TV a Big Part of Netflix’s Streaming

While Wall Street pundits have proclaimed that Netflix’s streaming growth is coming at the expense of packaged media, it looks to me that the subscription service’s streaming is actually complementary to traditional forms of entertainment.

In a recent speech, Netflix chief content officer Ted Sarandos said repurposed television shows account for 50% of streaming content for Netflix subscribers (see story). And now Netflix has bowed a streaming-only option (see story).

Sarandos rightly said that subscribers like to stream in short bursts, and that the service is complementary to existing cable and satellite service.

“It fits peoples’ lifestyles,” he said.

That makes sense to me.

While on a plane, at the gym or waiting in line, I’d like the ability to stream a TV show on an iPod, iPad or other mobile device. I’m not exactly going to haul around a laptop to view an entire feature-length movie on Blu-ray Disc or DVD just to run errands.

Even on the plane, where there are so many interruptions, viewing a short TV show on my mobile device cuts down on the amount of equipment I have to lug around and offers a snack-sized bite of entertainment when I may not be able to get fully engrossed in a feature.

Having access to Netflix on your mobile device is like owning a library of TV reruns that can be viewed to pass the time. I recently saw an amusement park attendee viewing her iPad while waiting for her kids to get off a ride. I doubt she was perusing an feature-length drama. I’m betting a TV episode would last about as long as it would take for her kids to finish the ride (it was a slow day, after all).

On a mobile device to pass the time, lower-quality video streaming fits the bill. Most folks aren’t looking for top-notch picture and sound while on the move, but just a bit of entertainment to pass the time while they wait in line at the post office or trudge on the treadmill at the gym.

That’s why Blu-ray sales continue to grow at the same time streaming services such as Netflix also flourish. They serve two different, but ultimately complementary, consumer needs.

---

What a Horror-ific Night!

The reputed ghosts at the Hollywood Roosevelt Hotel  (among them Marilyn Monroe and Montgomery Clift) must have had a great time Oct., 12, as many of the most influential and celebrated filmmakers, actors and producers in the horror and thriller genre converged for the second annual Reaper Awards, presented by Home Media Magazine and DreadCentral.com.

The Roosevelt was home to the first Academy Awards in 1929 and served as a perfect, haunting setting for Reaper Awards: The Sequel.

What a gracious and welcoming family of talent the horror genre supports!

The host of guests at the cocktail party and dinner looked like a wedding party  — albeit a little offbeat one.

Lest we forget in our industry, the DVD/Blu-ray Disc release is often regarded by filmmakers as the only lasting testament to their work. I’ve talked to many a filmmaker who likes streaming and Internet distribution, but really wants that disc to have in their collection as a record of their effort. That’s why it is so rewarding to honor the work of folks who often find their audience via home media and live on via disc.

Lifetime Achievement Grimmy winner Tom Holland (Child’s Play, Fright Night) lauded the home media industry for allowing old and new fans to appreciate his films.

“These films are kept alive by multiple generations,” he said. “Parents pass these films on to their children, and when they [become adults], they pass them on to the next generation. Because of VHS, laserdisc, DVD, Blu-ray, [VOD], these films live on forever.”

Thank you to our generous sponsors who made this really cool evening possible: Fox, Anchor Bay, FEARnet, Warner, Sony, eOne, Image, Lionsgate, MTI, Paramount and Universal.

Thank you to my two right hands in helming this sequel: Angelique Flores, who handled the operations, and John Latchem, who supervised the voting process and created the video presentation. Also thanks go to other Home Media Magazine team members, Billy Gil, Melbert Sebayan, Renee Rosado, Chris Tribbey and Miko Revereza, who assisted at the show.

And a special thank you to Steve “Uncle Creepy” Barton, co-founder and editor in chief of our partnerDreadCentral.com, who was the perfect master of ceremonies for the evening.

We look forward next year to Reaper: Part III.

---

Blu-ray’s Penetrating Questions

Blu-ray Disc format penetration is growing, despite competition from old stalwart DVD. The format’s penetration has doubled since July 2008, with 17% of U.S. households owning at least one Blu-ray device in July 2010, according to research from Centris Market Intelligence (see story, cover). I’d say that’s a pretty good run so far for a high-def disc that only won the format war in February 2008 and then faced a brutal recession.

Unfortunately, Blu-ray still can’t catch a break, even while gaining significant ground. Industry pundits are still pointing out that it’s no DVD. But I think that was clear from the beginning. Blu-ray always was destined to be different from its predecessor. I didn’t expect it to match the pattern of the first disc format to be sold directly to consumers in breadth. DVD had the advantage of the first crack at truly selling catalog directly to consumers, in addition to the inception of the TV DVD business. No one bought much TV product on VHS.

In comparison to DVD’s advantages in the marketplace when it debuted, Blu-ray has a harder row to hoe. What may make Blu-ray a bigger star is 3D.

In the 3D arena, Blu-ray has a clear advantage over video-on-demand and Internet streaming options. Those two distribution avenues cannot possibly match the quality of 3D on Blu-ray. The application could in fact offer a new dimension to Blu-ray sales.

At first, I admittedly was a little skeptical about the 3D wave, and it’s potential for the high-definition format. I’d seen a few bad versions of the new 3D technology (one film actually gave me a headache), and I couldn’t see how that would possibly be an engine for growth in the home.

But now I’ve noticed growing studio and hardware support behind 3D — even in hard economic times. 

Anecdotally, 3D in the home seems to be fascinating consumers as well. At a recent Costco, I noticed an older man comment to his wife that the picture on a flat-screen TV on display looked blurry, which sounded like a bad sign for 3D. Then, he noticed the glasses in front of the TV, and looked through.

“Oh, wow!” he said.

That same “wow” factor may be the ticket to more Blu-ray growth.

---

3D Bundling a Smart Move

One of the most difficult hurdles to overcome with the launch of HDTV — due to the HD DVD versus Blu-ray Disc format war — was the confusion about high-definition disc content. Certain content wouldn’t play on certain players. By avoiding that problem with Blu-ray and 3DTV, the industry seems to have gotten it right this time. Content, instead of confusing the issue, can be a major boost to the adoption of a new dimension in TVs.

By bundling major 3D theatrical hits with 3DTVs, studios and consumer electronics manufacturers are offering buyers an instant “wow” factor. Consumers can go home with their electronics purchase and immediately get the full benefit of 3D without the worry that they’ve got a disc that may soon become obsolete.

Walt Disney Studios Home Entertainment and Sony Electronics are partnering for consumer and retail education, promotion, and marketing support of in-home 3D devices, including bundling 3D Blu-ray versions of recent box office hit Alice in Wonderland and family favorite Bolt with the electronics. Meanwhile, Panasonic is reportedly partnering with 20th Century Fox Home Entertainment  to bundle its 3DTVs with the 3D Blu-ray release of box office sensation Avatar in December, and Samsung is collaborating with DreamWorks Animation to bundle How to Train Your Dragon and select “Shrek” films with 3DTVs this fall.

I’ve already seen enticing and reasonably priced displays of 3DTVs with the whole setup, including the 3D Blu-ray player. Add a movie such as Alice in Wonderland, Avatar or How to Train Your Dragon to the bundle, and it’s even easier to close the sale.

But the studios aren’t doing this merely to help out their friends in the electronics industry.

While electronics companies are obviously benefitting from studio content, the studios ultimately may be the bigger winners. As was often noted during the high-definition format war, sell the razor and make money for years to come on the razorblades. Content in 3D plays on any of the 3DTVs out there. This time around, the studios’ “razorblades” work with any of the “razors” out there.

With the hits the studios are bundling with 3DTVs, it looks like the format’s electronics may start moving off retail shelves this holiday season despite the bad economy. And that will mean studio sales of 3D Blu-rays for many seasons to come, and a new lease on life for a Blu-ray format increasingly facing competition from high-definition digital delivery. Blu-ray’s advantage has always been its high quality of sound and picture. The new 3D format will again show off the fact that Blu-ray is the best way to watch movies.

---

Honoring the Best in the Business

We’re in awards season here at Home Media Magazine.

A few weeks ago we announced the top discs of 2009 with our annual DVD Critics Awards (Warner Home Video’s glorious Wizard of Oz re-release took top honors) and next week we will honor the best in high-definition Blu-ray Discs.

There are so many great people behind these discs, from the sales and marketing executives to the supplemental material producers to the replicators and authoring companies. We appreciate your hard work and relish the opportunity to recognize it.

And there’s more to come.

Our panel of horror judges is evaluating titles and choosing the nominees for our annual Reaper Awards. The awards, honoring the best discs in the horror genre, will be presented Oct. 12 at a gala dinner and cocktail reception at the legendary (and haunted) Roosevelt Hotel in Los Angeles. We’ve had more than 100 submissions for the nominee process, and there is some truly great product out there. We’ll be announcing those final nominees vying to receive a coveted Grimmy soon. Home Media Magazine is co-presenting the Reaper Awards with the in-the-know horror site DreadCentral.com. DreadCentral’s editor-in-chief and co-founder Uncle Creepy is again set to host the show — and we look forward to a frightfully good party.

Also, coming in late October is our much-anticipated annual Women in Home Entertainment issue, in which we honor the savvy and capable women who help make this industry what it is. We will soon set up an online nomination process for that honor. Until then, please pass on nominees to me. It’s really a pleasure to honor the great women in our business, and I look forward to this issue every year.

In these recessionary times, our industry (and everyone) can use something to celebrate. The Home Media Magazine team sees our mission as both informing the home media industry through our website and magazine and enthusiatically trumpeting its top accomplishments. Offering these awards and galas is one of the ways we like to complete that mission.

It’s our pleasure, and we welcome your enthusiastic input in the process.

---

Studios Tout Varied Window Dressing

It’s been the Wild Wild West of windows so far this year from the studios, and the freewheeling ways show no signs of stopping.

In last week’s issue, Warner chief Jeff Bewkes said his studio’s later windows for Netflix and Redbox were boosting digital and disc sales, while Viacom CEO Philippe Dauman said Paramount’s decision to offer those outlets discs at the same time as others had little effect on its fortunes.

This week, Lionsgate co-COO Steve Beeks reiterated his studio’s plan not to window Redbox releases. When asked if the studio would hold back the high-profile actioner The Expendables from Redbox later this year, Beeks said he doubted it. But the decision was far from definitive.

“Right now we are planning on selling [Expendables] to Redbox, but we do have some flexibility on that deal if things look differently in the future,” Beeks said.

Meanwhile, Lionsgate execs said offering digital in the same window as disc had little effect on disc sales while adding to the bottom line.

In this week’s issue, Disney chief Bob Iger says the studio is looking into releasing titles in advance of packaged media and digital at premium VOD pricing.

“There are people, we believe, who like to see movies sooner rather than later and would pay a premium price to do that,” Iger said.

On the digital side, he said that when renewing Disney’s third-party movie distribution agreement with Starz it agreed to the cable provider licensing streaming content to Netflix.

“We could actually benefit through Netflix growth through that deal,” he said, adding that by Netflix reaching certain revenue “thresholds,” Disney generates additional incremental revenue.

This varied window dressing points to one conclusion: The jury’s still out on the most profitable release schedule for sellthrough and rental of disc and digital. Each studio seems to be choosing their windows differently, perhaps based on the particular appeal of their product. Iger, for instance, noted that Pixar titles still sell well on disc, despite the challenging economic environment.

My guess is it will take many more financial quarters and a return to more stable economic times for the most profitable window pattern to emerge.

---

Title Contraction Paring Disc Sales?

DEG: The Digital Entertainment Group released first-half numbers last month showing packaged-media sales had dropped 3% in the second quarter which, after factoring in a steep first-quarter shortfall, resulted in a 7.1% drop in sales for the first half.

Certainly the economy is hitting disc sales, albeit less drastically than it did in Q1. But it may also be the title count that is hurting the sellthrough business. For the first half, the number of DVD releases fell by about 1,000 titles, according to The DVD & Blu-ray Release Report, put together by editor Ralph Tribbey. While half of that shortfall can be attributed to the special interest category, the rest includes core catalog and new-release titles. Meanwhile, Blu-ray title counts aren’t picking up enough to fill in that hole. The count of Blu-rays is up 18.4% for the first half, or a year-over-year gain of just 90 titles, according to the report.

“It appears that as long as the economic numbers continue to be dismal, so too will be the [inventory] counts for both Blu-ray and DVD as suppliers pick and choose what gets released,” reads the report.

The chicken-and-egg proposition is: Which is hurting disc sales more, consumers unwilling to buy or the fact that there are fewer titles from which to choose?

The picture gets clearer when looking at exactly which kinds of titles are in short supply. The theatrical catalog release pace slid 32.1% in the first half, according to the report. Many of the other categories either held their ground or grew in title count.

It seems apparent that consumers are not opting to replace their catalog DVDs with Blu-ray and that many already have collected those older titles they most desired. For many, DVD may be good enough for many titles in their collection.

I’ve written before the Blu-ray had a hard act to follow in DVD, which reaped the benefit of the first real shot at selling the studios’ rich catalog. VHS was never highly collectible in the way DVD was, and Blu-ray — while better still than DVD — is facing a tougher economy and DVD-library exhaustion.

Considering the headwinds, disc sales are pretty strong, showing consumers’ continued interest in owning the content they love the most.

---

‘Inception’ of a New Dialog With Home Entertainment Consumers?

This last weekend I went to the movies for the first time in a while to see director Christopher Nolan’s Inception, a Warner Bros. sci-fi juggernaut that topped the box office for the weekend and created a lot of buzz despite being shown in good old 2D.

After the movie, ushers handed out questionnaires ostensibly from the studio asking viewers how they liked the movie, among other things.

At the end of the survey was the following question: How interested would you be in buying or renting Inception on DVD or Blu-ray Disc or ordering it on demand? Answers ranged from “Definitely” to “Definitely not,” on a scale of 1-5.

If industry participants don’t think the studios are seriously reevaluating the home entertainment market, then this survey should give them ample proof. Of the three choices, buying or renting on disc or ordering via on demand, the studios have definite favorites based on the amount of revenue coming back to them. Buying the disc or on demand pay-per-view would be the most profitable consumer actions to the studios. Renting the disc is not.

I’m not sure exactly for what purpose the studio will use this data. Were I conducting the survey, I might gauge the purchase intent for each movie and window each movie to create the maximum revenue for the studio. If consumers aren’t particularly interested in purchasing a film, I might offer it first via VOD and then on disc. If they show a strong interest in purchasing a movie, I would offer it before or at the same time as it appears on VOD.

I have no doubt studios are looking at every aspect of the home entertainment business to maximize their revenue — and consumers answering surveys like this are going to point the way.

---

Hulu Sub Service Should Beat Netflix

Hulu’s launch of its much-anticipated $9.99 “Plus” monthly subscription service is a move in the right direction for content owners. Co-owned by The Walt Disney Co., NBC Universal and News Corp., Hulu for some time has come under pressure from its content owners to charge for its service, which until now has been free, supported by ads.

Consumers have become all too accustomed to free content on the Internet, subsidized by suppliers eager to get a foothold in the new media. It’s time content owners started to nudge consumers toward paying for expensive studio content. Otherwise, such high-quality content will dwindle.

Unfortunately, the $9.99 price on Hulu’s new service may not be low enough to attract the consumer used to free content, and it doesn’t match the value at Netflix for a similar price. At Netflix, you can get some TV shows and movies streamed, as well as rent the latest DVD hit for $8.99. I’m not sure the lure of Hulu’s offering — which, unlike Netflix, still includes ads — is strong enough to compete.

To truly whet the appetite of the online TV consumer, Hulu should undercut competitors such as Netflix, with, say, a $7.99 or $6.99 monthly subscription price. Hulu should also reward fans of certain shows with a price break on DVD/Blu-ray sets. After watching a couple of episodes of, say, “Heroes,” viewers might decide it’s a show they would like to own.

Netflix and Redbox have taken the rental business by storm not necessarily because their models were more convenient for consumers, but because they offered a better value than any other service.

In these tough economic times, Hulu should be trying to woo these value-conscious consumers, who obviously flocked to the site in part because they could watch episodes at no charge. Offer these penny-pinching fans a great value, and Hulu will build the business. Offer them a price that looks too high, and it might strangle efforts to charge for content.

Judging by Hulu’s cautious entry into the monthly subscription service (membership is by invitation only), Hulu’s owners are treading with care, experimenting to find the best model. I would guess that lowering the price to give Netflix and others some stiff competition will make Hulu Plus take off and create a more-profitable model for online distribution.

---

Studios, Rentailers: Reluctant Partners

It’s always been a marriage of convenience between studios and rentailers, with one or the other holding more power from time to time.

Occasionally, the relationship has been rocky, even resulting in lawsuits, notably between the indies and Blockbuster Inc. and the studios at the beginning of the decade and the recent Redbox litigation. Still, rental of physical media has survived for about three decades and shows signs of change
(kiosks, subscriptions), but not extinction.

The Holy Grail of digital delivery was supposed to make physical rental a relic, but instead the rentail of discs has remained quite viable, with Redbox and Netflix profiting while the store model, at least for national chains, has taken a big hit.

While Netflix garners most of its Wall Street plaudits from its emerging streaming business, the subscription service doesn’t plan to ditch physical rental anytime soon. In fact, Netflix has noted that the Blu-ray rental premium is adding to the bottom line.  That premium ranges from $2 extra a month for the one-out plan to $9 extra for the eight-DVDs-out-at-a-time plan.

Redbox is the red-hot newcomer in the business — and it’s about as old-fashioned as a coke machine, dispensing physical discs from a kiosk. No newfangled digital delivery there.

Recently, Disney and Paramount studios have both expressed confidence in the old physical rental model being updated by Redbox kiosks by continuing to offer new releases to the company on street date. The studios’ execs say they are following the will of the consumer — and that may be true. Consumers are looking for convenience and value, both of which kiosks offer.

But what is often lost in the conversation among industry pundits is that physical rental is surviving, even in light of competition from digital streaming and downloads. Many of the troubles plaguing the national chains are based on financial shenanigans and ill-conceived buyouts. I’ve heard from many indies who are making their way despite the competition.

Physical media rental is alive and well, at the right price. It’s familiar, it’s easy and consumers like it. With all the talk about Hulu and Epix and Netflix streaming, it’s easy to lose site of the fact that many consumers like to rent a disc for a night or two and return it.

---