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

Era of Rental Windows Has Arisen

A few years ago, a wise studio executive — the home entertainment unit president of one of the six majors — told me that the industry is heading “to the point where one day, it will be all about windows.”

I think we’ve arrived.

The announcement by Walt Disney Studios CEO Bob Iger plans to impose a 28-day rental delay on new-release disc titles means four out of the six majors are holding back new releases from Netflix and Redbox, the top two rental outlets, in a concerted move to prop up the sellthrough market.

Given past experience, I highly doubt the two holdouts, Sony Pictures and Paramount, will hold out much longer. Sony already delays certain releases.

The strategy underscores the importance of windows and lends credence to the old saying, “timing is everything.”

Formats don’t matter nearly as much as when a movie becomes available on that format. Blu-ray Disc, DVD, download, streaming, VOD, iTunes, UltraViolet — the competition is no longer among formats, but, rather, maximizing the potential of each format through staggered release dates and, when the dust settles, hopefully create a roadmap certain types of movies will follow when their theatrical runs are over.

Redbox and Netflix will likely always be at the proverbial bottom of the barrel when it comes to getting new releases. Vending machines and subscriptions may be a gold mine, but not for the studios.

For Hollywood, the real money lies in getting a share of the spoils from each sale — be it direct dollars, say from each Blu-ray Disc or DVD they sell to Walmart, Best Buy or Target, or lump-sum payments through licensing content for digital distribution.

First Sale is well and good, but the retailers get the prize — which is why studios have never cared for the rental model, not when it was brick-and-mortar nor now when it’s done over the mail or through kiosks. They’re not in control, and when you’re not in control. you’re not sitting in the locomotive of the money train.

Fortunately for the studios, there are all sorts of other distribution mechanisms either available now or in the pipeline, in addition to the good old packaged-media standbys of DVD and Blu-ray Disc.

And if it’s all about windows, there’s nothing Hollywood would like more than to shut the window for good on rental.

Finding the Right Value for Video

The only thing that’s constant in the video rental business is change, and in the past few weeks that change has accelerated again.

While low-price leaders Redbox, Blockbuster Express and Netflix have begun to raise prices, Blockbuster is taking a page from the Netflix playbook and offering an in-store subscription program.

Dubbed Blockbuster Movie Combo, the new sub program allows users to rent one movie (DVD or Blu-ray Disc) or video game at a time in store with the option to order one by-mail rental per month with no due dates for $7.49 for the first month and $14.99 a month thereafter.

Meanwhile, the much-publicized and much-maligned Netflix price jump (for those who want both to rent physical discs and stream) has given kiosk companies Redbox and Blockbuster Express cover to raise their prices as well.
Redbox is upping its DVD rental price to $1.20 a night, from $1 (Blu-rays rentals are still $1.50 a night, and games, $2). Blockbuster Express has taken a slightly different tack, making new releases, many of which are not available at Redbox, $3 for the first night, with the older titles costing less and Blu-ray titles rented at a $1 a night premium on the DVD price.

Finally, rental dealers have stopped devaluing content, which should please their studio suppliers. No longer, thanks to windows and increased pricing, will a customer see the same new release sold for $16 or more at Walmart available for rent for $1 at a Redbox kiosk. With the new pricing structure from Blockbuster Express, customers will again begin to associate new-release rentals with a higher value. Over at Netflix, streaming isn’t just a value-added freebie; it has a cost associated with it.

While the studios have not always embraced the rental business, recent pricing changes are certain to cheer executives who have tried to stave off the devaluation of their home entertainment product — and of content in general. That, along with the stabilization of the business as evidenced by the Q3 numbers from DEG: The Digital Entertainment Group, should make for a merrier holidays.

Rental Has Helped Drive Business

I know Redbox’s $1 rentals and Netflix’s all-you-can-see subscription services haven’t exactly endeared them to the content creators, which much prefer selling titles directly to consumers. But rentals have long served a need in the home entertainment industry, whether via Blockbuster, independent rental stores, Redbox, Netflix or video-on-demand. Not only does this offering satisfy a customer who wants to watch a title only once, it provides a forum for lesser-known and mid-level box office films to find an audience as well as generates buzz for cult hits out of the glare of the Darwinian weekend box office sweepstakes.

Rental titles also offer the try-before-you-buy experience. I can tell you I watched a rental of many of my favorite catalog titles before I decided to collect them. Rental provides a low-cost chance to discover a gem that you otherwise might not have bothered to collect.

Most people — having been inundated with ads and three other predecessors in the “Pirates” franchise — will be able to make the decision as to whether they want to purchase Pirates of the Caribbean: On Stranger Tides. But smaller films, the kind that grow via word of mouth, often find their audience as consumers rent and talk about them. Once they come to love them, they buy them for their collection.

As studios become more cautious, putting all their eggs in the sequel and superhero movie basket, a crucial part of the movie business may get lost.

A reader recently wrote me responding to my column “Is the Movie Slate Just … Well … Bad?” (HM, July 25-31, 2011). The reader noted that “the transactional consumer, the same consumer that the studios hope to reach with their new cash cow, VOD, is interested in more than all those mega-budgeted blockbusters with all those alien invasions (Transformers 3, Cowboys & Aliens). Come on, how many bad aliens can there be!”

Lots and lots of aliens, apparently, in action and animated films that are pushing out thrillers and romantic comedies and dramas.

I’m not saying I don’t enjoy the occasional alien/superhero actionfest. I like popcorn flicks as much as anyone, and they do sell well on video. But films from Gone With the Wind to Sixteen Candles have sold well on video, too. Variety has always driven the home entertainment business. Many renters’ second choice at the video store has become the treasured disc in their collection.

The Three Faces of Consumerism

As a lifelong student of human nature — I've always preferred authors like Faulkner and Hemingway, who wrote about the human experience — I've spent quite a bit of time analyzing consumers of home entertainment. My conclusion: We are looking at three, not two, classes of consumer, each a distinct group with its own characteristics and personality traits that transcend their consumption of entertainment.

The first group, and the one that means the most to our business, is the collector. These are people who enjoy owning, and they will likely continue to buy movies on disc as long as they are available on disc. These people enjoy filing away their new purchases — invariably, either alphabetically, by genre, or a combination of the two — and show them off with pride to visitors. Collectors are the ones most likely to replace their DVD movie libraries with Blu-ray Discs and can't for the life of them understand why someone would rather rent than own, if the price is right. These disc collectors typically have shelves of hardback books and CDs in their homes as well, and continue to maintain photo albums, not trusting their hard drives or the Internet with their precious memories.

The second group is one we shall call the minimalists — and I know plenty of them. They abhor clutter, and their homes are sparsely furnished. Rarely do you see a bookcase; their music is all on their computer; and they would never think of cluttering up their homes with DVDs or Blu-ray Discs — not when they can rent them. Minimalists also were the first to embrace Netflix and streaming, and even in the old days, before DVD and the Internet, they frequented video rental stores or turned to cable and satellite for their entertainment needs. I have a minimalist friend who back when I was getting gobs of VHS screeners looked at me with pity. "I'd never want all that stuff in my house," he said. "HBO's got everything I need."

The third and last group I'll call "quick and easy." These consumers prefer the path of least resistance. If they happen to be in Walmart, buying groceries and school supplies, they'll pick up a cheap movie or two, just because it's there. Their first stop is the $5 dump bin; if, after about 20 seconds of browsing, they see nothing they like, they'll check out the new releases. They'll spend $15 for a new release its first week in stores, but not $20 the next week, when it is no longer on sale. Instead, they'll stop by the Redbox or Blockbuster Express kiosk on the way out, and rent something, anything, that happens to catch their fancy. The quick-and-easy crowd also tends to channel surf more than others; if they find something interesting, they'll stick with it, and if it's a movie, they'll watch all or part of it, even the commercials. It takes too much effort to skip through them. The quick and easy crowd doesn't value its purchases the way collectors do; walk into their homes and you are apt to see discs scattered all over the place.

As our nation ages, the first group likely will get smaller. Young people are growing up in a transitory world; they visit websites and watch YouTube videos that exist only in cyberspace and may or may not be there tomorrow. Still, this is not to say they won't become collectors as they get older, although in this world of fast-changing technology, I rather doubt it. The minimalist group will likely stay the same; I think this group, of the three, is the most unique, a class all in itself.

The biggest growth, the way I see it, will come in the quick-and-easy crowd. They have big appetites for entertainment but really don't care how they consume it, as long as it's, well, quick and easy.

And that, my dear reader, is the challenge facing studios and retailers alike: how do you attract consumers who see entertainment as just another commodity, to be selected, purchased and brought into the home without much thought or effort?

 

 

Good News on the Horizon for Home Entertainment

No, as far as I know, Hell has not frozen over. And pigs aren’t flying — at least, not the last time I looked out my window, which overlooks the flight path into John Wayne Airport.

But lo and behold, we’ve just received a glowingly positive forecast for the film business, from no less reputable a source than PricewaterhouseCoopers, the respected accounting firm. And packaged media, everyone’s favorite whipping boy, no longer has to duck its head in shame.

The PricewaterhouseCoopers report predicts that over the next five years, worldwide consumer spending on movies — meaning theater tickets, DVDs, Blu-ray Discs, VOD and EST — will grow to a record $107.5 billion in 2014, from $85.1 billion in 2009. That’s an annual growth rate of nearly 5 %.

The growing popularity of 3D films will spur box office revenue, while Blu-ray Disc sales, shorter theatrical-to-video windows (a la Alice in Wonderland) and low-price rentals of the sort offered by the proliferating Redbox kiosks will help “reinvigorate the physical home-video market,” according to the report.

Say again? Disc sales are expected to start rebounding next year and then will slowly rise each year to $15.6 billion in 2014, according to the report. That’s not a big gain — about 1.6% from 2009— but hey, we’ll take it. After the declines we’ve been seeing in our business, even staying flat would be a good thing — particularly in light of the fast growth expected to be seen in the digital arena, with PricewaterhouseCoopers predicting digital downloads of movies will triple from $364 million in 2009 to about $1.1 billion in 2014.

That’s not the only bit of good news we’ve been hearing of late. The NPD Group reports sales of 3D televisions and compatible Blu-ray Disc players surpassed $55 million in the first 90 days since their February introduction. And as of March, consumer electronics sales in general have once again been trending in an upward direction, Shawn DuBravac, chief economist and director of research for the Consumer Electronics Association, told attendees at the opening presentation of the two-day CEA Line Shows event June 22 in New York City.

Of course, our home entertainment business is by no means out of the danger zone. The latest concern I’ve been hearing from studio executives is that catalog sales are down a dismal 20%, TV DVD is a shadow of its former self, and new releases continue to be hit or miss — to the point where Tuesday is easily the most stressful day of the week at the studios.

But at least there’s hope that things will get better. The party may be winding down, but it’s not over.