A Blockbuster Is Hard to Find

In this week’s magazine, our editors and reporters looked in their neighborhoods for rental options. Most found a Redbox location within easy driving or even walking distance.

Blockbuster outlets seemed an endangered species, only happened upon on accident or via a long freeway trip.
And when our editors were able to get to a Blockbuster, it was a quandary to figure out how much a given rental would cost — though the selection was more broad than the Redbox kiosk option.

It is hard to see a former rental Goliath wane, but time may have passed Blockbuster by, leaving only ghosts like those at the Blockbuster in last year’s “South Park” episode. In the Oct. 24, 2012, episode, one of the kids’ fathers, Randy Marsh, buys a Blockbuster Video outlet for “only $10,000,” expecting to make a killing, only to find his customers are literally ghosts from the 1980s, wearing leg warmers and asking for films such as Turner & Hooch.

Whether Blockbuster is an anachronism or not, Redbox has taken steps to make sure its shrinking store footprint is filled. Our editors found Redboxes where there were formerly video stores, such as Blockbuster. The kiosk giant has skillfully filled in, and taken over, the disc rental market as Blockbuster has pulled back.

While our selected visits to Redbox and Blockbuster outlets may not paint the entire picture for the physical rental market, I think the exercise certainly points the way to — and points out — the successes and failings of the current physical rental landscape.

I hope you learn something (and perhaps get a chuckle or two, as I have) from the staff accounts we have supplied. The home entertainment rental business has changed a lot in the years since its inception around 1980, but one thing remains the same. Consumers are always looking for something to entertain them, in a convenient, wallet-friendly package. Whether it be Blockbuster or Redbox or a digital offering such as Netflix, or a disc or digital copy they own, consumers are looking for their own version of a “Blockbuster Night” that doesn’t break the bank.

Studios Are the King Makers

Netflix executives, during the past month or so, may have been wishing all the attention were still focused on their old nemesis Blockbuster. As long as Blockbuster was around, Netflix looked like the new, younger kid; the cool kid; the entrepreneur; the next big thing. Netflix represented the future, Blockbuster the past.

Unfortunately, Netflix had to grow up sometime, and its growing pains are starting to show in the company’s stock price, which has dropped precipitously as it has raised subscription prices to offset greater costs and grow its streaming business internationally.

There are a lot of advantages in being the new phenomenon on Wall Street, which is looking for outsized growth, even if it does come by undercutting an older, established business weighed down by debt like Blockbuster. While Blockbuster struggled to move with an enormous debt shackled to it, Netflix could bob and weave and build a better rental mouse trap, one that didn’t involve cumbersome real estate or a debt load and that got great pricing on streaming licenses from content holders who had not yet realized what streamed content was worth.

Now the entertainment landscape has shifted, and Netflix is in the spotlight. The company can’t get the kind of pass offered to new ventures; it will have to grow and prosper under the weight of expectations — and new, higher licensing fees for streamed studio content.

Oh, for the good old days when Blockbuster took much of the heat, Netflix executives must be thinking. But those days may be past for Netflix, which may now find out that the studios can be king makers in the distribution pipeline. Content holders favor whichever distribution avenue will offer them the most profit, and will wring ever more money from distribution pipelines that use their content.

Content is king, and the studios that own it can make or break a distribution partner. In the case of Netflix, I think executives may be finding out they have more in common with Blockbuster and other past studio distribution partners than they thought. Just as Netflix overtook Blockbuster, there are competitors in the wings targeting Netflix.

Why Is Blu-ray Quality Overlooked?

Last week I wrote a column about the loss of quality in the digital delivery realm, and since then I’ve received some assenting feedback.

“I agree with you 100%,” said one respondent. “I’m in the custom integration business and I have to spend time with each customer explaining to them the quality difference between streaming and Blu-ray. Sometimes I get the glossed over look when people think disc is dead and streaming is high-definition. It’s a war and the Blu-ray disc Association, Hollywood, etc., had better treat it that way. My kids have no problem with physical media so I know that isn’t a stumbling block.”

Others chimed in as well, pointing out the compression of digital files.

My question is: Why isn’t the industry doing more to drive home the quality of Blu-ray as opposed to the current state of digitally delivered files?

Last month we published a comprehensive white paper on Blu-ray Disc at 5, extolling the format’s quality and continued growth despite the headwinds of a terrible economy and a worthy predecessor in DVD. We, as an industry, should be doing more of that.

The digital delivery market naturally will have a cheering squad on Wall Street that is willing to repeat over and over again, “Disc is dead! Disc is dead!” After all, investors are always looking for the newest thing and tend to shun established and mature businesses. They just aren’t as exciting and won’t produce the kind of outsized stock growth that Wall Street craves.

But their (somewhat self-interested) enthusiasm for digital delivery doesn’t mean Blu-ray isn’t the best way to see a movie in the home.

Recently, I discussed this question with an industry observer who noted that many catalog titles actually are doing quite well on Blu-ray. He, too, wondered why the industry isn’t putting more effort into pushing and growing the market for the format.

Certainly, these aren’t flush times at many studios, which have instituted layoffs in recent weeks. But not promoting a quality, growing product won’t make things any better. There’s only so much cost-cutting studios can do to boost the bottom line. I agree that selling catalog at a hefty price to streaming services that go to consumers’ iPads and cell phones will help plug the profit hole, but so will selling consumers on the big-screen quality of Blu-ray.
 

Entertaining Ownership Again

In recent years it has become more fashionable to rent rather than to own. The dream of an “ownership society” has turned into a nightmare, with consumers tied down to underwater homes or losing them to foreclosure.

At the same time, consumers have become less committed to owning entertainment. Rental services, such as Redbox kiosks and Netflix, grew as consumers became less interested in plunking down $10 to $25 to own a DVD or Blu-ray Disc. They instead looked at inexpensive $1 rentals at kiosks or (until recently) $10-a-month subscriptions to Netflix as the more economical and useful way to keep themselves entertained.

But there are disadvantages to the rental model. As with a rented house that you can’t paint bright orange, renting or streaming titles constricts consumer options. Redbox and Netflix don’t offer the perfect catalog for each individual. They are not customized collections. The offerings are limited by studio deals, windows and, indeed, whether or not someone else may be first in line to get a particular title. In the case of Netflix, consumers via their subscription are paying for a whole lot of streaming titles they never will want to see. Such as in the cable business, they don’t have an a la carte option.

Owners have the advantage of possessing just the content they want. They buy their favorite movies and can access them at any time, either via disc or — as is the hope with the studios’ newfangled digital locker UltraViolet — digitally via the cloud.

Ultimately, ownership is a very efficient way to get consumers the movies they want. Until now, the only way to have that custom collection was to buy discs. The studios are hoping to make that ownership option more palatable in the digital realm via the fully interoperable ecosystem of UltraViolet. No more wondering if your digital copy will play on a particular device. No more disappointment when Netflix or Redbox doesn’t offer your favorite comedy.

Consumers don’t really want to watch any movie any time; they want to watch the movies they want to watch any time. And ownership that extends to the cloud, if it lives up to its promise, may be the best solution for that

A Salute to 2017's Women in Home Entertainment

In this issue, Home Media Magazine presents its annual salute to the top women in the home entertainment industry. Women executives are making decisions about how to reach the consumer on the many and various platforms and formats available in the market today — from 4K Ultra HD to Blu-ray Disc and DVD to transactional EST to streaming and virtual reality. They are leaders at the major studios and the independents, in physical and digital retail markets, in the home entertainment distribution chain, and in making that supply chain more efficient.

Every year, I am impressed by the quality of the honorees. They are truly helping to drive the home entertainment business and are integral to the industry’s success. In covering these remarkable women, I am struck by their wide range of expertise. They work on everything from the packaging for physical media to marketing via traditional and new media to content licensing and creation to legal and financial issues.

Women are indeed the backbone of the home entertainment business, and they are focused on satisfying the home entertainment consumer, wherever and whenever they would like to access content. Sony’s Lexine Wong looks to “keep the consumer engaged” in a panoply of entertainment options. Disney’s Janice Marinelli said she is “always looking for effective and convenient ways for consumers to enjoy” content. HBO’s Sofia Chang is focusing on “continuing to expand our subscription and transactional offerings.” Redbox’s Sonia Jain is concentrating on “improving our context mix and assortment.” Amazon’s female executives are both obtaining more content and finding new ways to deliver it via Fire TVs and Alexa. Each executive is keeping her eye on the consumer.

The job of the home entertainment executive has perhaps never been harder and these women are in the trenches, looking to move the business forward via technologies old and new. They are not only dealing with new distribution models but also with new forms of home entertainment, such as virtual reality.

Here’s to the women in home entertainment, an impressive group that spans every segment of the industry and contributes mightily to its success.

Ode to the Retailer

This week, we honor the top 10 retailers in the business as chosen by Home Media Magazine research. We also recognize five other retailers to watch for their innovation and commitment to the industry.

Much of the year, we concentrate on content and how it is being delivered. We highlight the companies that deliver it in ever-varying forms, from physical to digital, from standard to high-def to Ultra HD with high dynamic range. These companies are contacting and engaging with consumers, who after all determine the size, shape and future of our business.

Content may be king, as evidenced by digital services such as Netflix, Amazon and many others creating their own content. But ultimately, it’s the retailer that attracts and engages the consumer in discovery of content. When a typical family decides to look for something to watch on a free night, it’s the retailer that helps them locate the content that will excite them.

“Since its beginning, the delivery of home entertainment to the consumer has been about convenience and value,” noted Mark Fisher, president and CEO of the Entertainment Merchants Association, in our special section. “While what constitutes ‘convenience’ and ‘value’ has changed over time, that essential fact remains. Each of these retailers is successfully serving a segment — in some cases several segments — of the home entertainment market by providing their particular formulation of convenience and value to consumers.”

While delivery of home entertainment in all its forms is more diverse than ever, the job of contacting the consumer and offering convenience and value has become complicated as well. So we salute the retailers, both digital and physical, that are serving the tastes of various consumers, wherever, whenever and however they choose to get their entertainment.

“Bold retail innovation among our physical and digital partners this past year has served to significantly elevate our category,” said Eddie Cunningham, president of Universal Pictures Home Entertainment.

The industry’s retail partners are stepping up to push the business forward, with better delivery and marketing, meeting the challenge of a choosy consumer.

Events Mark Both Change and Legacy of Our Industry

Over the past month or so I’ve attended and reported on events that highlight the enormous change and legacy of our industry.

I interviewed longtime video veteran Mark Vrieling about the closing of his last rental store after nearly three decades in the business. He said he held out as the great majority of video stores closed by offering a deep catalog — which I think is something the industry should heed as we go digital.

Jodie LeVitus Francisco May 8 organized a video industry reunion in Calabasas, Calif., to bring together many of the executives that have passed through this business over the years. Our coverage of the event was heavily viewed and liked online. It was nice to see those I still work with and those who have moved on or retired, but still have a soft spot for the video industry.

“Video stores may end up as just a footnote in the history of the movie business, but I think the footnote will be a high point in the history,” Vrieling told me. “It was a time when pretty much any movie ever made was within reach of anybody. Even small towns and suburbs like mine had tens of thousands of titles available to customers.”

It also helped spawn digital goliaths such as Netflix. Many outside of this industry don’t know or remember that Netflix’s Ted Sarandos got his start in the entertainment business at a video store. The business also pushed Netflix CEO Reed Hastings to offer discs by mail after suffering a video store late fee. Even the famous video clerk recommendations immortalized by the sitcom “Seinfeld” have transitioned to the digital world with the recommendation engines at Netflix, Amazon and other online retailers. Marketing tie-ins long practiced by this industry are mirrored in practices at digital retailers such as Fandango, which offers licensed merchandise and videos of franchise predecessors to moviegoers who purchase tickets for the latest blockbuster in the theater.

Fandango president Paul Yanover, in receiving an award for leadership in the industry from the Entertainment Merchants Association May 19, professed optimism about home entertainment. His company has created an integrated digital network that serves consumers throughout the movie lifecycle, from theatrical tickets to premium on-demand video service FandangoNOW.

Yanover noted Fandango is “a newbie” in home entertainment, but added, “We truly believe there’s a massive opportunity.”

While certain iterations of the industry may wane, their legacy lives on in the digital realm and in a business that continues to bring an enormous amount of content, on demand, to the consumer.

Traveling Back in Time With Our Digital Drivers

It’s been an exciting ride since we first produced the Digital Drivers section in the spring of 2011. In that issue, my colleague Thomas K. Arnold noted that Time Warner CEO Jeff Bewkes thought Netflix would remain a small player without the valuable content from the studios. “Is the Albanian army going to take over the world?” he quoted Bewkes as saying in an interview. “I don’t think so.” Nevertheless, we highlighted Netflix CEO Reed Hastings as a high-level digital strategist, along with Warner’s Kevin Tsujihara, who would later use his digital prowess to become head of the studio. We also anticipated a new digital locker called UltraViolet, which was to provide an avenue for consumers to collect titles digitally in the cloud.

What a difference less than a decade has made in our view of the digital landscape!

Netflix is making its own valuable content, which competes alongside studio content at annual awards ceremonies. The little online service that started with by-mail disc rentals to combat late fees is now a movie and TV series producer that leads the subscription video-on-demand market.

UltraViolet, later grouped into the Digital HD category, is but one of the services in an EST marketplace that includes Disney Movies Anywhere, that studio’s own locker service. Indeed, electronic sellthrough is a growing, vibrant part of the studios’ home entertainment business, but it is still a work in progress, as executives look to offer consumers a superior ownership experience digitally with extras and easier interfaces.

Digital Drivers and services have come and gone. Redbox’s Mitch Lowe was in that first section in anticipation of the kiosk company’s move into digital delivery. Ultimately, Redbox found it better to focus on the good old disc. Netflix executives Reed Hastings and Ted Sarandos, also featured in that first section, have become perennial Digital Drivers, and Walmart’s Vudu service, noted in 2011, is now a primary player in electronic sellthrough.

It’s been an interesting seven-year journey, with many twists and turns along the way. Even Netflix faced some headwinds, taking a big hit on Wall Street when it raised prices and later when the companies that delivered their heavy traffic pushed back and asked them to pay extra.

Where the road for our Digital Drivers goes in the future is likely to change as much as it has since that first section in 2011.


 

Looking to the Past and the Future

This magazine in its nearly 40 years has seen formats come and go, navigating changes along with the industry. This month, we celebrate the 20^th anniversary of the optical disc (DVD launched in America in 1997) and its continued vibrancy. We also investigate virtual reality, a new format that the studios are just starting to explore. Meanwhile, we continue to report on the growth of white-hot digital delivery services and the increasingly award-winning and popular original content of such outfits as Amazon Prime and Netflix.

This industry has of necessity had to shift with the formats. Director Ivan Reitman, who worked on the Ghostbusters VR experience, likened making the 360-degree product to the early days of silent film, when directors were figuring out if audiences would understand and react well to a close-up. If viewers have the agency to look wherever they want in VR, how does a director tell a story? That’s just one of the questions facing the new format. Sony’s Jake Zim said the business plan for VR products also is in the embryonic stages — what to charge, what activities viewers will enjoy, what environments will be most conducive to VR are all under review as the studio dips its toe into this new medium.

As DVD launched 20 years ago, it faced uncertainty as well. Would the collector embrace the sellthrough-priced format and buy movies and TV shows to put on the shelf like books? It turned out to be an enormous success, and two decades later DVD and its successors are still spinning revenue for the studios. With the advent of Blu-ray Disc, it has adapted to high-definition and 3D and 4K Ultra HD with high dynamic range to deliver ever-better quality picture and sound. It’s been such a flexible format that today it still accounts for the lion’s share of U.S. home entertainment revenue. The arrival of TV DVD even helped create the binge-watching consumer that now ravenously watches episode after episode on streaming services such as Netflix and Amazon Prime. Before streaming, consumers learned to binge on disc series sets. The disc also created a whole new way to appreciate the content, spawning director’s commentaries, making-of documentaries and other extras that brought viewers into the process of making entertainment.

So here’s a toast to the past and to the future. May the legacy disc format continue to impress as it adapts to 4K UHD with HDR, and may new formats continue to entertain as well as the disc has for two decades.

A Flexible Vision for Home Entertainment

This year’s visionary is emblematic of the change the entire home entertainment industry is experiencing. Comcast’s Brian Roberts is straddling a legacy cable business while embracing a new digital delivery model.

Whew! It’s a hard task for an executive to keep one foot in the past and one in the future — but Roberts seems to be up to it. He is maintaining the cable business and sees the need for electronic sellthrough with expanded digital extras, but also recognizes the subscription video-on-demand draw of Netflix. The future will need such a flexible executive — as it’s unclear where the future home entertainment consumer will go.

Along the lines of that theme, the studios are rethinking their vision of the theatrical window. 20th Century Fox CEO Stacey Snider told a tech confab the issue is at the forefront of studio conversations. Kevin Tsujihara, CEO of Warner Bros., has broached the subject as well.

Exactly when does entertainment enter the home? Is there are window between initial theatrical release and Digital HD/disc release? What is the consumer demand for that release window based on the film? And how much should a studio charge?

These are all questions to be answered as we enter the new realm of home entertainment, which is more elastic than ever. It requires a very flexible executive, one that knows the legacy business but also understands where the consumer is going. Roberts has been that kind of leader, a visionary that can adapt to a changing market. The home entertainment industry will need many more like him to follow consumers who demand entertainment when and where they want it.

“Ultimately, it’s not really about the business model per se, it’s about giving consumers what they want,” Tsujihara said on a fiscal call.

I agree.