Lessons From the Next Generation

I feel vindicated. For months, I've been railing against analysts' projections that electronic sellthrough will be The Next Big Thing and ultimately banish packaged media, regardless of the Blu-ray Disc, into the hinterland of failed technologies.

Now, a new study suggests the downloading phenomenon that turned the music industry on its head may not be on the threshold of an encore.

The study from The Convergence Consulting Group Limited of Toronto predicts miniscule sales gains for download-to-own films and TV shows over the next few years. It also notes that average per-movie download sales through Apple's iTunes, the king of the hill in the electronic sellthrough universe, actually slipped in the last year, from 13,000 in 2006 to 10,000 in 2007.

That jibes with what I am hearing from my own kids, three boys between the ages of 5 and 12, who according to the vaunted cadre of know-it-all analysts represent the next generation of consumers — a group they say has no interest whatsoever in packaged media and will flock like lemmings to the Internet for all their entertainment needs.

Tell that to Justin, Conner and Hunter. The two older boys are avid downloaders of music, preferring to buy tunes they know and love for 99 cents each from iTunes rather than fork over $12 or $15 for a CD of one or two favorite songs and a dozen or so unknowns.

But when it comes to movies, they are DVD and Blu-ray all the way, rationalizing that it makes absolutely no sense to buy a movie over the Internet for $20 or even $12 when for the same capital outlay they can buy a pre-recorded DVD of the same movie with a far better picture, surround sound and a wealth of bonus materials.

And make no mistake: Bonus materials are a definite selling point, even to kids like Justin and Conner, who absolutely loved the making-of featurette on 20th Century Fox's Hush, Hush Sweet Charlotte — so much so that the next day they demanded to see Whatever Happened to Baby Jane?, the film in which the behind-the-scenes feud between Bette Davis and Joan Crawford prompted aging movie queen No. 2 to drop out for the second go-round, with Olivia de Havilland taking the part in Charlotte originally pegged for Crawford.

As for 5-year-old Hunter, his response to the question, “What do you want for your sixth birthday,” really says it all.

“A Blu-ray player for my room,” he said in all seriousness.

He'll probably get one.

The Trials and Tribulations of Blockbuster

Unlike Wall Street, which considers Blockbuster Inc. an overstated 1980s relic whose relevance has been usurped by Netflix, digital distribution and sellthrough, I still like the rental giant.

But Blockbuster's latest moves are more head-scratch inducing than the last M. Night Shyamalan movie.

The company continues to generate millions in revenue (and occasional profit) despite questionable strategies and ongoing efforts by electronic distribution and some studios (Warner Bros.) to silence DVD rental.

Former Time Warner CEO Richard Parsons couldn't have been more succinct when he said it would be a “cold day in hell” before he visited a video store.

That made me want to renew my Blockbuster card.

But when online rental pioneer Netflix deftly created DVD-by-mail, Blockbuster responded with all-you-can-eat Total Access and ad spending (see Jessica Simpson and the Super Bowl) only a lunatic would greenlight. Consumers responded — Blockbuster suddenly had 3 million subscribers. But at a cost. Blockbuster had spent money like it was printing C-notes, and former CEO John Antioco appeared to be burning the candle at both ends — or was it dynamite?

Then the board came to its senses and new CEO Jim Keyes promised a return to normalcy, saying the video store — not online — would again be the epicenter of packaged media. He should know. Keyes once convinced consumers to pay airport prices for produce at 7-Eleven.

Keyes did pull a coup last week announcing plans to bow in-store displays with partner studios eager to jump-start Blu-ray. Then came scuttlebutt Blockbuster was contemplating a proprietary set-top box. And now it wants to buy troubled Circuit City for nearly $1.4 billion.

Keyes should remember that Blockbuster once considered spending that much to outbid Movie Gallery for Hollywood Video. A quick call to Joe Malugen, CEO of bankrupt Gallery, would no doubt set him straight.

Keyes also ought to know that Apple TV, Vudu, Akimbo TV and MovieBeam are just the latest unsuccessful attempts to distribute entertainment from the Internet to the TV via $200 boxes.

Another set-top box? Oh, thank heaven. Maybe Blockbuster could next deliver video via the Slurpee machine.

Latino Market Thrives on Community

I always look forward to our annual Latino DVD conference — ably led by our own Angelique Flores — because it's like a family reunion. Invariably, a panelist will opt to give me a hug, rather than just shake my hand, after a presentation. There is a feeling of camaraderie that you don't always find in entertainment industry gatherings.

This year, it was clear that the Latino market is an established part of the home entertainment industry. The studios continue to view the segment as integral to the business. For instance, Warner includes David Hernandez, director of multicultural marketing, in many decisions on marketing major studio hits.

But while the Latino home entertainment market is established, it continues to work hard to maintain its shelf space with retailers, panelists said. Pricing and placement are important in the battle to reach the audience.

Comments at the Latino conference point out the shifting nature of the business at large. While the overall home entertainment industry tries to navigate the mature DVD market and another format change, the niche, or more focused, players are trying to do the same thing with a more-targeted product. The variables in marketing and selling a Latino release are in many ways more complicated, by issues of age, regional preference and language. Latino product often must find its audience in static or shrinking shelf space filled with a sea of big-budget studio films, and, increasingly, Blu-ray Discs.

Still, there is a rabid and growing audience.

Consumers on a panel at the conference all said they were hungry for more Latino home entertainment, looking for treasures online or at mom-and-pop Latino stores when big-box retailers don't satisfy their interests.

I'm sure the Latino home entertainment industry will continue to find a way to reach that audience — together.

Conference guest entertainer Alex Reymundo — and winner of the Best Stand-Up Comedy DVD award for One Funny Hick-spanic from Vivendi Entertainment and Salient Media — noted in his routine that Latinos don't often travel alone. That united, familial spirit has served the Latino home entertainment market well, and will continue to serve the business in the future.

Welcoming You to Our Screening Room

I had a most interesting chat the other day with the home entertainment president of one of the six major studios. He told me that Home Media Magazine and its suite of products has become not just a selling tool for his studio, a vehicle for his sales team to reach its retail customers, but also as a trusted source of information for his staff. “There's so much going on, especially in the digital, Internet space that at times we are overwhelmed,” he told me. “We look to you to not just report the news, but also to filter out what's important and what's not, so that by reading your magazine, your daily news blast and your Web site, we can get a better handle of what's going on in our business and make sure we stay on track.”

That was gratifying to hear because our mission here at Home Media Magazine is to provide all of you involved in the business of bringing entertainment into the home with the necessary information, tools and resources to better run, and continually enhance, your own businesses — regardless of whether you are a supplier, a retailer or a distributor; or a journalist or analyst covering home entertainment.

We see our print magazine as the mother ship, the Bible of the home entertainment business, a weekly news and research compendium. Our Web site is a continually updated refresher course; our daily news blast, a quick morning “cheat sheet” designed to keep up you up to date on the latest news as it happens.

The newest addition to our stable of products is the Home Media Screening Room, featuring trailers of upcoming DVD releases. I believe it's the only video Web site devoted exclusively to new DVDs currently in solicitation — a great way to separate the wheat from the chaff that you simply don't get on YouTube or all the other video Web sites. We're hoping our Screening Room will become an invaluable tool for both retailers trying to decide what to bring in, and for consumers trying to decide what to buy or rent.

As icing on the cake, we have a whole channel devoted to exclusive content, video clips that augment our regular news coverage. You'll find everything from snippets of our conferences and awards presentations to coverage of press conferences, from highlights of our first-ever High-Def Disc Awards to Warner Home Video's George Feltenstein talking up the studio's 85th anniversary DVD campaign and director Ridley Scott on American Gangster.

If you haven't already done so, check out our Screening Room — and let me know what you think.

Pity the Plight of the HD DVD Player Owner

I feel bad for my sister, I really do.

When the format war abruptly ended, instead of being excited that her brother's magazine had broken the news, Holly was actually pretty peeved. I had ruined her week. Maybe her month.

She and her husband have an HD-A3 HD DVD player and nearly 150 HD DVDs to play on their giant HDTV. They love the better picture and crisper sound. Like many HD DVD owners, you won't find anything that says Blu-ray Disc in her home. In a few years, those HD DVDs that aren't combo discs will be good for nothing.

“It's a bummer,” she said. “We aren't planning on getting a Blu-ray player anytime soon.” Sure, she got her high-def collection started with the help of family members who cover the industry, but she's a good example of the second-biggest problem now facing Blu-ray.

Most of the early adopters out there picked a side and were not format agnostic. Investing in two players and picking up high-def discs in two formats was too big an investment and hassle for most.

And those who chose HD DVD won't be quick to jump on board with Blu-ray. Profile 2.0 players are just emerging and still remain roughly three or four times as expensive as the cheapest HD DVD offering. Blu-ray movies were generally more expensive than their HD DVD counterparts. And many who picked HD DVD did so for the same reason others picked Blu-ray: They found fault with the other format.

We can identify Blu-ray's biggest problem with ease: satisfaction with DVD. Convincing the general movie-watching public to start upgrading their home-viewing experience will be an uphill battle, even with one clear choice.

But the next obstacle is convincing those consumers who sided with HD DVD that it's OK to let go of The Look and Sound of Perfect, and accept that The Future is Blu. And that's not going to be an easy task.

As for Holly, she'll likely wait until a Blu-ray player hits under $100 before she makes the leap. Until then, she'll just have to hope her “upconverting DVD player” holds out as long as possible.

Theaters Battle Comforts of Home

Theater owners' growing commitment to newfangled 3-D and to ever more elaborate (and more expensive) movie theaters is a testament to the popularity of home media.

Just last week a group of investors, led by Australian entertainment conglomerate Village Roadshow, announced plans for an ultra-high-end theater chain, offering plush seating, upscale food and beverages, waiters and special parking privileges for the eye-popping price of an estimated $35 a ticket.

Watch a DVD — or better yet, a Blu-ray Disc — in your home theater, order out from your favorite restaurant, and you can get all that (albeit sans waiters) and perhaps not even have to park the car.

Certainly, a home theater may not completely compare to a movie screen, but it's getting close. That's why theater aficionados are looking to make the movie experience more like home.

Another scheme to increase the ever-dwindling theater audience — one loudly championed by DreamWorks' Jeffrey Katzenberg — is the new 3-D. It's touted as a step above the old headache-inducing, blue-and-red-glasses technology. However, it still requires glasses, which to me is a major drawback, especially for kids' films. I can't get my kids to keep ANY glasses on for more than 10 minutes and, frankly, I'm not much of a fan of glasses either.

I'm reminded of the time I showed John Water's Polyester in “Odorama” in college. It seemed like a neat idea, but the cards were cumbersome and all the different scratch-and-sniff sections ended up smelling the same.

While Katzenberg insists the new 3-D is no gimmick — and indeed it's more sophisticated than mid-century ideas such as Smell-O-Vision and the old 3-D — it just emphasizes the fact that watching a movie in the home is a very satisfying experience.

Despite Katzenberg's comment before the end of the format war that the HD disc was merely a niche business (HM, April 1-7, 2007), he seems determined to trump home media with 3-D.

Packaged home media has suffered attacks from video-on-demand for more than a decade, and still it keeps on drawing consumers. It will likely survive a while longer, no matter what fancy theatrical enhancements materialize.

Dumping the DVD Dump Bins

Studio executives are still cringing over the so-called “Pali Report,” in which New York's Pali Capitol Inc. projects a 5% drop in packaged-media sales in 2008, despite a tripling in Blu-ray Disc sales. But if you really study the report, you'll find it's not all doom and gloom ahead.

For starters, one of the key drivers behind the projected sales decline is the fact that Wal-Mart is getting rid of many of its DVD dump bins, huge vats in high-traffic aisles packed to the brim with DVDs selling for around $5 each.

Now, I've long held these dump bins are bad for the business, as they devalue DVD in the consumer's mind. These dump bins are ubiquitous, stationed like big fat sentries around the entrance to the electronics department, home of more sensibly priced DVDs.

I, for one, am not sorry to see them go. And if you make the next logical jump — that Wal-Mart is dumping the dump bins to make room for bigger Blu-ray Disc displays, something that's in the cards at most big retail chains — then it's easy to paint the move in a rosy light. Getting rid of the dump bins may have a negative impact on overall DVD sales in the short term, simply because there are so many of them, in so many stores. But it certainly positions Wal-Mart to capitalize on Blu-ray's likely upward trajectory by giving the chain a significant footprint in a category with dramatically higher margins than $5 DVDs — and a whole lot of growth potential. Sure, the number of cheapo DVDs sold this year may be off, dragging the whole category down. But that's a hit our industry can easily take, if in fact Wal-Mart does allocate more space to Blu-ray.

And I happen to believe this question is a moot point. Of course Wal-Mart will allocate more space to Blu-ray, as will smart retailers everywhere. For years, these big chains have relied on DVD as their No. 1 traffic driver. They've discounted the newest hits to bring people into their stores — and once these people are inside, they rarely leave without a cartload of other purchases, from toilet paper to underwear.

With the DVD business maturing, the appeal of new DVDs isn't what it used to be — and surely the powers that be at Wal-Mart and other big chains realize they need to reinvigorate the category, unless they want to risk hurting sales of other goods across the board. Now that the format war is over, Blu-ray is clearly DVD's designated successor — and to retailers everywhere, nothing short of a potential savior.

In Praise of Direct-to-Video

I spent a weekend at the South by Southwest Film Festival in Austin, Texas, a town that's as close as it gets to Los Angeles in a red state. My relatives like to call it The Third Coast, and I couldn't agree more — and yet … there's a certain maverick spirit to the event that many other film festivals have lost. As anyone who is a Texan will tell you (and I am one), there's a stubborn independent streak in the state. After all, in the same city is the French Legation building (an embassy from the time when Texas was its own country).

Yes, Texas goes its own way on many things, and the film festival isn't like others, either. It's a venue where a truly offbeat film can be accepted. And it could prove a nice launching pad for a direct-to-video breakout film. Warner Home Video's DTV “Raw Feed” label premiered Otis, a very black comedy about a sadsack serial killer, at the festival this year.

The groundwork has certainly been laid. Over the past two years virtually every major studio has launched either a DTV label or initiative. And while in the old days the DTV business got a bad rap as the place where films that couldn't make it theatrically go to die, we're seeing some truly great DTV titles that are finding their audiences at the local video store.

The timing certainly is right. Much of the catalog product has already been released on DVD, and the Blu-ray Disc business has yet to take off. Meanwhile the studios are cutting back on theatrical release slates (for instance, Warner Bros. is absorbing New Line Cinema due to a smaller lineup).

It's an environment in which something really quirky and different may break out on DTV. It may be Otis. It may be some other title. But the home entertainment business is hungry for good product, and those creative voices that can fill that void will find a willing audience in the DTV arena.

Flame Ventures' Tony Krantz, who is working with Warner, The Weinstein Co., MTV and MGM on DTV projects, said others are “idiots” not to capitalize on the DTV market. “They are not getting it,” he said.

The actors on the Otis production also praised the freedom and quality of work. DTV is a chance for some actors to rack up that directing credit they crave. Who can forget Roger Corman and what he did for directors such as Ron Howard?

If I'm any judge, the stars seem to be aligning for another Corman to foster young talent.

Blu-ray Success Depends on Industry Support

As the battle between Blu-ray and DVD for home media dominance heats up, many are downplaying the significance either format will have in the future of distributed media. The looming threat of digital downloads now hangs over Blu-ray, much as it had initially done over DVD, causing the film industry and home theater enthusiasts alike to hesitate in their adoption of the high-def format.

The single greatest advantage Blu-ray has over both DVD and digital downloads is quality. For the first time in home media history, video and audio quality has surpassed that of most local cinemas. DVD will never look as good, no matter how sophisticated the upconversion technology, and digital downloads are severely limited by the infrastructure they rely upon for distribution. Blu-ray is the only way for consumers to experience movies as they were meant to be seen and heard.

The promise that digital distribution will eventually catch up with physical media has always existed, but Blu-ray has breathed new life into disc-based distribution. In order to match the quality of even a modest Blu-ray release, either Internet providers will be forced to double and triple their bandwidth, or consumers must be convinced that waiting hours for a movie to download is more convenient than placing a disc inside a machine.

Another approach, utilized most recently by Apple for its iTunes movie rental service, is to severely limit the video and audio quality in order to decrease distribution times. This, while feasible, is more of a “good enough” solution, and we doubt you will see any sane home theater enthusiast championing mediocrity as the future of movie distribution.

In order for Blu-ray to be successful, the industry as a whole must raise awareness of the greater picture and sound quality offered by the format. When consumers witness the striking difference between Blu-ray and other home media options, they generally recognize the benefits. If we don't unite behind Blu-ray, and continue to stall consumer adoption, we may find ourselves stuck in a situation where the “good enough” solution just isn't good enough.

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Downloads Likely Won't Kill the Disc

The end of the format war was met with a spate of articles in the mainstream press questioning the extent of Blu-ray Disc's victory. The articles were based on skeptical analysts who believe packaged media is doomed regardless, that before too long everyone will be downloading movies just as they are downloading music.

I don't buy it. Music and movies are two entirely different beasts, and just because the music industry went to downloading within a few short years doesn't mean the home entertainment industry will do the same — not in two years, not in 10 years, maybe not even ever.

Here's the rub: We've never bought movies the same way we've bought music. Music has always been bought by the song, whereas with movies you buy the whole thing, not a scene here or a scene there. The music industry nailed its own coffin shut by first killing off the single, and then raising CD prices above $20. Consumers no longer had an affordable way of sampling music, so they rebelled — and the fruits of their rebellion were the original Napster and other file-swapping mechanisms. After initially fighting the download phenomenon, the music industry ultimately relented and developed a pay model. At the same time, CD prices were brought back down to Earth. But by then it was too late: Consumers were burning and sharing their own CDs. They may buy plenty of 99-cent songs, but overall spending on music is way down.

Now let's look at the digital downloading of movies, which began in earnest about two years ago when the major studios began offering their big movies over the Internet. The business never really took off because movie prices are comparable to DVDs.

Moreover, the quality of downloaded movies is roughly on a par with VHS — fine for iPods and maybe laptops, but certainly not the massive HD screens we're now buying. Downloading a movie in true high-definition takes 10 hours. Even if that process were significantly sped up, there's still the hassle of somehow transferring it to an HDTV.

I predict we're going to see two parallel home entertainment business models emerge: a packaged-media model with top-quality picture and sound and gobs of special features, and a download model for quick iPod viewings. And with the enormous profit potential of Blu-ray Disc, and major studios such as Fox and Warner including digital movie files on discs, don't be surprised if movie downloading never really takes off.