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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.

Hollywood’s Retro-Fueled Nostalgia Trip

Woody Allen’s Midnight in Paris, which just won the Oscar for Best Original Screenplay, tells the story of a young artist who finds himself entranced by the romanticized atmosphere of France in the early 20th century. I can’t think of a better microcosm for Hollywood in the past year.

Let’s begin with last night’s Academy Awards ceremony, which in addition to Allen’s award bestowed 10 trophies upon two films built around French silent films.

Voters swooned around The Artist, a French film from a creative team previously best known in America for a pair of James Bond spoofs (among those who knew them at all, that is). Jean Dujardin, a superstar in his native land, plays a silent film star who finds himself unable to adapt to the advent of talkies. Does its win for Best Picture constitute a vote of protest from Hollywood in the face of its own struggles to adapt to an evolving medium? In this case, of course, it’s the plethora of new filmmaking technologies that seem to have democratized the industry, putting less emphasis on the traditional movie star and forcing studios to turn to new gimmicks such as 3D. And that’s not to mention the evolving home entertainment sphere, with the struggle between Blu-ray and digital delivery as the future platform of choice for the theatrical aftermarket.

In embracing the past, the Academy chose a silent movie for the first time since Wings was given the top prize at the inaugural ceremony in 1929. (Coincidentally, Wings was recently released on DVD and Blu-ray for the first time by Paramount.) It’s also the first Best Picture winner to be produced in the classic 4:3 ratio since 1955’s Marty. If not for Schindler’s List in 1993, it would be the first predominantly black-and-white film to win since 1960’s The Apartment. Take that, modern cinema!

On the other end of the scale is Hugo, which celebrates the past with thoroughly modern production values and dazzling use of the 3D form. Martin Scorsese paints a loving tribute to the spirit of artistry found in early silent films, particularly those of French film pioneer Georges Méliès. To celebrate how much cinema has evolved since those early days, Scorsese even converted some of Méliès’ most famous scenes into 3D. Take that, classic cinema!

What Scorsese’s film glosses over is how Méliès was ruined by rampant piracy and his own inability to adapt to the emerging business models of his new industry, which came to be dominated by Thomas Edison and his Machiavellian alliances to control most distribution channels. Instead, the film blames a changing cultural climate following World War I for Méliès’ downfall, as audiences supposedly turned their backs on anything “fun.”

Hopefully, modern Hollywood will not be so similarly oblivious to its own shortfalls.

But, it seems, in these cynical times, Hollywood is pining for a return to a simpler era of creative achievement unburdened by commercialism, when art for art’s sake was enough of an accomplishment. After all, it’s a lot easier to blame the audience when things don’t work out.

Hugo and The Artist haven’t exactly scored at the box office, but that doesn’t mean nostalgia doesn’t sell. Of the top 12 films of 2011, 10 were sequels and two were based on comic books. And both of those, Thor and Captain America: The First Avenger, are entries in the Marvel Films series that tie into the upcoming The Avengers.

Even looking at the top 25, most have some sort of nostalgic kick to them. One of the central themes of Bridesmaids (No. 14), for example, deals with how friends can find themselves drifting apart despite trying to hold onto what made that friendship work to begin with. And Super 8 (No. 21) is just an homage to Spielberg films of the 1970s and 1980s, with its own subplots of characters having to let go of the past.

And let’s not overlook The Muppets, which may be the ultimate nostalgia trip, as it reminisces about earlier “Muppet” movies as its characters try to re-create an episode of “The Muppet Show.” (Half the dialogue, it seems, is some variation of “I loved you guys when I was a kid.”)

And therein can be found the dichotomy in which Hollywood finds itself: a gap between artists who don’t want to be judged by an audience that prefers the safety of familiarity in the absence of fresh ideas, with the studios caught in the middle, facing a changing technological landscape that makes it that much harder to monetize their product.

If everyone is living in the past, is anyone looking toward the future?

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.

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.

               

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.
 

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.

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

Sony Classics Announces Actors’ Showcase ‘Carnage’

Carnage is the kind of film that makes fans of the dramatic arts’ tongues wag. It’s a filmed presentation of a Tony Award-winning play by Yasmina Reza, adapted by Roman Polanski, starring four of the hands-down best actors alive: Christoph Waltz, John C. Reilly, Jodie Foster and Kate Winslet.

Sony Pictures Home Entertainment will release the Sony Classics film, which was nominated for two Golden Globes (for Foster and Winslet’s performances), March 20 (prebook Feb. 16) on DVD ($30.99) and Blu-ray ($35.99).

The story concerns two New York couples who come to meet because the son of one couple punches the son of the other. One couple, played by Waltz and Winslet, at first seem like stereotypical uppity Manhattanites, he on his phone every two minutes to discuss some Wall Street conundrum, she pressed and polite, eager to keep up appearances and smooth away her husband’s rudeness. Foster and Reilly, on the other hand, play, on the surface, a more down-to-earth couple, consisting of a bleeding-heart liberal who pushes fairness and justice upon her peers, and a working-class man who has worked his way up into the upper middle class and carries its associated manners but also a certain internal darkness.

The film takes these four and places them into a room, bouncing their conflicting views and veneers off of one another until all niceties melt away and what’s left is a truer, harsher view of humanity through these people.

“When the gloves come off, it’s pretty revealing,” Reilly said of the characters.

With a film such as this in which nearly all of the action takes place in one room, between four characters, two weeks of rehearsals took place before anything was shot for the film. But don’t expect any of that rehearsal footage to make the home video release, according to Waltz.

“If I had a say in these things, I would do away with all this ‘behind-the-scenes, making-of’ rubbish,” Waltz said. “It’s nobody’s business. Why would you poke your nose in our rehearsals? Where do we then have our safe space where we try and make fools of ourselves and just fathom what it is we need to do?

“… It’s a huge drag, and I try to avoid making-ofs, EPKs, blah blah, ‘Can you explain your character?’ … Why would I? I would be doing myself and the story and, most of all, your experience watching the film, the greatest disservice possible. I’m just there to incarnate … the character that has no body when it was written.”

If there’s one particular sequence of Carnage sticks out in many viewers’ — and the actors’ — minds, it’s when Winslet’s character throws up the peach cobbler the nervous other couple has been foisting upon them. Her character runs off, mortified, to clean herself off, while the others stick around to deal with the mess.

“It was days of that. It was horrible. It was really gross,” Reilly said. “Everyone’s like, ‘Poor Kate, she had to vomit.’ I had to clean up Kate’s vomit.

“… Needless to say, I haven’t had cobbler since I made the movie.”

Regardless, Reilly said the cast of heavy-hitters got along smoothly.

“There wasn’t a diva in the bunch,” he said.

Both Waltz and Reilly had only the highest praise for Polanski, whose resume includes classics from Chinatown to The Pianist.

“If you look at his movies, the only thing that really kind of strings them all together is like, they’re excellent,” Reilly said. “They’re really well-made and beautifully photographed. … He has a lot of variety as a director. I thought this was a really gutsy movie for him to make.”

When asked what Polanski brought to his performance, Waltz replied: “Precision. Exactitude. Concreteness. All the qualities that I adore and that I really strive for and that I’m grappling with and fighting with, and where I derive all my inferiority complexes and all that.”

Perhaps that precision is why the film’s DVD and Blu-ray don’t include any deleted scenes.

“It’s all there,” Reilly said. “What we said is what’s in the movie.”

The DVD and Blu-ray do include a making-of of sorts in the form of an “Actor’s Notes” featurette, as well as a red carpet featurette and another dubbed “An Evening with John C. Reilly and Christoph Waltz.”