UltraViolet Just Got Smarter — and Easier

At last, some action on the UltraViolet front.

What I consider the best idea to come out of Hollywood in years has been stalled of late, mired by a complicated operational structure.

The concept — buy a movie once, then access it from the cloud anywhere, at any time, on any device — is marvelous.

The execution — navigate through a maze of proprietary websites and registration requests — is marvelously flawed.

But as Mark Teitell, GM of UltraViolet’s Digital Entertainment Content Ecosystem (DECE), tells us in our April 15 6Q , we shall soon have a new mechanism that strips away the complexity of UltraViolet and actually makes it simple and easy for consumers to use.

The UltraViolet Common File Format (CFF) will make downloading functionality consistent across all UltraViolet retailers and service providers. As Teitell told our senior reporter, Chris Tribbey, “It empowers consumers to transfer or copy downloaded files on any UltraViolet-compliant device or app, without re-downloading or using bandwidth.”

DECE is currently in a beta and interoperability testing stage for CFF deployments, and the final product is expected to become available in the United States later this year.

That’s a critically important development — even more important to the mainstream success of UltraViolet than the stepped-up marketing push Teitell promises also is around the corner.

Years ago, colleagues used to joke about what they called the “People magazine” syndrome. What was hot one week was not the next.

Since then, our attention spans have gotten even shorter. It truly is the “one click” era, where we expect new worlds to open to us with a single click of a button.

We don’t want to be told that for this movie we have to go to this website, while for this movie we have to go to another.

We want it simple, and we want it now.

Once CFF is available, there’s only one more sticking point left for UltraViolet: Get Disney on board. It’s high time the studio joined the consortium and made its movies available through UltraViolet.

Sitting out on a transformational opportunity such as the one presented by UltraViolet makes no sense, and I sincerely hope Disney comes around and joins the party.

It will be good for Disney, and it will be good for the industry.

Even more importantly, it will be good for the consumer.

It’s Going to Take a Village to Save This Business

The most interesting thing about consulting firm Deloitte’s latest “State of the Media Democracy” survey is that soaring tablet use will drive an increase in movie rentals at the expense of sellthrough.

According to Deloitte, 28% of survey respondents said they would rent a movie this year, while just 12% said they would buy one, either on disc or through a digital download. At the same time, tablet ownership shot up 177% over the past year, with tablet owners 70% more likely to stream movies than those who don’t own an iPad or similar device.

The conclusion that there’s a correlation certainly strikes me as a valid one. And for studios that continue to rely on sellthrough for the bulk of their daily bread, this is, indeed, cause for concern. Hollywood throughout the years has done everything in its power to pump up the sales market. Back in the early days of home video, they fought tooth and nail against the nascent rental industry, which the studios correctly charged was taking money out of their pockets.

The Walt Disney Company’s much-ballyhooed moratorium strategy put dollar signs in everyone’s eyes as they realized that consumers could, indeed, be induced to buy movies, and in huge quantities. But it wasn’t until the advent of DVD in 1997 that the studios finally came up with an insurmountable weapon that ignited the sellthrough market quickly and furiously — and ever since the market peaked in 2005, they’ve been trying to figure out how to regain the momentum.

Since then, however, we’ve become a much more transient society. Our inherent nature to own, to collect, to hoard, has diminished. We lease cars instead of buy them; we read the news online instead of buying newspapers and magazines; and when we do buy things it’s products that enable us to do things, like smartphones and tablets, instead of products we can actually use on their own merits.

These days, the things we can do with smartphones and tablets are practically endless. The commercial of the couple spending every second of their day on matching Kindles is beginning to ring true: Our smartphones and tablets have become integrated in our daily lives. Heck, I see it with myself, a 55-year-old geezer who texts like a teen and goes everywhere, even the beach, with his iPad.

So for studios that still, more than anything else, want to sell content, what’s the solution? As I’ve said many times before, we need to find some way to sync the consumers’ desire to watch movies with our desire to sell them. I’m convinced UltraViolet is the best way to achieve this, but it’s still way too complicated — and the fact that Disney isn’t on board is having a real chilling effect on its immediate potential.

It takes a village to raise a child? Heck, it’s going to take a village to save this business — all of us, working together and putting all our focus on understanding the consumer and his wants, needs and desires.

Kevin Tsujihara: A Wise Choice for Warner CEO

Kevin Tsujihara’s selection as the next CEO of Warner Bros. didn’t surprise me in the least. As the studio’s longtime head of home entertainment, he’s proven that he knows how to make money. Home entertainment is still the biggest source of revenues to the studios, and Warner Bros. has been tops in market share since even before I began writing about home entertainment more than two decades ago.

But Tsujihara’s selection was not just a matter of dollars and cents — not by a long shot. In a Hollywood ecosystem where imitation is not just the sincerest form of flattery, but a way of life, Tsujihara has always been a maverick. He’s not only stood out from the home entertainment pack, he’s inevitably stood out ahead of it. He’s earned a reputation as a deliberate disruptor who’s never been afraid to try new things and if they don’t always work out the way he had hoped, well, that’s OK, let’s move on to something else.

And yet he’s not so much a gambler, a risk taker, as he is a shrewd and savvy entrepreneur — albeit one who has learned to operate in a corporate environment. He’s a leader of the pack who also happens to work and play well with others.

Tsujihara doesn’t so much roll the dice on emerging and even future technologies as he plays the field, carefully picking and choosing what he considers to have the best chance at success. He’s not looking to transform the business so much as he is out to reinvent it, rebuild it — in a sustainable way. And if one accepts sustainability as Hollywood’s true holy grail, then Tsujihara’s real trump card is twofold: He’s got the vision to see what lies ahead, and the courage, guts and acumen to follow through and get us there, in some way or another.

Tsujihara pioneered the concept of day-and-date video-on-demand. He was one of the first to recognize the power and potency of social media by first selling movies on Facebook and then spearheading the acquisition of social movie fan site Flixster. His latest triumph is still a work in progress: leading the industry charge to UltraViolet, a critically important next step in the ongoing evolution of home entertainment that allows customers to acces digital versions of their purchased content from the cloud.

UltraViolet at once future proofs physical media and creates a whole new business model for electronic sellthrough, which has been a slow go for the Hollywood studios.

Many observers have already said that in choosing Tsujihara as their next CEO, Warner Bros. board members made the best choice. In truth, they made the only choice if their studio — and others like it — are to survive, and even thrive, in the digital era.

Rest In Peace, Maria LaMagra

I’m still reeling with shock and sadness at the death a few days ago of Maria LaMagra, the veteran home entertainment publicist who spent more than a decade running the PR show at Universal Studios Home Entertainment and then went on to become a successful PR consultant and independent contractor for Walt Disney Studios, Sony Pictures and others

So often, when people die, those of us who are left say something along the lines of, “She left us too soon. She was so full of life.”

In Maria LaMagra’s case, this isn’t just another platitude. It’s God’s honest truth. Maria didn’t observe life, nor did she merely live life. She took life by the shoulders and shook the bejesus out of it, and made it do her bidding.

Come to think of it, she did that to all of us.

Maria LaMagra was the diva of the Hollywood publicists when I joined what was then Video Store Magazine in 1991 and she was still the diva of Hollywood publicists when she died after a brief battle with cancer.

Her family put out a statement saying she was 66 when she died. Maria would have killed them. We all thought she was at least a decade younger. After a certain point, you see, Maria LaMagra stopped aging and became, well, ageless.

I’ll never forget her raspy voice, her loud laugh, the way she would throw back her head when she laughed, those expressive eyes, the way she carried herself, her sense of fashion and style, that aura of self-assuredness she always projected. And her approach – well, let’s just say Maria LaMagra was not from the Subtle School of Publicity. She emailed and then she phoned; she phoned and then she emailed. And she kept doing it, over and over again, until a journalist had no other choice than to say “yes.”

She was, as rocker Dave Edmunds would say, “subtle as a flying mallet.” When Maria LaMagra walked into a room, she owned it. She was loud, no question – and yet her heart was even bigger than her voice.

I’m half expecting a phone call, chastising me for putting her age in print – and asking me for one last favor, for a client, of course. Just six weeks before she died, she was at the EAA’s Wine & Wisdom event at the Skirball Center – clearly ill, but still a big, overwhelming presence. I was on vacation, but our editor in chief, Stephanie Prange, was there and talked to Maria.

The last thing she said, as Stephanie was preparing to leave: “Tell T.K. he still owes me a write-up on Smore Entertainment.”

If there’s a heaven, I can only imagine Maria up there right now, that loud laugh echoing through the clouds as she tells God and his angels what to do.

               

Disc Sales Enter Era of New Reality

So what’s really going on here? The news that Osama Bin Laden had been killed put everything else on the media’s back burner, including the Southern tornadoes and, of course, our own industry report on first-quarter sales and rental numbers. The few stories that did surface blew right through the box office correlation – disc sales were down 20%, while the collective box office earnings of those films was down 25% —  and jumped right back into their “discs are dying” mantra.

“Down, down, to obsolescence town – that might just be the broad-view takeaway from Los Angeles-based Digital Entertainment Group's recent sales report, which suggests new DVD sales in the U.S. plunged 20% over the past 12 months,” said Time magazine.

"Disc sales drop 20% as streaming video begins to take over,” observed USA Today.

And a blog posting in PC World proclaimed “DVDs are one step closer to extinction.”

Most stories reported the decline in box office value, as well as the absence of the Easter holiday shopping season in the first quarter of 2011. But no one gave either of those factors any credence, and why should they? It didn’t fit in with their preconceived notion that the disc business is dead.

The truth is, box office is very much a factor in the home video business, especially now that the business is primarily sellthrough. Back in the old days when rental dominated, mediocre theatrical performers tended to perform better on video, but these days, there’s a direct connection, and one that makes sense – if you’re not going to spend $10 to see a film in the theater, you sure aren’t going to plunk down $15 to own it.

The advent of Netflix and Redbox may have triggered a resurgence in rental, and here the old formula still works: total consumer spending on rental rose slightly, even with the down box office.

That said, we are seeing a new reality in disc sales. The novelty of being able to own every movie the day it comes out on home video, at an affordable price, has worn off. We as a society now realize we don’t want to own every movie that comes out, even if it’s priced at $15, or $10, or even $5. We simply don’t have the room.

And in the children’s animated category, the new reality has hit harder than practically anywhere else. Whereas in the past the video-to-theatrical ratio was in the high 60s and even low 70s (meaning an animated feature film that grossed $300 million in theaters could be expected to generate, on average, about $200 in consumer spending on disc sales), the VTR now is down to the low 30s.

Children’s titles are still inherently more “ownable” than most films, but the competition for 8-year-old eyeballs has gotten increasingly intense. There’s YouTube, Club Penguin, hundreds of game apps for Dad’s iPhone, and more.

As Francois de La Rochefoucauld, the famous French author of maxims and memoirs, once said, “The only thing constant in life is change.”

 

Show Me the Money

Granted, the latest disc sales numbers for the first quarter, which should be released later this week, don’t look good. And the barrage of media reports alleging that the packaged-media business is on the ropes seems to be intensifying, with even the movie-biz website The Wrap calling the DVD business “dying” in a story today.

But once again, I need to plead with everyone to stomp on the brakes. Packaged media may no longer be Hollywood’s bread-and-butter, as it was beginning in 2001, as DVD transformed us all from movie renters into movie buyers. But it is still the dominant method we use to consume entertainment into our home, and in all likelihood will remain so at least for the foreseeable future.

An NPD Group study released earlier this week put things into perspective: Consumers may be talking about streaming and downloading movies, but when it comes time to take action they’re still plunking down their money for a Blu-ray Disc or DVD (to read the original story, click here). The study, conducted in March, found that nearly 80% of consumers watched a movie on DVD or Blu-ray Disc during the past 90 days, and that nearly 80 cents of every dollar spent on home entertainment goes toward the purchase or rental of physical discs. Respondents said 78% of their home video budgets went to the purchase and rental of Blu-ray Disc or DVD, including online and in-store retail purchases and rentals, while 15% was spent on video subscription services like Netflix. Digital video downloads, paid streaming, transactional VOD and pay-per-view accounted for just 8%.

I’d like to further point out that almost since the day this business began, we’ve been using the collective box office strength of movies available on home video to gauge the strength of the home entertainment business. And if you tally up what the movies that came to Blu-ray Disc and DVD in the first quarter of 2011 earned in U.S. theaters, and then compare that to the total for films issued on disc in the first quarter of 2010, you’ll find the drop in box office is virtually identical to the decline in disc sales.

Digital may be cool, sexy, hip, and with it. But to borrow a line from the movie Jerry Maguire, “Show me the money.”

Dishing the Brand

With Dish Network buying Blockbuster Inc. at auction for a bid of roughly $320 million, the digital delivery sweepstakes is about to get a lot more intense.

Dish is in a three-way battle for consumer eyeballs — eyeballs attached to bodies that want to watch first-run movies without making a trip to the rental store, the supermarket or even their own mailbox.

On one front Dish is fighting satellite rival DirecTV. Both get to offer most new releases for “transactional” viewing the same day they come out on disc. Up until now, DirecTV has had the edge, both in subscribers (19.2 million to Dish’s 14.1 million, as of the end of 2010) and in marketing. When studios began holding back hot new releases from rental leaders Netflix and Redbox, DirecTV launched a media blitz crowing about the street-date availability of first-run movies from Warner, 20th Century Fox, and Universal Studios — as did Blockbuster, before it ran out of money. Dish was conspicuously quiet.

On another front, Dish is fighting the cable companies that are scrambling to launch and improve their own premium VOD channels.

And on a third battleground, Dish is squaring off against the telecoms, who also are engaged in a continual game of streaming one-upmanship.

How can the purchase of Blockbuster give Dish the upper hand? It all depends on what Dish does with its new acquisition. And surely, but surely, there is a plan. As David Berliner, a consultant at BDO Seidman LLP in New York who specializes in restructuring and insolvency issues, told the Bloomberg news service, “It doesn’t make sense to buy a melting ice cube unless you’ve got a plan to increase revenue.”

My hunch is that Dish sees the $320 million it is spending to buy Blockbuster as an investment in its digital future. Dish didn’t buy Blockbuster for the stores, or for the inventory. Dish bought Blockbuster for the brand, and will leverage the brand to position itself as the No. 1 source of VOD. I wouldn’t be surprised it a name change, to something like the Blockbuster Movie Network, is in the future. Imagine this: “Blockbuster used to be the place where America rented its videos. Now, Blockbuster is the place where Americans watch their movies—in the comfort of their own homes. The old Blockbuster did away with late fees. The new Blockbuster is doing away with stores, vending machines and even your mailbox — so your lazy ass never even has to leave the couch.”

I jest, of course. But only in part. Rest assured that the Blockbuster brand will live on, even if the stores don’t. The vending machines — yeah, I think they’ll stay, too, considering NCR Corp. owns and operates Blockbuster Express kiosks under a license agreement. Redbox still does an awful lot of business, and this way Dish has some skin in that game, as well.

Dish may also use the fact that Blockbuster went belly-up owing tons of money to the studios to its advantage. “Hey, Warner. Hey, Paramount. Yeah, we’ll pay you. But what about those windows, eh? I know we get some movies the same day they come out on DVD and Blu-ray Disc. But it sure would be nice to get everything …”

These next few months should be interesting.

The End of the Road

I wonder, sometimes, when we’re going to hit the end of the road in various product types. I thought we had hit the end of the road with high-definition TV, but then along comes 4K. Is this the end? Is this as good as it gets? Or will there be an even sharper image down the road — and down the road from that, until we get to ... a difference only a microscope can detect?

Seriously. Think about it. A generation ago, we reached a point where record players — oh, I’m sorry, hi-fi systems — got as good as they were ever going to get. It was in the early 1970s, I seem to recall, when the vinyl-playing machines reached their ultimate state of the art. Needles were as tiny as they could be; cartridges (those things that held the needle) were as sophisticated as they were ever going to get; tone arms were as light as a feather, minimizing damage to the fragile disc, which lost a little of its substance each time it was played.

Of course, when record players reached their zenith and consumer electronics manufacturers realized they could no longer build a better mousetrap they turned their attention toward building something different — and thus was born the compact disc, which relied on a laser beam, a “virtual” needle, if you will, with no weight and no damage to the disc.

Typewriters — same thing. The IBM Selectric, with its ability to instantly “erase” characters by striking over a letter with a magical substance that seemed to pull the ink right off the page, was the standard for years and years — until typewriters, no matter how good, were rendered obsolete by word processors and computers.

Musical instruments? We hit the end of the road there many years ago. Pianos and violins have remained fundamentally unchanged for hundreds of years, while electric guitars peaked in the 1950s and ’60s.

Back to TVs. As with so many products near the end of the road in terms of quality, we have seen lots of experimentation in recent years — as though manufacturers know we’ve about hit the wall in terms of picture quality and are desperately searching for some other reason to get people to buy new TVs.

The short-lived 3D hype reminded me of Quad Sound in the final days of vinyl — a grand concept, but horrible go-to-market execution and a small, niche audience.

And now we have Sony Electronics all excited about a “curved-screen” TV that has me scratching my head and wondering, wasn’t it just a decade or so ago that we got away from the old bulky curved-screen analog TVs and were all wowed by flat-screens?

Ah, the end of the road. Sometimes it seems more like a loop.

Best Buy: Slowly Winding Down

Best Buy’s transition into a digital distributor of entertainment received a hefty vote of confidence when the chain reported better-than-expected financial results, with its stock price soaring more than 10% after the company announced a widening of its second-quarter profit to $266 million, up from $12 million last year.

Gross margins, too, expanded to 26.5%, topping estimates of 23.3%. CEO Hubert Joly, a veteran turnaround expert who ran hospitality and restaurant giant Carlson — which includes businesses such as Radisson and T.G.I. Friday's — before he took the Best Buy job late last summer, was immediately hailed for his cost-cutting and other efforts, including instituting a price-matching policy, establishing dedicated “store-within-a-stores” for Samsung, Apple and Microsoft, and investing more money on training programs for employees.

And yet the numbers are deceiving. By gutting its entertainment section, the company has saved on expenses but also cut loose a huge revenue source. As Erik Gruenwedel reports in our story in this week’s issue, Best Buy posted a nearly 30% drop in same-store entertainment sales for the second quarter, with packaged media now accounting for just 5% of its $7.8 billion domestic revenue for the three months that ended Aug. 3.

Lost in the media hoopla over the sharp uptick in profit was the fact that overall, same-store sales fell as well, albeit by just 0.6%, while overall revenue was down 0.4%.

Joly’s strategy appears to be something of a slow march to the bottom. He’s shrinking Best Buy’s business, but cutting costs even more. And as long as he can stay ahead of the game, profits should continue to increase, at least in theory.

But he needs to be careful. Margins may continue to inch up, but by turning his back on packaged media and focusing on digital he’s not just reducing revenue, but also limiting choice — which is never a good thing to do when you’re dealing with consumer goods. And eventually there may come a point where margins may be fine, but the actual dollar amount of profit begins to decline — slowly at first, then more rapidly, as more and more consumers steer clear of Best Buy entirely because there’s no longer anything unique about Best Buy stores.

We saw the same thing happen with Blockbuster, when it began relying more and more on the same hits you could find everywhere else.

There are those who say Joly simply wants to do what Amazon does so well: Follow the consumer. But Amazon, with its pure online presence, can be much more nimble and quick than Best Buy, still saddled with a network of huge stores — and expensive leases.

The cynic in me questions whether Joly even wants to grow Best Buy’s business. Maybe he realizes he’s up against overwhelming odds, so all he really wants to do is manage the chain’s decline as best he can and jump off before things really head south.

I don’t profess to know the long-term solution to Best Buy’s woes. Maybe there isn’t one. I’m also not sure whether the chain wants to remake itself as a multi-brand version of Apple Stores or a brick-and-mortar Amazon — two objectives destined to fail because both Apple Stores and Amazon already exist and are doing just fine.

But I just don’t see the current trend, of soaring profits and declining revenues, continuing for much longer.

Blu-ray Saves the Day – Again, and Again, and Again

One of my favorite things about my job as publisher of Home Media Magazine is getting the chance to play reporter again. Writing the weekly chart story, blogging about industry issues and digging into a meaty news story is about as good as it gets for this old dog, and one of my personal goals is to free up more of my time to jump back into the trenches more frequently.

I’m a journalist first, and a businessman second — and I guess it’s always going to be that way.

A highlight of my editorial duties is writing the quarterly “state of the industry” story based on consumer spending numbers compiled for, and distributed by, DEG: The Digital Entertainment Group. I had the misfortune of being on vacation, out of the country, when the half-year numbers came in, so I grudgingly took a pass this time around, with senior reporter Chris Tribbey taking up the mantle — and doing a fine job, I should add.

That said, I’ve noticed a pattern in our quarterly numbers stories — a pattern that holds true regardless of whether total spending is up, down (as it’s been until recently) or flat.

The pattern is this: DVD sales continue to decline, but Blu-ray Disc and digital sales continue to post impressive increases, with the biggest lift, in terms of sheer dollars, always coming from Blu-ray Disc.

In our latest story, the headline — at least for the online version — reads, “DEG: Blu-ray, Digital Making Up for DVD Revenue Declines.”

I’d bet that same headline, with minor variations depending on whether overall spending is up or down, could have been used for virtually every quarterly numbers story we’ve run in the last five or so years.

Putting all this in perspective, it appears to me that had it not been for Blu-ray Disc, the home entertainment industry easily could have nosedived when our entertainment options proliferated like mushrooms with the emergence, mostly post-2005, of YouTube, MySpace, Facebook, online gaming, apps, the iPhone and the iPad.

And yet what do we keep reading in the mainstream press about Blu-ray Disc? I can’t even count the times Blu-ray has been lambasted as a failure and lampooned as a relic of the pre-digital era.

Clearly, the facts speak otherwise. Blu-ray Disc sales is a healthy, thriving and growing business. And instead of looking back on the gaga days of DVD, when the packaged media business was posting double-digit gains, year after year, we should marvel at Blu-ray Disc’s own success story: coming of age in the Great Recession and consistently posting significant gains quarter after quarter, year after year.