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

The Heat Is On

August is a most anxious month for home entertainment suppliers. They gear up for the all-important fourth-quarter gift-giving season when sellthrough discs are expected to shine and the summer slate of big-budget theatrical films hits the home entertainment market.

The heat is on — and I’m not just talking about the weather.

Early in the summer, the fathers of blockbuster film, Steven Spielberg and George Lucas, speaking at the opening of a new media center at the University of Southern California, predicted a Hollywood “implosion” of blockbuster flops that would change the industry.

“There’s going to be an implosion or big meltdown where three or four or maybe even a half-dozen megabudget movies are going to go crashing into the ground, and that’s going to change the paradigm,” Spielberg said.

Various pundits have weighed in on just how many big-budget films (some terming the number unprecedented) will turn out to be flops at the end of the summer.

Regardless of the final number, the home entertainment market will have to struggle with marketing them, flops or no. Some films will make up revenue in the international theatrical market, where lots of action and very little dialogue always plays well. But other big-budget behemoths will look to home entertainment to make up for lost revenue.

And, thus, the heat is on.

Home entertainment divisions will be expected to be cleanup hitters for titles that underperformed theatrically. Conversely, they’ll be expected to realize in the home entertainment market the promise of films that hit a home run in the summer theatrical contest.

But home entertainment divisions have another element to deal with: increased competition for consumers’ limited leisure hours from subscription video-on-demand services.

A colleague told me recently that the entertainment business is all about creating desire. That job falls squarely on the shoulders of the home entertainment marketing team this fourth quarter. How can we create desire for the summer blockbusters and for classic collections?

The heat is on.

Tech Toured and Absorbed

One of the interesting elements of last month’s Los Angeles Entertainment Summit (LAES) was the Tech Tour, a series of booths with information on technology that can both help market and forward the industry. I hope attendees were able to take advantage of it because it offered some interesting insight into the future direction of our business.

The tour included companies that help clients use “big data,” or vast amounts of consumer information collected WITH their knowledge (not that spy stuff that has the U.S. government chasing Edward Snowden around the globe). Learning what consumers “like” on Facebook or what they will offer up about themselves to enter a contest is useful data to target them with marketing messages on brands they consume.

There were also companies eager to assist studios with apps connected to entertainment brands and disc releases. Navigating this new world (oft termed “second screen”) is a challenge facing every studio, and it was interesting to talk to those who design apps as well as companies that help the studios streamline app production for Apple, Android and other platforms.

Also part of the tour were companies that help package and display product; create value-added exclusive trinkets; and prepare, deliver and copy-protect digital files for delivery to digital services, such as Netflix, Amazon and Hulu.

I spent about six hours (with a few caffeine breaks) talking to the folks on the Tech Tour. I know some studios, such as Warner with its Media Camp (many campers were on the Tech Tour), are looking to create a forum for new ideas. The Tech Tour was such a forum, and I think I absorbed a great deal of information that I am still processing.

The industry backed off of this kind of gathering for a few years as we all absorbed the financial collapse and fast-moving technological changes affecting us.

Entertainment Merchants Association president and CEO Mark Fisher eloquently outlines the sentiment in the industry in his opinion piece in our Aug. 5 issue. He titled his column “The Good New Days,” which I think is particularly appropriate, considering both the nostalgia for past conventions elicited by and the new tech element of the LAES.

Times changed, as did technology, but the need to gather and learn about the changes in the business didn’t.
 

Summer Camping in San Diego

I’m getting ready to head down to San Diego for the Comic-Con International Convention as I write this column. Meanwhile, the kids (thank goodness) are in summer camp. The following week is the Los Angeles Entertainment Summit, which like Comic-Con the week before brings together many of the players in our industry.

Years ago, we all gathered in Las Vegas for the annual VSDA convention. The VSDA (Video Software Dealers Association) is now the EMA (Entertainment Merchants Association), and the EMA is a co-host of the Los Angeles Entertainment Summit, which benefits the Cystic Fibrosis Foundation (a truly worthy cause) and brings together suppliers and retailers in the home entertainment space.

While our annual July convention in Las Vegas is no longer a venue to catch up with friends and colleagues in the home entertainment industry, Comic-Con and the Los Angeles Entertainment Summit provide a forum for industry discussions before the all-important fourth quarter, when many of the biggest home entertainment releases of the year hit shelves and shoppers look to physical media to round out their stocking-stuffers and gift lists. With the summer theatrical slate already producing winners and losers, the pressure is on for home entertainment to offer an assist to the losers and fulfill the promise of the winners.

We will no doubt also discuss the digital future, and how the home entertainment industry might transition from physical to digital delivery.

I look forward to catching up with friends and colleagues during these two events to help the industry plan for the future. It’s nice to touch base at least once a year, if not more often (the International Consumer Electronics Show in January also is a good place to take the temperature of home entertainment). But getting together once or twice a year is an invaluable chance to forge a path and provide a vision for the home entertainment business.

An ‘Implosion’ of Creativity?

Talk about a blockbuster! The fathers of blockbuster film, Steven Spielberg and George Lucas, recently predicted a Hollywood “implosion” that could change the film industry forever and lead to dramatically hiked ticket prices for blockbuster films, quashing creativity.

Speaking at the opening of a new media center at the University of Southern California, Lucas and Spielberg predicted that a succession of failing big-budget movies would forever change the economics of Hollywood and force audiences to pay exorbitant prices upfront for film tickets to the most anticipated blockbusters — rollercoaster rides with no lasting substance.

“There’s going to be an implosion or big meltdown where three or four or maybe even a half-dozen megabudget movies are going to go crashing into the ground, and that’s going to change the paradigm.” Spielberg said.

Well, I can see how that cynical view might be correct. Certainly, there are a few big-budget films this summer and over the past year that have been — well let’s just sugarcoat it — less than awesome; and I felt I was taken on opening weekend. I certainly have sat through a blockbuster or two that I felt were sheer torture.

But I don’t think, ultimately, that the most creative and entertaining fare will be overlooked in the home entertainment realm — and that’s where truly creative films, blockbuster or not, will find their value.

You see, home entertainment (or the aftermarket), is where many films find their audience (or don’t) based on the lasting appeal of the creative endeavor.  Lucas’ “Star Wars” trilogy, Spielberg’s “Indiana Jones” series and other such cultural touchstones have a lasting value in home entertainment. The Wizard of Oz (the 1939 version with Judy Garland) is gold in the home entertainment realm.

While theaters may be hosting a few overpriced duds, it is in the home entertainment market that many of the most creative films will find their true value. And I don’t think that will go away.

Digital Drivers on a Roll

This issue includes Home Media Magazine’s third Digital Drivers special section, a compendium of the players driving the transition from physical media to digital distribution, including studio, retail, cable, Internet and technology executives.

The past year has seen a raft of changes in digital distribution, as well as the continued development of trends already under way.

UltraViolet, the cloud-based service spearheaded by the Digital Entertainment Content Ecosystem, has grown to more than 13 million household accounts. In addition to the boost it got from Walmart last spring, UltraViolet also took center stage at this year’s International Consumer Electronics Show with home entertainment presidents from most of the major studios appearing on stage with Consumer Electronics Association president Gary Shapiro in support of the service.

Meanwhile, Netflix’s streaming service made an impressive comeback, tallying profits, new subscribers and new international territories. Perhaps its most striking achievement was its move into original programming, spearheaded by “House of Cards.” The move had pundits asking, “Could Netflix be the new model for television?”

Netflix’s comeback had us again listing CEO Reed Hastings among our high-level digital strategists this year.

But Netflix wasn’t without challengers. Amazon Prime stole content and launched original programming of its own, the launch of Redbox Instant propelled the kiosk company into the digital realm, and Hulu entertained suitors.

Meanwhile, studios such as Sony Pictures and Fox continued to experiment with early digital release of titles before disc, looking to lure digital consumers to purchase the most-sought-after new releases. Executives there, along with the top home entertainment players at Warner, also made our list of high-level strategists for their continued push to drive profitability and innovation.

Each year the digital sands seem to shift, but it is clear digital delivery is hitting its stride, and digital streaming is becoming a habit. Yes, digital is becoming an ever-growing piece of the entertainment pie.
 

The Kids Aren’t All Right

One of the backbones of the sellthrough business has always been the kidvid genre. Kids will watch the same content over and over again, and buying a title is a good investment if they plan to watch it 20, 30, 100 … however many times. Kids like what they like, and they are obsessive about it.

More recently kids are having an effect on the subscription video-on-demand business as well. It seems there are subscribers who use services such as Netflix and Amazon Prime to access stuff for the kids. As I am writing this, I’m at swim practice for my 11-year-old. If I had a toddler with me, I can imagine accessing Netflix or some other subscription service to entertain him or her for the 45-minute lesson. Obviously, TV episodes would fit the bill. Perhaps I had been accessing “Blue’s Clues” for months during these lessons via my Netflix account, and suddenly “Blue’s Clues” (owned by Viacom) isn’t available. The horror! The tantrums!

That’s the consumer experience of what is happening in the SVOD universe. Now, thanks to a $200 million deal between Amazon and Viacom, subscribers who want “Blue’s Clues” have to turn to Amazon instead of Netflix.

Ted Sarandos, the savvy chief content officer at Netflix, downplayed the loss of Viacom kids content, saying kids’ TV has a short shelf life. That may be true. I certainly didn’t watch “Blue’s Clues” as a child, and my kids have no emotional attachment to most of what I grew up watching. (That doesn’t include “Scooby-Doo,” which seems to be timeless. Go figure.) But if you’ve ever had a kid who could be calmed by nothing but “Dora the Explorer,” the lasting value of the show is sort of beside the point.

This, I think, is where a scheme such as UltraViolet shows its value. Via the content locker, a family can simply buy exactly the content the kids like, without having to worry whether Netflix or Amazon sign with a particular content owner. This is UltraViolet’s advantage. Ultimately, consumers want easy access to the content they like, not to the content a particular subscription service is willing to pay for. That goes for the adults, as well as the kids.