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 DVD, the most successful consumer electronics product launch in history, turns 20 this spring.
It was the last week in March 1997 when I received that first black box of DVDs from Warner Home Video, whose president at the time, Warren Lieberfarb, is widely considered the “father” of the format. It was Lieberfarb’s vision that saw the potential of the consumer purchase (rather than rental) model; it was Lieberfarb who got the Japanese CE guys on board and who convinced his studio counterparts to come along, with support from Sony Pictures’ Ben Feingold.
We all knew at the time our industry was on to something big, but no one at the time could have predicted how big: A sweeping transition from renting videocassettes to buying discs led to double-digit gains in consumer spending for a good eight years, and at long last gave home entertainment executives a say in greenlighting movies after that fateful moment (I believe it was in 2001) when spending on discs outpaced spending on movie tickets.
Money breeds respect, and our little industry minted tons of both.
DVD’s legacy is just as impressive. Technological advancements in the five-inch disc led to the Blu-ray Disc and, most recently, the Ultra HD Blu-ray Disc. Today, most discs are packaged in “combo packs” that transcend physical media by also including a “digital copy” consumers can watch from their hard drives or the cloud. And with Netflix eating Hollywood’s lunch, the disc’s viability — both as a standalone product and as a means to promote the concept of digital ownership — is something to be both lauded and perpetuated.
It’s funny — back in mid-1996, when I heard DVDs were finally going to come on the market, all I remember thinking was, “What took them so long?” It was, after all, 15 years after another shiny little five-inch disc, the CD, revolutionized the music industry. I was big into music at the time. Audio purists swore by the LP, but for me — and hundreds of millions of other consumers the world over — convenience trumped any audio superiority analog might have over digital. And besides, records wore down with use and, invariably, developed snaps, crackles and pops. I was more than willing to sacrifice a little audio quality if I could listen to Springsteen’s “The River” without a nasty skip right when he was reminiscing about Mary’s body “tanned and wet down by the reservoir.”
The clunky videocassette, in my view, was just as flawed, and I still recall in the early days of CD looking with disdain at my VHS library and wishing I could get movies on disc, as well.
In the early 1990s, there was briefly a product called CD-I, mostly for interactive video discs. A few movies came out on CD-I, and I was ecstatic. No matter that you had to change discs at least once, and that the color black just didn’t look right — CD-I was it. When the format crashed and burned, I mourned — but then came my first meeting with Warren Lieberfarb and I was giddy with anticipation.
I still have that first box of DVDs from Warner — and damn if those DVDs don’t still look good, even on the pricey new Ultra HD TV with HDR in our bedroom.
Long live disc!
Back in 1990, when home video — powered by the rental videocassette — was at the height of its glory days, 31-year-old Brian Roberts was given control of a $657 million cable company his father had built.
More than a quarter of a century later, Comcast Corporation is an $80.4 billion company that aside from being the country’s largest cable TV company and home Internet service provider (ISP) is one of the most important players in what we now call the home entertainment industry.
And much of the credit goes to Brian Roberts, now company chairman and CEO, who is being honored this year with Home Media Magazine’s 2017 Visionary Award.
He’s the latest in a series of honorees dating back to 2002, when Warren Lieberfarb, the father of DVD, received the same honor. Other honorees have included Sony Pictures’ Ben Feingold, Samsung’s Tim Baxter, and Walmart’s Louis Greth and Chris Nagelson
Roberts, like our other visionaries, understands the critical importance of giving consumers as many choices as possible to enjoy their entertainment, even it means breaking tradition and disrupting existing business models.
Under his direction, Comcast has spearheaded home entertainment content distribution on the Xfinity X1 platform.
Comcast in 2013 became the first pay-TV operator to sell subscribers digital movies, a move that quickly catapulted the company into the ranks of top
electronic sellthrough (EST) platforms, alongside iTunes and Amazon Instant.
As Michael Bonner, EVP of digital distribution for Universal Pictures Home Entertainment told Home Media Magazine, “Comcast’s 2013 entrée into EST was an unequivocal game changer for the digital sellthrough market. Overnight, Comcast took its place among the industry’s top digital retailers.”
Comcast added access to Disney Movies Anywhere in 2016, strengthening its position in the EST market even further.
Late last year, Comcast and four studios announced the launch of enhanced, mutable movie extras on electronic sellthrough titles on X1 — a key step in
improving the consumer offering for EST titles.
The company has also embraced direct access to streaming kingpin Netflix, regarded by most cablers as Enemy No. 1. “We got off the rails in the Time
Warner deal,” Roberts told Philly.com in November 2016. “I wanted [Netflix chief Reed Hastings] to know that we believed Netflix was important to the ecosystem. I asked him what it would take to hit the reset button.”
The reset button was officially hit on Nov. 4, when Netflix launched on Comcast’s X1 cable set-top box. As Philly.com observed, “The new service broadens consumer appeal for their respective services and helps Comcast with federal regulators who say that pay-TV
companies should integrate traditional TV and streaming services on set-top boxes.”
It’s that openness to unconventional ideas, that willingness to take risks and shake up the status quo, that has played a key role in Comcast’s success, not just with home entertainment, but overall.
It’s also why Home Media Magazine is honoring Roberts as the 2017 Home Entertainment Visionary.
A changing of the guard often indicates further changes are ahead — and, invariably, we’re not talking minor tweaks but, rather, dramatic transformations of existing business models.
Three of the six major studios have recently undergone leadership changes, most recently Paramount Pictures, where Brad Grey’s 12-year run as chairman and CEO is over. Replacing him, at least on an interim basis, is a committee of executives that includes Amy Powell, president of TV and digital.
The new studio heads will likely be more open to change, and less averse to risk, than their predecessors — particularly if more studios wind up being owned by digital networks, like Comcast’s NBC Universal and, soon, AT&T’s Warner Bros. And all signs point to a dramatic shift in Hollywood’s venerated business model, which has always been “theatrical first.”
The validity, and continued viability, of a system in which movie theaters are at the top of the food chain has been questioned for some time. The advent of home video showed us plenty of consumers preferred to watch movies at home, and the rise of Netflix made it even clearer that home truly is where the heart is. The streaming service now generates nearly as much consumer spending as disc and digital sales of movies and TV shows combined — all without the benefit of recently released theatrical movies.
It’s no wonder, then, that for several years now the big talk in Hollywood has been significantly shortening the window between a film’s theatrical and home release — or even erasing it altogether (see page 11). In the not-so-distant past, such talk would have been seen as blasphemous, an affront to the all-powerful exhibitors.
But the old-school studio chiefs are pretty much gone, and their replacements are a lot more pragmatic. Kevin Tsujihara, whose selection as Warner Bros.’ studio chief four years ago stunned observers, given his home entertainment background, has been clamoring for years for a shakeup. Just this past November, Tsujihara at Credit Suisse’s Technology, Media & Telecom Conference said he considers it “imperative … to offer consumers more choices earlier.” And James Murdoch, who less than two years ago replaced his dad at the helm of Fox, ticked off the National Association of Theatre Owners last September when he blasted the “crazy holdbacks that theater owners put in place,” referring to the traditional 90-day window between a film’s theatrical debut and its first after-market appearance.
So far, however, there’s been lots of talk, but little action. It’s been sort of like a Cold War between the studios and the exhibitors.
But just like the real Cold War more or less ended with the toppling of the Berlin Wall, there’s going to have to be a break, and soon. Consumers have grown accustomed to being in control of their entertainment, of watching movies on their own schedule, in their own environment — and there’s no telling how much money is being left on the proverbial table because of this silly 90-day window. Each year, fewer people are going out to the movies. Never before have we had so many different choices, so many different platforms — from Netflix to YouTube, from iTunes to Google Play, from elaborate home theater setups to iPads and smartphones. And if first-run movies aren’t available, guess what? There’s lots of other stuff to watch.
By continuing to cater to exhibitors, studio executives are only shooting themselves in the foot. It’s time to not just shake up the existing business model, but also turn it upside down, inside out. It is imperative that Hollywood offer in-home delivery of movies (at a premium price, of course) during the so-called theatrical window — and, perhaps, not just one month out, or even one week out, but same day.
Will it happen? You can count on it. It’s not a question of if, but when.
This is the year when the home entertainment industry’s creative juices really need to get flowing.
For years, the ongoing fight to get people to buy movies, TV shows and other filmed content has become increasingly difficult.
The struggle began when the industry was born, with studios fighting retailers over the right to rent videocassettes. That battle lost, studios came up with revenue-sharing concepts, which worked fairly well until the emergence of DVD — two decades ago this year — became Hollywood’s silver bullet.
But after plateauing in 2004, the novelty of being able to buy content began to wear off. The launch of a high-definition successor was marred by a bruising format war as well as the realization that consumers aren’t going to re-buy their libraries just because a marginally better disc is now available.
At first, sales growth slowed; then, it became a rapid decline, with the rise of Netflix and streaming. Studios presented an “electronic sellthrough” alternative to the subscription-streaming model, but it was slow to take off; early windows gave EST a temporary push but double-digit gains came to an end in 2016, prompting everyone to wonder, “What now?”
Studios should be encouraged by one unheralded statistic from 2016: While EST sales growth did, in fact, slow to the single digits, electronic sales of newly released theatrical films shot up a robust 20%, underscoring my long-held contention that the buying habit among consumers isn’t dead — you simply need the right content.
The problem is, studios came up with a great idea — releasing films electronically two or three weeks before the disc — back in 2009, when the concept was first tested, but have done little tweaking since. Why isn’t there tiered windowing, with consumers able to buy movies electronically even earlier, at a premium? How important is local ownership, enabled through a mechanism such as Vidity, and are there ways to better exploit this option? What about extra content — for years we’ve hailed such tried-and-trues as deleted scenes, making-of documentaries and filmmaker interviews, but can’t we take this concept to the proverbial “next level” as well? And, as Walt Disney Studios has shown with Disney Movies Anywhere, retail partnerships and a seamless transition into the living or family room is critical.
At the same time studios aggressively seek to boost electronic ownership, let’s not forget about the disc. Yes, DVD sales are falling, fast, but Blu-ray Disc sales are holding up remarkably well — and we now have a new format, Ultra HD Blu-ray Disc, that we need to be crowing about in a loud and clear fashion. Let’s not muddy the waters and confuse the consumer with too many names, and too many logos — pick one and stick with it. And then market the hell out of Ultra HD Blu-ray Disc being far and away the best way to view movies outside of the movie theater, focusing on that single, salient point.
The new year, 2017, will only be as good as our industry makes it.
Well, it’s been an interesting year again, hasn’t it? Last year ended with disc sales way down and everyone looking to electronic sellthrough as our industry’s great hope. This year is ending with disc sales remarkably robust and lots of excitement over the new Ultra HD Blu-ray Disc format. Meanwhile, EST sales growth has slowed to the single digits and studio heads are scratching their heads and wondering whether the novelty of early release windows has worn off.
The EST situation certainly is a pickle. It was never a huge segment of the business, primarily because of waning interest in ownership as well as the economic model. We have become a nation of streamers, first with music and now with movies and TV shows; we don’t necessarily want to own things, just borrow them for a while. Compounding matters is the inherent difficulty in getting consumers to spend even $10 on a movie when the same amount of money buys them an entire month of unlimited Netflix access.
On top of that, there’s the lack of something real — a download simply doesn’t have the appeal of a physical product you can look at, touch and display.
Now, I happen to think there are ways to invigorate EST sales and looking ahead to 2017 I think we are going to make substantial progress. I foresee a new platform to replace the fractious UltraViolet as well as more wow-factor Digital HD releases like Suicide Squad (the digital edition came with both the theatrical and new extended cut of the film, and that’s just the beginning).
Meanwhile, I also predict a renewed effort by the studios to nurture relationships with retailers, both physical and digital. The disc business needs to be carefully tended, and as studios have focused their efforts on EST they have perhaps paid a little less attention to retailers than they should. Data analytics is a wonderful thing, but so is the personal relationship, the phone call instead of the group email or text. Two decades ago, retailers were stunned when studios effectively shoved VHS out the door. Looking back, it could, and should, have been a much slower, and potentially more lucrative, death.
At the same time, distribution channels must be broadened and the search for marketable, ownable content widened. Defying conventional wisdom, Sony Pictures scored big with “House of Cards” even though it had already streamed on Netflix. How many other opportunities like this are out there?
It’s time, high time, to get down to business.
As we were working on this year’s Movers and Shakers, a listing of the home entertainment industry’s key leaders, motivators and innovators, virtual reality came into my life in a big way, with the arrival of the Sony PlayStation VR.
The moment I put on the headset while my youngest, Hunter, slipped the demo disk into the PlayStation 4, I realized this was not just another quirky fad like 3D. I also realized we are in the very early stages of VR, with so many promises, so much potential, floating in the air above us that try as we might we simply can’t grasp — yet.
Indeed, in one of the virtual worlds on the demo disk I was in a real-life horror show with a demented carny barker I wanted badly to punch in the face — but I couldn’t reach out and do that, even with the Move motion controllers in my hands.
For now, there are still plenty of limitations, but as you roam through the virtual world and look around you, your eyes begin to open to not just the remarkably life-like surroundings but also to the vast store of possibilities that inevitably will come in the future, brought to us, no doubt, under the watch of many of the movers and shakers profiled in the November issue of Home Media Magazine.
For now, VR is the next step in gaming, an interactive, immersive experience that puts you inside a video game. Playing Batman Arkham will never be the same — in the VR version, I am not manipulating Batman, I am Batman, and the horrific opening scene in which young Bruce Wayne’s parents are brutally murdered in a dark alleyway becomes a truly nightmarish experience. (I did, in fact, dream about it the following night; I don’t remember much but it was enough to give me a nocturnal jolt in which I awakened in a sweat.)
Down the road, the possibilities for filmmakers are as daunting as they are appealing — and potentially lucrative. With set storylines, the immersive VR experience will never be quite as, well, immersive as it is in gaming, where you control the action.
But consider a movie where you actually wander into the action — sort of like the creepy girl in The Ring crawling out of the TV screen, only in reverse — and you can look around and see what the characters see. In The Sound of Music, the hills really would come alive, as you look around and take in the breathtaking scenery of the Alps, 360. And in Star Wars, wow — that’s all I need to say.
I can also see movies one day shot in such a way that we can not only enter the action, but also see things from a certain character’s perspective — and through this immersion begin to actually feel what the character is feeling. Imagine the opening scene to Saving Private Ryan — the impact could be immense and filmmaking could be forever changed.
So, yes, I am a big believer in the promise of VR. And thanks so much to the movers and shakers who will play a part in delivering on that promise.
I read an interesting article the other day on the Bloomberg website, from a columnist who argues that content is no longer king.
Shira Ovide, a Bloomberg Gadfly columnist who used to write for The Wall Street Journal, argues that with distributors buying content owners — first Comcast buying NBCUniversal and now AT&T proposing to buy Time Warner — and not the other way around, distribution is now king.
“We’re awash in content,” writes Ovide. “Sure, most of it is garbage, but this ubiquity splits people’s time and money into a zillion pieces. What is scarce is any company that has the attention or money of hundreds of millions or billions of people. Today, those giant human aggregators are distributors … that are the gatekeepers to digital information, communication and entertainment. Own the distribution, and you decide what content matters.”
I’m normally a big fan of Ovide, but in this case I think she’s wrong. I can point to her own argument: Yes, distributors are buying content owners, but doesn’t that underscore the importance of content? It certainly does not diminish it. Distributors know they need content more than anything; no matter how many pipes you have, if they’re empty, they are useless.
AT&T is ready to spend $85 billion to buy Time Warner because it’s the biggest content empire around — and AT&T is out to build the biggest distribution empire.
Ovide maintains that without distribution, content isn’t nearly the draw it once was, thanks to the proliferation of cheap, user-generated content like farting cat or Russian dash-cam videos on YouTube or your neighbor’s rant about traffic on Facebook. “Time Warner’s epic ‘Game of Thrones’ on HBO isn’t a hit unless it reaches people,” Ovide writes. “Today that’s mostly over TV pipes controlled by the likes of Comcast and AT&T’s DirecTV; tomorrow that may be over internet and mobile pipes controlled by the likes of … Comcast and AT&T.”
She certainly has a point. But at the same time, it could be argued that good content will always find its audience — and that audience will use whatever distribution channels it needs to in order to consume that content.
The history of entertainment has been driven by content and consumers’ quest to get it. The more content that became available, the more content we wanted to consume — and in an easier, faster, and better way. In music, we went from records to 8-tracks to cassettes to CDs and then downloads — the latter, a key factor in Apple iTunes’ success. On the filmed-entertainment front, we went from broadcast-TV to pay-TV and now direct-to-consumer streaming — the latter, driving ongoing media consolidation.
Without content, AT&T and Verizon would be content to remain phone companies.
And if content is no longer king, then why are Netflix and Amazon making so much of it?
Another fourth quarter is upon us, and the silence, sad to say, is deafening. The gala parties that a decade ago heralded the release of hot new theatrical features onto DVD and, later, Blu-ray Disc, are a fuzzy memory.
No more Craig Kornblau riding through the streets of Hollywood on a camel (as the former Universal Studios home entertainment president did to promote The Mummy); no more gastronomical feasts where guests are wined and dined as executives talk up the popularity of their holiday season slate (Walt Disney’s Ratatouille).
And those junkets sending media types to New York, even London, for such disc releases as a “Harry Potter” movie, The Godfather and “Seinfeld”? Forget it.
The excitement that preceded the holidays in those halcyon days of DVD and Blu-ray Disc, when sales growth each year was measured in the double digits, is conspicuously absent.
And yet I can’t help but wonder, are we giving up too soon? Disc sales are holding steady. Blu-ray Disc purchases are up. We have a hot new physical format, 4K Ultra HD Blu-ray, that comes close to replicating the theatrical experience — something of a Holy Grail for home entertainment marketers ever since the first VHS cassettes rolled off the assembly line. And the electronic sellthrough business, while hardly a fireball, is slowly but surely gaining ground, as viewers get hooked on a movie franchise or TV series on Netflix and then go to Amazon Prime or Hulu to buy the latest installment.
I know. I recently spent $24 each on the second seasons of “How to Get Away With Murder” and “Scream” (don’t judge). And my kids keep buying movies on Prime as well.
Yes, Netflix is a hungry monster that’s only growing bigger. Yes, OTT is taking over our business. Yes, consumers are spending about half what they did a decade ago on buying discs.
But does that mean we can’t have a single party for one of our fourth-quarter tentpoles? A junket to, say, Las Vegas? Or even a press release touting first-week sales, complete with a studio president quote about what an achievement it is?
We need to breathe some life into this business. There’s a lot to show, a lot to tell. But we can’t very well expect consumers to get excited about our business if we keep shaking our heads and wistfully reflecting on the good old days when the latest “Shrek” broke all sales records.
Let’s put some fun, some energy, some excitement back into the business. The fourth quarter begins Oct. 1. Come on, Hollywood — don’t let me down.
This is the ninth year that we are honoring the women of home entertainment, and I am both gratified and disappointed that we’ve been doing it so long.
Gratified, because on a national level much progress appears to have been made. For the first time ever, we have a woman presidential candidate nominated by one of the two major political parties to be our next commander in chief.
And we have more high-profile women CEOs than ever, including the top executives at such celebrated companies as General Motors (Mary Barra), IBM Corp. (Ginni Rometty), and Lockheed Martin (Marillyn Hewson, who since taking over in 2013 has doubled the company’s market cap).
And yet if you dissect the numbers there’s still work to be done on cracking that glass ceiling. In June, Fortune reported that the percentage of female CEOs in the Fortune 500 has dropped to 4.2% — or 21, down from 24 the prior year. This prompted Fortune to observe, “For women at the top levels of American business, it can sometimes feel like every step forward is followed by two steps back.”
Over at the S&P 500, we see a similar sad figure — just 22 out of the 500 CEOs are women, a mere 4.4%. Dissecting the S&P 500 data further, we learn that women account for 44.3% of total employees, but just 9.5% of the top earners — reinforcing the notion that women are still, far too often, paid less than men are for the same work.
Until these statistics change, we are going to continue shining the spotlight on the women of home entertainment — as always a smart, savvy group who continue to drive one of the most significant transformations any industry has ever undergone: the transition from physical media to digital, and the simultaneous technological evolution that brings us closer and closer to a truly life-like image, from standard-definition DVD to high-definition Blu-ray Disc and, now, Ultra HD Blu-ray with high dynamic range and wide color gamut.
I like to think the entertainment business has always been more open than the rest of corporate America to putting talented women in charge of things — big studios, major studio divisions, key departments, critical projects. On the home entertainment front, we’ve set the bar pretty high, going back to the 1990s, with such visionary pioneers as Ann Daly, Kelley Avery and Mary Kincaid.
And over the years the bar has stayed high, thanks to such brilliant strategists as Disney’s Janice Marinelli, Sony’s Lexine Wong and 20th Century Fox’s Mary Daily, along with the many other fine executives profiled in the August 2016 issue of Home Media Magazine.
What I wrote three years ago rings even truer today: “What began as a way for us to honor the industry’s top women executives now reads almost like a who’s who of cutting-edge and visionary leaders who are forever changing the way studios deliver, and the general public consumes, entertainment.”
Here’s to the women of home entertainment, Class of 2016.
Netflix’s latest financial report can be taken in one of two ways. Cynics may read the report, in which the streaming service reported missing its growth projection by 32%, as a precursor of impending doom. They might take issue with CEO Reed Hastings’ assertion, in a shareholder letter, that market saturation in the United States isn’t a factor, and that the slower-than-expected growth was largely a reflection of a price increase in monthly subscriptions — a price increase Netflix badly needed to remain competitive in acquiring, and producing, content. In fact, one might argue that if the U.S. market isn’t saturated, then why bother to raise the price? As for international expansion, growth projections there weren’t met, either.
Cynics see this as a clear indicator that Netflix has some serious headwinds to contend with, headwinds that will only grow stronger as time marches on. The most pessimistic among them believe Netflix is living on borrowed time, and — just like so many trendy products and services, may ultimately shrink (like MySpace) or vanish completely (like Blockbuster, which ironically was deep-sixed by Netflix effectively building a better mousetrap).
Personally, I don’t see much cause for alarm in Netflix’s latest numbers — at least, not yet. Subscription growth may be leveling out, but I don’t see churn increasing significantly anytime soon, as long as Netflix keeps future price hikes in check. It’s sort of like gym memberships — the gyms that charge 10 bucks a month are flourishing because the amount is too small for most people to notice each month when it’s automatically charged to their credit cards or taken out of their bank accounts.
Saturation is a bigger concern, both in the United States and globally. While a flattening out of Netflix revenue would still see the company in serious money, investors aren’t generally drawn to slow and steady. They want growth to continue, as evidenced by the 15% plunge in Netflix’s stock price in the wake of the earnings report’s release.
Another challenge Netflix is facing is competition. Dozens of OTT rivals have sprung up, and Netflix is finding that while its logo is popping up on more and more TV screens, so are those of other services, from Amazon Prime to Hulu. And despite Netflix’s push toward original programming, Netflix fatigue will become a bigger factor over time — which means the company will have to spend even more money on content, money that at some point in time will be harder to cough up.
It’s a classic case of damned if you do, damned if you don’t. Netflix will need to keep raising prices to remain in the game, but it can’t raise prices too much or else subscribers will jump ship and go elsewhere — particularly as the pool of alternatives continues to expand.