Windows Aren’t Much Clearer

Really, who can blame consumers if they are confused by the value of movies?

Recently, they’ve been able to get Walt Disney Home Entertainment’s Alice in Wonderland at their local kiosk for $1 a day, while on the high end they are paying a $20-per-ticket premium price to see DreamWorks latest Shrek installement in 3D in theaters, about the same price they’ll pay to buy the disc (albeit in 2D) a few weeks later.

Soon, studios will ask consumers if they would like to rent a new release via video-on-demand for $25 to $30 a few weeks before it comes out on disc. Still, they’ll be able to rent the title a few weeks later for about $4 from the local Blockbuster or cable company VOD plan or for $1 at a kiosk (availability depending on the studio).

Within a three month or so period, the price of watching a movie can vary from more than $20 to $1. There’s also the all-you-can-eat streaming option at Netflix, which values watching older movies based on how many you can watch in a month-long period. If a consumer streams 20 movies in a month for the $9 monthly subscription, that’s less than 50 cents a viewing.

Disney’s Bob Iger, for one, is on the side of fewer windows in the home video business. He sees no added revenue in delaying disc sales to Redbox and other kiosks at discounted prices.

“We have not seen any significant cannibalization from the $1 Redbox rental window,” Iger said.
Several industry observers beg to differ, noting that many consumers won’t buy a $20 disc when they can rent it for $1.

At the beginning of the year, I wrote that windows would be one of the biggest issues facing home entertainment in 2010, and it has been. I just thought we’d have a little more clarity on the issue by this time. Certainly, the deals worked out by Warner, Universal and Fox with kiosks and Netflix in part settled the question, but the issue is by no means dead.

Will the three studios that have imposed windows see a jump in disc sales? Will Disney regret offering Alice to $1-a-night kiosks and see sales slump?

The second half of the year — which includes the all-important fourth-quarter sales season — may offer some answers. But for now, the future of windows is still unclear.

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Disney Shows Some Mad Style

Anyone who has seen Tim Burton’s Alice in Wonderland is certain to admire the intricate costumes designed by Oscar winner Colleen Atwood.

As Warner did with it’s superb ruby slippers design exhibition for the 70th anniversary of The Wizard of Oz, Disney beautifully merged the world of fashion and film to support the disc release of Alice by hosting a gala at the Fashion Insitutute of Design and Merchandising (FIDM) in Los Angeles.

On display were the elaborate costumes from the film, designed by Atwood, as well as fashion interpretations of the various characters in Alice designed by FIDM grads. Hosted by “Project Runway” alum Nick Verreos, the runway show featured fanciful new creations, from the Mad Hatter (in a gorgeous orange gown) to the Red Queen in a ruby red dress with a voluminous train sprinkled with hearts. For pictures, click here.

The grounds, too, offered a superb setting with clocks, hearts and teacups dotting the outdoor courtyard.

Singer/songwriter Kerli got the crowd in the Alice mood, performing her hits “Strange” and “Tea Party” included on the soundtrack, just before we were treated to a viewing of Atwood’s costumes and clothing inspired by other designers.

This is the second extremely polished and classy event I’ve attended at FIDM. I hope the association between home entertainment and the institute continues.

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How Much Does Rental Hurt Sellthrough? Ask Europe

I find it interesting that European disc sales (Blu-ray and DVD) are up 2.3% in the first quarter of the year, according to DEGE: The Digital Entertainment Group Europe, while in the United States sales were down 11% in Q1, according to DEG: The Digital Entertainment Group.

That can mean only one thing: Disc rentals are a drag on sellthrough in the United States. European’s aren’t subject to the same First Sale Doctrine that had allowed (up until 28-day window agreements with Redbox and Netflix) rental stores in the United States to rent titles at the same time they are available at sellthrough.

Obviously, consumers in the United States are turning to $1 Redbox rentals and cheap subscriptions at Netflix to fill their need for movie entertainment — otherwise, disc sales in the United States, as they were in Europe, would also be up.

The European numbers make the U.S. market more clear. Consumers are renting (at extremely low prices) instead of buying because they can. Without a robust rental market, Europeans turned to buying discs more often.

There’s a method to the rental window madness in the United States. Studios are merely asking consumers to pay more, as they do in Europe, to see high-quality releases. The evidence for the U.S. studio move is in the numbers.
 

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Is Brick-and-Mortar Rental Dying?

The news at the national retail chains is grim. Movie Gallery, after twice filing bankruptcy, is liquidating all stores. Blockbuster Inc just reported a $65.4 million first quarter loss, and analysts again are talking bankruptcy.

Meanwhile, Netflix’s stock has hovered around $100 and the online pioneer is surging past 14 million subscribers. Coinstar, parent of upstart kiosk company Redbox, has 25,000 kiosks and sees a potential market for up to 60,000 units in the United States.

Is the brick-and-mortar rental chain dying? 

Certainly, the national rental chains have been buffeted, weighed down by paralyzing debt — Blockbuster from its spinoff from Viacom and Movie Gallery from its expensive acquisition of Hollywood Video. But, indications are, there are regional chains flying under the radar that are doing just fine. I recently got a call from a reporter doing a story on 40-store Movie Starz Video, which has locations in Virginia, Tennessee and West Virginia, and has been in business for 16 years. I’ve heard from a district manager at Video Warehouse with 60-plus stores throughout Georgia, Alabama, South Carolina, and Florida, who says his chain is doing just fine. Hastings reported a $1 million profit in the first quarter, a drop from last year, but still a profit. The chain has been able to compete with kiosks by matching the $1-a-night price on certain titles. It’s been a drag on the bottom line, but Hastings CEO John Marmaduke said more than 60 Movie Gallery (and Hollywood Video) locations nearby Hastings stores closed in the first quarter, which “over the long term …  will have a positive impact on our rental revenue.”

Back in late March, we did a story on independent retailers who also are holding their own (“Indie Rentailers: Hanging in There,” March 22-28) by offering customer service and lowering rental prices a bit to compete.

The studios, too, have begun to boost rentail, with Warner, Fox and Universal offering new releases to stores before Netflix and Redbox. The stores have other advantages over the two new upstarts. Renting a title at a store offers more immediate gratification than turning to Netflix, and more customer service (and sometimes less time in line) than going to a kiosk.

Don’t count the rental store out just because the two national chains bit off more debt than they could chew. Readers, please send me more stories of regional chains tending to business.
 

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Hollywood Buyout Killed Movie Gallery

Buying your way into growth isn’t always the best plan, as evidenced by the cautionary tale of Movie Gallery, which bought Hollywood Entertainment Corp. after a fierce battle with rival Blockbuster Inc. in 2005. The $1.1 billion acquisition of Hollywood, which included assuming the chain’s $380 million in debt, proved disastrous. That deal was supposed to elevate Gallery from a successful southern rural operation to the national stage, but it ended up sinking the chain in a sea of red ink and ultimately placing it on the dust heap of failed retailers such as Circuit City and Tower Records and Video.

Blockbuster has its own problems with debt from it’s spinoff from Viacom, and no doubt executives now are delighted the chain dodged the bullet of buying Hollywood.

While both chains were duking it out to consolidate the existing brick-and-mortar rental business, Netflix was quietly growing the new subscription rental model and nuturing the idea of video streaming and Redbox was getting into $1 DVD rentals via kiosks at McDonald’s.

Preoccupied with the business of the past, Movie Gallery, in addition to biting off more than it could chew with the acquisition of Hollywood, clung to the old in-store rental model. The chain made tentative moves into video-on-demand with the MovieBeam acquisition and into kiosk rentals. But management seemed too preoccupied with whether or not the next quarter’s slate of titles would pull them out of a slump to look ahead. They were thinking short-term, under pressure from a giant debt load. Renting out store space was a good idea to boost the bottom line, but it wasn’t a long-term solution to a waning core in-store rental business.

Standing still while the competition innovates is not a winning strategy. Making small bets in a fast-changing business proved Gallery’s downfall. But it was ultimately the Hollywood acquisition that kept Gallery from innovating. The chain spent precious time shoring up an old business model, rather than nurturing a new one.

Blockbuster, which is sure to benefit from having fewer brick-and-mortar competition, turns out to have won a small victory by losing its bid to buy Hollywood. But is remains to be seen if that chain, which is also saddled with debt, can keep up with innovators such as Netflix and Redbox.
 

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Blockbuster’s Debt Load and Marketing (Take 2)

I’ve gotten several responses to my last blog about Blockbuster’s debt strangling its essential marketing effort. One studio respondent noted, “The ‘open the door and here they come’ days have long been over.”

Yesterday, the chain made an attempt to tout its new-release advantage with a press release.

Here are some excerpts:

“Blockbuster Inc. today announced availability of the hit movie, It's Complicated, from Blockbuster in stores, by mail, or digitally, a full four weeks before it will be available through some competitors. Blockbuster's early advantage reflects its ongoing agreement with Universal Studios to provide customers with the opportunity to rent hit movies the day they are released. Blockbuster also has early availability of other box office hits like Sherlock Holmes and the highest grossing film of all-time, Avatar, as well as other upcoming new releases such as Tooth Fairy, Valentine's Day, and Invictus.

…

“Blockbuster is the only multichannel provider that has every hot new movie on the day of its release. For example, customers can rent a movie like Avatar through the Blockbuster By Mail service, return it to a Blockbuster store after watching, and exchange the movie for It's Complicated for more home entertainment. In addition, customers can access movies through Blockbuster Direct Access, a new service that gives customers in-store access to the more than 95,000 titles carried in Blockbuster's distribution centers.  Customers can also access new releases from Blockbuster through any Blockbuster On Demand-enabled devices, including PCs, select Samsung products, most TiVos, and the new T-Mobile HTC HD2.”

Wow, that’s a mouthful. And certainly it’s appropriate for a press release, but depending on news outlets picking this up just isn’t going to cut it in my opinion. Blockbuster needs a massive advertising campaign, something catchy and memorable, like that Netflix campaign where all the movie characters are sitting in a room ready to be sent out. It needs to be a visual and succinct representation of what Blockbuster can offer. But, like I said, without some massive spending, that won’t happen.

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Blockbuster’s Debt Load Weighs Down Vital Marketing

When was the last time you heard or saw an advertisement for any of Blockbuster’s rental services? How many times in the last week have you been bombarded by ads for Netflix?

My answer to No. 1: I can’t remember. My answer to No. 2: numerous times, on radio, on TV and on the Internet.

That, in a nutshell, is one big reason why Blockbuster’s by-mail service only has about 1 million subscribers while Netflix has nearly 14 million.

Sure, Netflix got a big headstart in online disc rental, but Blockbuster’s by-mail service is a good one that offers the most recent releases and in-store returns — something not available at Netflix. I recently met a family that subscribes to the Blockbuster service in part because of the in-store option. Also, I recently heard a colleague — a Netflix subscriber — say she entered a Blockbuster for the first time in a while because Netflix didn’t have The Blind Side yet.

These are advantages that Blockbuster should be crowing about every day, but with nearly $1 billion in debt it’s hard for the rental chain to scrape up the kind of money needed to blanket the market the way Netflix does.

That’s why Blockbuster’s lenders should be making every effort to relieve some of that debt load from the company. If they want to get anything out of this chain and not force it into bankruptcy, the lenders need to give it some breathing room to advertise its still-viable and in-demand services.

Indications are that this is happening. The company announced April 16 that it will delay the annual shareholder meeting for a month so management can “complete one or more” ongoing recapitalization initiatives, in addition to possibly resolving non-compliance issues with the New York Stock Exchange. The annual meeting was pushed from May 26 to June 24.

Blockbuster’s fortunes over the past few years might have quite different without a debt load that its competitors didn’t have. It’s time the lenders realize it will be a lose-lose situation if the chain isn’t allowed to market itself. Without the positive push of advertising, all consumers hear about Blockbuster is bad news. It’s not the kind of message that the chain needs to pay back investors, keep existing consumers or find new ones.

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Why Netflix Is Winning

I recently had a conversation with a journalist about the changes in the business and an interesting anecdote came up.

He said a friend of his purchased a season set of “24” on disc and then returned it to get his $50 back.

Why?

He found that through his Netflix subscription he could see the entire season via streaming for no extra charge to his subscription fee. It also explains why Netflix uses the 15-minute streaming measure (rather than one hour or so to connote a movie) in describing its electronic delivery success. Many of Netflix’s streaming customers are watching TV shows online.

Price. That is why Netflix is soaring — and why the studios are trying to push back new release availability on the site. But Netflix may be hurting TV DVD sales as well. Unless a TV show is collectible, TV DVD sales may take a hit. With Netflix streaming entire seasons, the need to buy TV DVD sets may decline.

The real reason Netflix is a success isn’t necessarily its technology, but its value.

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3D Could Add Dimension to Disc

The new 3D technology could add new life to disc, just as it has reinvigorated the cinema chains, which a few years ago were bemoaning competition from DVD and home theaters. Digital delivery backers are upping their attempts to take a bite out of packaged media, and 3D could offer Blu-ray Disc a killer app to hold off the onslaught. Consumers are hungry for the product, according to Best Buy CEO Brian Dunn, who noted shopper curiosity and enthusiasm for 3D TVs in the chain’s latest financial call.

But, as it did with high-definition disc, the industry must be very careful about how it approaches the new technology.

James Cameron, director of the 3D phenom of the year Avatar, noted that a 3D Blu-ray release would be premature. “There just aren’t enough people with those screens,” he said.

During the launch of HDTV (and indeed, DVD), this chicken-and-egg dilemma of hardware versus content made the introduction of Hollywood’s library to the new technology very tricky. Content owners seem to have gotten quicker to market with top titles in the high-definition battle than they did with DVD. It took much less time for such catalog gems as The Godfather to hit Blu-ray than it took for them to come out on DVD. Studios waited for the market to develop in each case.

Now, the studios are dipping a toe in the 3D market, bundling certain titles (by mail) with certain 3D-capable TVs. As Home Theater Forum’s Adam Gregorich pointed out, that may be like giving consumers only one bite of a treat when they would really like a healthy serving.

Unlike Gregorich, I see no immediate harm in these bundles. Early adopters are used to waiting for content to explode for their new gadgets. When my family bought our first VHS player, one of the only titles we owned was Alien, and we watched it over and over again (especially the exploding stomach part).

Where the roll out of 3D Blu-ray content will get tricky is when we near the end of the early adopter stage.  Will the studios choose to release some titles only on 3D Blu-ray because they also will play on 2D Blu-ray players? Will consumers balk at buying a 3D disc without owning the hardware? Will studios still include a DVD and a digital copy?

As if release windows aren’t enough, Hollywood has a 3D launch to navigate.

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Fess Parker: A Class Act

Fess Parker

Over the years I’ve had the opportunity to interview many stars from the golden years of Hollywood, and they exhibit a class that you often don’t see in the Hollywood set anymore.

In June 2006, I had the pleasure of interviewing Fess Parker, star of the “Davy Crockett” and “Daniel Boone” series. Sadly, he passed away March 18.

Parker gleefully recalled the title tune from the “Daniel Boone” series, joining former co-star Ed Ames.

“Daniel Boone was a man. He was a BIG man,” they belted in announcing the video release of the series.

Parker had invited stars of the series, a cadre of press members and fans to his Doubletree Resort in Santa Barbara, Calif., to celebrate and kick off “Boone” on DVD. We visited with his family and took a tour of his vineyard.

Parker was delighted to help preserve the series for fans on disc, and like so many of the classic film and TV stars, relished promoting his work.

It was a pleasant experience, and one I will never forget — like the day in 1994 I interviewed Gene Kelly, since passed, and listened to him gleefully grouse about “the suits” at the studios who had given him such a hard time (meanwhile he was sharing more than half his day with a group of reporters just to push the release of That’s Entertainment III on home video). At the same event, I met Cyd Charisse, another legend since passed, who looked as glamorous that day as when she first graced the screen dancing with Kelly.

They will all be sorely missed.
 

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