Stephanie Prange is the editor in chief of Home Media Magazine. The Yale University graduate joined what was then Video Store Magazine in 1993 and was instrumental in transitioning the publication into a tabloid newsweekly. She spearheaded the publication’s reviews section, as well as aggressive coverage of the home video sales market. She also helped launch the magazine’s Web site in 1996. In her position as editor-in-chief since 2006, she has spearheaded the launch of such projects as the daily blast, transmitted via email each day to readers, and Agent DVD, a consumer publication aimed at genre enthusiasts who attend Comic-Con International in San Diego. She has freelanced for The Hollywood Reporter, The Los Angeles Times and parenting publications. She has an M.A. in journalism from the University of Southern California.
Has Netflix pulled away from disc rentals too quickly? That’s the question I asked when looking at the latest quarterly results from both Netflix and Redbox kiosk parent Coinstar.
Netflix had rather disappointing results, meeting some expectations but not showing the enormous subscriber growth that Wall Street craved. Meanwhile, Redbox continued to eat up disc rental market share, taking advantage of the pullback of both Blockbuster, which relinquished its NCR kiosks to Redbox, and Netflix, which continued to concentrate on the promise of streaming.
Michael Pachter, analyst with Wedbush Securities in Los Angeles, noted that Netflix CEO Reed Hastings’ boast that subscribers streamed 1 billion hours of content in June may prove costly.
“We think content owners ultimately value their content based upon the number of views, and as Netflix grows its subscriber base and overall viewing hours, it is inevitable content costs will continue to rise,” he wrote.
Building a subscription streaming business is proving to be harder for Netflix than capitalizing on the collapse of disc rental competitors is for Redbox. As pretty much the last physical rental option standing in many markets, Redbox is making hay. There seems to be a constant line of renters at the kiosk in my local grocery store.
Indeed, the future is primed for streaming, but how fast will that future arrive? I think Redbox may have a better handle on the timing than Netflix, as it keeps its business more firmly rooted in physical disc rentals. Certainly, Redbox is setting up for the future, having announced some particulars for its Verizon digital venture. But, in the meantime, it is piling up profit from its physical rental business.
Many innovators have fallen because they came too soon or moved too fast for consumers. Meanwhile, the move-slow approach often has proved more successful in the end.
If Netflix is the hare, Redbox is the tortoise.
And, anyone who has heard the fable knows who wins in the end.
Numerous reports have pointed out that the annual San Diego Comic-Con International convention, which took place last week, is losing some of its luster with studios. Burned by criticism of new films in past years — launches that didn’t provide the marketing jolt the studios envisioned and, in fact, helped squelch enthusiasm — studios have been pulling back their effort at the annual confab for the past two years.
But for the home entertainment business, Comic-Con is still a great promotional opportunity for studios that want to tap fan bases, as Shout! Factory did with its “Power Rangers” promotions and Paramount did at the Lucasfilm booth with a pit of real slithering snakes, recreating a famous scene from Raiders of the Lost Ark. Both suppliers plan retrospective disc sets, Shout! with season releases of the classic “Power Rangers” series and Paramount with its release of Indiana Jones: The Complete Adventures on Blu-ray Disc. In addition, MGM and 20th Century Fox Home Entertainment promoted the disc release of the James Bond series with different Bond vehicles on display at the booth each day.
Others boosted direct-to-video additions to classic Comic-Con-friendly franchises. Sony Pictures Home Entertainment touted the direct-to-video releases of the CG-animated Starship Troopers: Invasion, due on disc Aug. 28, and Resident Evil: Damnation.
While Comic-Con may be waning as a platform to launch new properties, for the home entertainment business, which depends on proven and fan-friendly franchises, it remains a great place to make contact with and market to fans of classic series.
The convention this year also proved to be a way to familiarize home entertainment fans with the new digital locker service, UltraViolet. Warner Bros. Digital Distribution gave away free access to select UltraViolet studio titles during the confab.
So, despite the crowds and confusion, home entertainment marketers will most likely continue to trek down to San Diego each July to promote discs and digital releases of fan favorites, even if studios are pulling back.
One of the initial promises of Blu-ray Disc (and indeed the failed HD DVD format as well) was that it would seamlessly combine the quality of packaged media with the limitless and malleable advantages of the Internet.
BD-Live, which often connected to a studio site, was an initial crack at this new plan to marry discs and the Internet, but it languished.
Finally, a new killer app may be emerging — and it’s, well, an app.
What BD-Live promised can be achieved with a synced movie app that connects with and controls playback of a disc on a connected Blu-ray player. Warner Home Video recently demonstrated this with its Sherlock Holmes: A Game of Shadows Movie App, which allowed disc producers to add reams of information on author Sir Arthur Conan Doyle, the history of his Sherlock Holmes character and more — all potentially syncable with the Blu-ray. The app is free and can be downloaded from the iTunes Store. It turns your iPad 2 or Kindle Fire into a controller to expand the movie-watching experience. It’s a great example of those second-screen applications that the industry is buzzing about.
The movie app allowed the disc producers to offer much more information on the background of the film than would be allowed on your typical extras disc, and it allowed the producers to created a product that is not static — it can potentially be updated, changed or expanded.
While I don’t think the movie app is yet ready to replace that kind of extras-laden release fans and collectors have come to expect with certain discs, it offers a glimpse into the future of content and into the kind of added-value information that studios may be able to produce (and perhaps monetize) in the future.
The movie app — which is BD-Live rebooted and refined — could be packaged-media’s avenue to connect to cyberspace. It’s a new format for disc producers to explore and exploit. For those who have been wondering where BD-Live went, there may be an app for that.
This issue includes Home Media Magazine’s second “Digital Drivers” special section, another look at who is driving the transition from physical media to digital distribution, including studio, retail, cable, Internet and technology executives.
Since the publication of last year’s “Digital Drivers” section, the industry has seen the introduction of UltraViolet, which launched in October 2011. The UltraViolet ecosystem is spearheaded by a consortium of more than 75 member companies, including studios, retail, consumer electronics, technology, cable and other companies. That consortium, the Digital Entertainment Content Ecosystem, or DECE, is embarking on a bold attempt to create a standard for digital delivery that is unprecedented. It aims to allow consumers to buy digital rights to a title that will allow them to buy once, play anywhere the movies, TV shows and other content they cherish.
UltraViolet, despite some hiccups, has made inroads, especially with Walmart’s help. The retailer launched a disc-to-digital service that allows consumers to come into the store with their existing disc library and buy UltraViolet digital rights playable via Walmart’s Vudu service. With that move, Walmart has helped UltraViolet populate the cloud with content rights and grow its account base from 1 million to 3 million in a matter of months.
For that reason, we have chosen executives key to the launch of UltraViolet as high-level digital strategists this year.
Meanwhile, former digital darling Netflix has suffered some growing pains trying to forge a subscription streaming future. Netflix will have to balance marketing to grow subscribers domestically and abroad with the increasing cost of buying premium content. Now that the content owners see dollar signs in streaming, that task will get harder.
Digital delivery is here to stay, and it’s growing. But the players continue to shift as content owners and distributors negotiate how to most profitably and conveniently serve it up to consumers.
Once-high-flying Netflix, which has seen a precipitous drop in its stock price, seems to be coming down to Earth, looking for windows that fit the scheme of both the studios and their partners in home distribution.
Speaking May 30 to the Nomura U.S. Media, Cable & Telecom Summit in New York, chief content officer Ted Sarandos said to secure long-term working relationships with studios, he is embracing ongoing 28-day delays on new releases with some studios and a 56-day delay with Warner (see story, cover).
“I believe that is good for the overall ecosystem,” Sarandos said, adding that consumers who want new releases most likely aren’t Netflix subscribers. “This way we stay out of the path of the first 28 days of [higher-margin] VOD transactions or DVD sales. And that is a good thing because it supports the overall creation of content.”
Thank goodness someone outside of the realm of content creators and owners has acknowledged that windows help finance content — in short, that content is worth paying a premium for in the new-release window.
I particularly like Sarandos’ mention of an “overall ecosystem” that underlies the creation of content. It’s a hard concept to explain to many consumers who want to get the latest movies for a minimal price (or in some cases at no cost via piracy). It’s consumer dollars that finance big-budget actioners, such as The Avengers, as well as high-concept, Oscar-lauded projects, such as The Artist.
Perhaps now that some of the shine has worn off of Internet darlings (including Facebook), studios and companies that want to distribute their content online can come to an agreement that both values content and offers digital access to consumers — at a price that continues to support great movies and television shows.
Just as Facebook’s Mark Zuckerberg and Netflix’s Reed Hastings should be paid for their innovative and creative ideas (and they have been, handsomely), so should those who create and distribute movies and television shows that consumers want to see. It’s only fair.
The recent financial industry discussion with the CFO of Netflix shed some light on what the subscription service may be focusing on as it moves into the streaming future. I think it may be seeing competition from UltraViolet, the cloud-based license storage service backed by most of the major studios.
Netflix significantly is not a member of the Digital Entertainment Content Ecosystem (DECE), the consortium of more than 70 members that support UltraViolet. Suddenly, as UltraViolet has had a successful launch in Walmart stores and has racked up 2 million accounts, Netflix CFO David Wells told an investor group the company plans later this year to roll out a subscription plan enabling multiple users within a household to stream content on different devices.
Wells said the upcoming subscription offering with an as-yet undefined price is the result of a growing number of users accessing Netflix from one account at the same time.
Could that be a response to UltraViolet’s ability to let consumers have up to six household members per account able to access content on up to 12 different devices?
As I have said previously, ownership is a very efficient way to get consumers the movies they want — without making them pay for a bunch of titles (via licensing deals with Netflix) that they don’t ever want to see.
In this recent call, Netflix is making it clear that even within households, different members like different content and want to watch it on different devices — sometimes at the same time as another member in the household.
What model serves consumers’ desire to both watch the content they want and also watch it on the device (TV, tablet, mobile phone) they want — regardless of what other members of their “account” are watching at the same time?
I think UltraViolet may be giving Netflix some headaches in that competition.
It may be that our business has finally hit an equilibrium. The home entertainment market as a whole — measured as direct sales to consumers plus the money they spend renting content (either digitally or physically) — has grown more than 2%, but the true measure of the health of the business, as far as the studios are concerned, is the sellthrough measure. And spending there seems to be about equal to the first quarter of 2011. In this economic environment, flat is good, and sellthrough spending is essentially flat.
While many have been predicting a bottom in the housing market — with some saying we have actually hit it this year — I think it’s more likely we have hit a bottom in the video market, and may be heading up on the sellthrough side soon.
UltraViolet may prove to be the savior of electronic sellthrough, which the studios have been trying to spur for years with little success. Walmart’s disc-to-digital program, whereby consumers bring in their old discs to load them into the cloud via Vudu, is showing every indication it is the killer app for the UltraViolet service. Studio executives are hailing a jump of 1 million UltraViolet accounts to 2 million with the launch of Walmart’s service, which has only barely begun. TV advertisements for the service just started hitting in late April (see story, cover).
If UltraViolet truly starts to pick up momentum — as there is every indication it will — incremental revenue from the service should help the home entertainment bottom line, and it should also help studios draw back consumers who have turned to Netflix or other digital services for their home entertainment. Ideally, studios would like consumers to own their content, either digitally or physically, and UltraViolet may help bring consumers back into the sellthrough fold.
In addition to UltraViolet, home entertainment spending should get an assist from a strong slate of summer movies, starting with the much-anticipated superhero spectacular The Avengers. On the home entertainment front, we can look forward to the sure-to-be-blockbuster release of The Hunger Games.
One of the side effects of both Blockbuster closing stores and Netflix starving its disc rental business is the continued rise of Redbox.
While Redbox won’t reveal its final first-quarter financial report until April 26, parent Coinstar began to show its hand earlier this month, saying both profit and revenue would exceed expectations despite Redbox raising daily DVD rental prices from $1 to $1.20.
How many businesses can say raising prices didn’t hurt revenue or profit in these difficult economic times? Perhaps Apple with its higher-priced, uber-cool products can push higher margins on consumers, but not many other businesses have had that kind of price elasticity.
In the end, $1.20 isn’t that much more than $1 in many consumers’ minds, considering Redbox has garnered a larger and larger share of the physical rental market. Consumers simply have fewer choices. The video rental store is all but dead in many areas. Meanwhile, Netflix has all but abandoned its disc customers, forcing them to pay more for disc rentals plus streaming and cordoning off disc customers from the streaming service’s recommedation and reviews system.
Redbox (and indeed Netflix) has built its business being the low-price rental leader, and an extra 20 cents doesn’t seem to hurt that position at all — despite rental windows from major studios.
So far so good for Redbox’s mastery of the physical rental arena.
What I and many analysts are waiting for are the details of its digital delivery pact with Verizon. If Redbox can somehow offer a new value proposition in the digital arena, it could prove a strong competitor to the likes of Netflix and others — backed by its already profitable physical rental business.
As Netflix pulls away from its disc rental business, Redbox can move in with a new hybrid of physical and digital rentals. No other retailer, save for Blockbuster, has the same opportunity.
While Redbox’s physical rental business is booming — proving DVD is far from dead — its digital plan could be the roadmap for the future.
The new watchword in this business, as far as content distribution is concerned, seems to be “Get big or go home.”
Gaiam’s recent acquisition of Vivendi Entertainment and RLJ Acquisitions’ buy of both Image Entertainment and Acorn Media indicate a move by independents to bulk up in preparation for the new digital order.
While some indies are merging, others are finding big brothers with muscle, as evidenced by Samuel Goldwyn’s deals last week to have Warner Bros. Home Entertainment handle its disc, electronic sellthrough and transactional VOD rights, with Miramax taking care of the rest.
When libraries make deals with the likes of Walmart on the physical distribution side and such companies as Netflix in the digital arena, it makes sense to pack some content punch.
In discussing Gaiam’s Vivendi move, Gaiam president Bill Sondheim noted the deal is a way to leverage Vivendi’s content relationships with Gaiam’s retail, direct-to-consumer and digital distribution moxie.
In other words, Gaiam is adding product to its already well-established pipeline.
The combined company will “leverage our increased scale to attract additional product from leading studios and other content providers,” he noted, indicating the bulking up has only just begun.
Ted Green, the newly appointed CEO of RLJ, talked of “mining the current catalogs at both [Image and Acorn] and exploiting the various channels available to us with those properties as well as continuing to look at potential acquisitions.”
Is that the case? Are more acquisitions in the offing? It seems quite possible.
In journalism, three occurrences make a trend, and with the acquisitions of Image, Acorn and Vivendi in just the past few weeks, a trend certainly seems to be in the offing.
Like dancers at a cotillion, independents seem to be looking for strong partners to dance their way into the digital future.
Our latest issue includes our special white paper on UltraViolet, which lets consumers store the rights to movies and other content in a digital locker in the cloud, and access that content whenever they choose on whichever device they choose.
It’s a reboot, if you will, of the ownership model that made Blu-ray Disc and DVD such successes, and it promises to move the consumers’ content library into the digital world. It’s no secret that electronic sellthrough has been slow to get off the ground, and UltraViolet is designed to kick-start digital ownership.
One of its advantages is that it includes so many backers. There are many studios, consumer electronics companies, retailers and technology players betting on UltraViolet. Walmart’s recent announcement that it would allow consumers to access digital copies of their discs via UltraViolet and its Vudu service for the nominal fee of $2 or $5 (for a high-def upgrade) made the introduction of our white paper particularly timely. This stamp of approval from the biggest home entertainment retailer — and biggest retailer, period — could prove a shot in the arm for the digital service.
The home entertainment business is no stranger to new formats and initiatives to bring content to the consumer — or to the heated competition such changes can engender, from the battle between VHS and Betamax in the early days of the home video business to the high-definition format war between Blu-ray Disc and HD DVD.
In hindsight, industry observers can usually point to a decisive event that precipitated each move to a new content delivery format. The inclusion of a Blu-ray player in Sony’s PlayStation 3, for instance, rocketed that format ahead of the competing HD DVD and may have been the catalyst that helped Blu-ray win the high-definition disc battle. Walmart’s backing of UltraViolet may prove to be such a turning point, which is precisely the reason Home Media Magazine decided to produce this comprehensive overview of the initiative post haste.
Granted, UltraViolet is still a work in progress. But it has many betting on it, and as history has shown, in the world of home entertainment, there’s a lot of strength in numbers.