then came the recession and sales began to decline, while rental, given up for dead, suddenly found new life, fueled by the cost-effectiveness and simplicity of renting by mail.
Netflix was hailed as the savior of rental, but by then, of course, the studios were long gone.
In hindsight, the studios would have been on Easy Street had they maintained an ownership stake in Netflix, but I have to give a nod to The Wrap writers Dylan Stableford and Brent Lang for noting, "Of course, the innovation that has fueled Netflix's success and move into digital distribution might not have happened had so many sprawling publicly traded companies owned a piece of it."
Now, there's some food for thought.
Forgive me if I crow about our second annual Reaper Awards, in which we teamed with influential website DreadCentral.com to launch an ambitious national consumer vote to determine the best horror DVDs and Blu-ray Discs of the past year--and in which a panel of judges selected the most anticipated new horror DVD and Blu-ray Disc releases of the fourth quarter.
The contest, promoted both on Home Media Magazine's website and DreadCentral, was touted on hundreds of other websites, including a fair amount of fan sites. Thousands of fans voted, twice as many as last year, and there's no telling how many additional thousands of consumers we reached both with advance word of the contest and through post-show coverage. At the event, held last Tuesday night at the Hotel Roosevelt in Hollywood, we had representatives from 36 media outlets, and a cavalcade of stars and other famous names lining our red carpet, including Tom Holland, writer and director of horror classic A Child's Play; Paranormal Activity director Oren Peli; and up-and-comer Sarah Butler, star of the new I Spit on Your Grave remake. (For a recap of the awards ceremony, click here; for our story on the winners, click here.)
The press coverage of the awards, and the event, has been, quite frankly, overwhelming. We received writeups from newspapers and websites from around the world, including the Kansas City Star, popular horror site BloodyDisgusting.com, and the National Examiner.
For years, we've been asked by the studios to "deliver the consumer," and not just the video retailers who for years have been our primary audience. Tuesday night, we took a big step in that direction--and I promise you, there will be more!
For the third consecutive year, we at Home Media Magazine are getting ready to salute the women of home entertainment, our annual tribute to the most influential female executives in Hollywood's home entertainment sector. With so many more ways to bring entertainment into the home — from DVD and Blu-ray Disc to digital downloading, streaming and VOD — we also are broadening our scope this year beyond packaged media suppliers and retailers.
But as the industry, and our home-entertainment delivery mechanisms, change, the character traits of these women-in-charge do not. The women of home entertainment remain a smart, savvy and tenacious bunch; well-educated, intelligent, ambitious and determined to not just ride out the troubled economy but to grow their businesses. Look over the roster of any major studio's home entertainment division and you're likely to see several of these women in key decision-making roles. The same goes for independent suppliers, retailers and technology companies where all eyes are not on home entertainment's presence, but, rather, on its future.
Some of these women are out in front, frequently quoted in the press and always dashing about the country for meetings with corporate higher-ups, analysts and key clients. Others work behind the scenes, in operations, legal affairs, accounting and other so-called "quiet" professions that are out of the spotlight. But their roles are all critical to the success of their respective businesses, and they all go about their jobs with equal diligence and professionalism.
The 2010 edition of our Women in Home tribute will run in our Nov. 1 issue, and for the first time ever, we are going to produce a gala luncheon to honor these women that will be held Nov. 3 in Beverly Hills, Calif. We're hoping to have a surprise celebrity guest speaker and a healthy turnout of home entertainment industry leaders who recognize the importance of events such as this, which tend to elevate the entire home entertainment category in the eyes of both Hollywood and the business community.
There's still time to nominate women executives — click here to do so electronically — and reserve tables at the luncheon (contact our editor in chief, Stephanie Prange, at firstname.lastname@example.org). And lest I forget, let me call out some very special women in home entertainment: Stephanie Prange, Angelique Flores, Julie Savant, Renee Rosado, Krystal Lund and Valerie Cano. They're the women of Home Media Magazine — and a critical component of who we are, what we are, and what we can be.
Death, as the song (and most religions) contend, is not the end. And nor will bankruptcy signal the end of Blockbuster, the venerable video rental chain that come next year will celebrate its 25th anniversary.
Blockbuster's bankruptcy (to see our story on the filing, click here) is the same pre-packaged deal corporations typically file to get out from under a crushing debt load. We've seen it happen many, many times in the last few years, generally with companies that were under pressure to grow by acquisition and then, when the economy tanked, were stuck with a mountain of debt higher than their asset sheets. It's sort of like being under water on your house, only on a much grander scale.
The Sept. 23 filing by Blockbuster is essentially a recapitalization plan that allows the chain to reduce $1 billion in debt to about $100 million.
And that debt was the single biggest obstacle to Blockbuster's survival, tying management's financial hands to the point where they couldn't even effectively promote, market and advertise Blockbuster's big advantage over rivals Netflix and Redbox: The fact that it gets ALL movies from ALL the studios the day they are released on disc. When three of the six major studios announced 28-day holdbacks on new releases to Netflix and Redbox, many industry insiders likened the deal to throwing a lifeline to Blockbuster. But it's hard to reach for a lifeline when your hands are tied.
In a column several weeks ago, I opined that Blockbuster's debt wasn't the only thing hurting its chances of survival. I speculated that the Blockbuster brand had become a negative, identified far too closely with the traditional brick-and-mortar rental model and all its related evils, such as return trips and late fees.
Not so, argued some of the sharpest minds in our business. So I did a little due diligence. I spoke with random friends and acquaintances, popped my head into a few Blockbuster stores--not just on Friday nights, but also during the week--and lo and behold, they're right. In the proverbial nutshell: consumers equate the Blockbuster brand with movies, not with the old, tired store-rental approach.
Indeed, in the midst of my research I visited the local Vons supermarket and almost couldn't get in the door, thanks to a new Blockbuster rental kiosk right next to the front door. It's a spiffy-looking machine, even shinier and cooler-looking than Redbox's red box (sorry, Mitch!). And the line of consumers waiting to rent a movie seemed excited and motivated--they were getting a movie from an old friend, just in a different way.
In our story on the bankruptcy, longtime Blockbuster analyst Michael Pachter, with Wedbush Morgan Securities, expressed his doubts over Blockbuster's long-term prospects. According to the story, Pachter maintains that "offering a large retail selection and service requires space and staffing, and puts Blockbuster at a cost disadvantage to chief competitors such as Redbox and Netflix."
I can see that, but I happen to think that Blockbuster's current management team, led by Jim Keyes, is quite smart and savvy. And, as I pointed out in a previous column, Blockbuster, unlike fellow rental giant Movie Gallery, has done pretty much everything right these last few years, in terms of aggressively forging into new business models and strategies instead of sticking its head in the sand and sticking to the tried-and-true.
Already, an "evaluation" of its U.S. store portfolio is under way. I happen to think that if Blockbuster draws a hard line in closing marginal stores, reduces the footprint of others and steps up its efforts to compete with Redbox and Netflix in their respective kiosk and on-demand arenas, the chain very well could reverse its fortunes. Much depends, however, on marketing and positioning. Sure, maintaining physical stores puts Blockbuster at a "cost disadvantage," but this disadvantage could easily be overcome by the immediately availabability of Warner, Fox and Universal titles.
Blockbuster doesn't need to rebuild its brand. But it sure as heck needs to rebuild brand awareness.
I'm generally quite a fan of Nikki Finke and her "Deadline Hollywood" tip/gossip sheet. She breaks stories and isn't afraid to give us the real dirt on what's going on behind the scenes in Hollywood.
But her latest "scoop" makes me wonder.
In today's "Deadline," one of the top stories is headlined, "Studios Choking Off 3D Blu-ray Demand?" And the lead really sucks you in: "There's an accusation that Hollywood studios are holding back their hottest 3D Blu-ray releases, including Avatar 3D and Toy Story 3, until they see how much demand there is for the new format." The story is based on a Screen Digest report on 3D for the home and concludes with a quote from the research company's analyst, Richard Baxter: "Our research shows that all the studios support 3D BD but many of them are unwilling to release their strongest 3D titles before the installed base of home 3D hardware is large enough to generate serious returns."
Duh! Of course studios want to hold off releasing their marquee titles until there's a bigger installed base. That's what studios traditionally do when there's a new format being rolled out. Remember DVD? Heck, when that format first launched, only a handful of studios were even releasing any product — and Universal Studios' entry into DVD consisted of licensing 100 catalog titles to an outside supplier. Uni simply didn't want to be bothered. It also took studios several years before they came to market with some of their true classics, including the "Star Wars" movies. And in each case, the explanation was the same: "Why waste a marquee release on a small audience? We're going to wait until DVD is more mainstream. There's much bigger upside."
We saw the same thing happen with Blu-ray Disc. So why is Screen Digest coming out with a report with the ominous title, "Studio Caution May Stymie 3D, Blu-Ray’s Potential Killer App" — particularly now, just months (not years) after the first 3D TVs hit the market?
And, perhaps more importantly, why is Nikki Finke, the Mother Theresa of Muckracking, making such a big deal out of it?
Honestly speaking, there's other data in the report I find a lot more compelling, a lot more newsworthy. What about the prediction that within three years, 75% of U.S. households that have 3D-enabled TV sets will be able to show 3D Blu-ray Discs?
That's a tremendous vote of confidence in our business. But I guess it's just not nasty enough to warrant a Deadline headline.
As we move toward yet another critical fourth quarter--which in this business tends to have a "soft opening" in September, with the first trickle of high-profile DVD and Blu-ray Disc releases--is there anyone out there with a firm grasp on where, exactly, this business is heading?
The national economy is certainly one factor, and here the prognosis is cloudier than ever. For months, we've been talking about "recovery," and yet with joblessness still at record highs and the recent news of an abrupt slowdown in the housing market, the latest jabber from Washington is about this being a "jobless recovery," whatever that's supposed to mean. Let's face it: if people don't have jobs, they aren't going to have money. And if they don't have money, they can't spend it. And anytime you have a slowdown in consumer spending, guess what? It's the "R" word again (as in "recession," for those with short attention spans).
So in short, the recovery is petering out--if there ever was a recovery. And there's a whole school of economic thought that believes once the Bush tax cuts expire at the end of the year, the economy will tank even further than it did the last time around. This could mean a robust fourth quarter for DVD and Blu-ray Disc sales, followed by another dramatic slowdown--for the third consecutive year.
Of course, that's the worst-case scenario--and, ultimately, we're not going to know what's going to happen until it happens. And if we're looking for clarification by studying some of our own industry's economic indicators, the outlook is just as murky. DVD and Blu-ray Disc software sales are still down from last year, and what's more frightening is that if you compare the box office strength of movies released in the first half of this year to that of movies released in the first half of 2009, you'll find the 2010 tally is significantly higher--which makes the gap in consumer spending even more disturbing.
Just in the last week, we have learned that 1) shipments of televisions in North American fell 3% in the second quarter; 2) sales of HDTVs with big screen sizes (40 to 65 inches) rose 26% in June; 3) Coinstar, parent of home entertainment wunderkind Redbox, made Fortune magazine's list of 2010's top 100 fastest-growing companies (on the eve of Redbox's upcoming announcement that it has just clocked its one-billionth rental, I'm told); 4) Blockbuster is on the verge of filing for prepackaged bankruptcy; 5) summer movie attendance, despite 3D, fell to a 13-year low; and 6) just as 3D software, on Blu-ray Disc, is gearing up to appear on the market, we're hearing talk that Toshiba is developing a 3D system that doesn't require glasses, creating further confusion--and, potential, consumer hesitancy.
So what to make of all this information? Your guess is as good as mine. I will say that I had an interesting conversation the other day with a manager at the local Best Buy, and he said that while Blu-ray Disc hardware sales had slowed--a fact he attributes to 1) some consumers wanting to wait for 3D players, and 2) other consumers still not knowing what Blu-ray is--Blu-ray software sales had picked up significantly. "It's the price," he said. "You can get Blu-ray Discs for 10 bucks, and that's making Blu-ray owners, who already are really into movies, buy like crazy."