What Really Killed the CD?

A good friend of mine emailed me an interesting article the other day he had come across on CNET, the popular destination site for all things high-tech. The article detailed the imminent closing of one of Sony's two remaining U.S.-based CD manufacturing plants, in South Jersey, a move that will put 300 workers out of a job. A Sony spokesman said the plant, which was built more than 50 years ago to produce vinyl LPs, is being shuttered because of the still-troubled economy and ever-waning consumer interest in the CD.

The zinger: The article maintains the CD is dying not just because of the iPod and the digital distribution model it represents, but, rather, illegal file-sharing, a practice born more than a decade ago when the record companies, in a series of stupid moves, opened the doors to piracy by first killing off the single, since the birth of recorded music the only available sampling mechanism other than the radio, and then jacking up the list price of the CD to as much as $21.98. When consumers rebelled and began using the Internet to share music, the record companies didn't capitalize on the potential new business model of digitally distributed music, but, rather, took to the courts to fight their own customers. Ultimately they realized their folly and took a seat at the table--but by then, a transformative mindset change had already taken place. And it is this mindset change, that music is not something that must be paid for, continues to dog the music business to this day. As the CNET story says, "innovation isn't the only reason CDs look long in the tooth. After a decade of rampant illegal file sharing, they'd argue, the plant closure is a sign that the CD just couldn't compete with free."

The home entertainment industry has handled the digital migration in a much smarter fashion--aided and abetted by the fact that consumers will be a lot slower in giving up their DVDs and Blu-ray Discs than their CDs. The reason, of course, is that consumers have always bought music by the song, not by the album, and an individual song can be downloaded in a matter of seconds. It's cheap, a lot cheaper than buying a CD (remember, no more singles!), and it's easy. Our business doesn't work that way--no one buys a movie by the scene. Downloading a two-hour movie can take a lot of time, particularly if it's in high definition--and at $12 to $20 a pop, it can be as pricey a proposition as buying a DVD or Blu-ray Disc. No wonder electronic sellthrough, as this end of the business is known, isn't exactly taking off like wildfire--there's no compelling advantage over buying a physical disc.

Streaming, of course, is another story. The segment of the population that wants to own and collect movies, I believe, was artificially inflated by the novelty of the DVD. And now that things are settling back down to normal, consumers--at least a healthy percentage of them--are going back to rental, and more and more, they're doing it digitally, either through VOD or iVOD.

This brings us back to the original premise of the CNET story: That the CD was done in by file-sharing, not digital distribution. That danger lurks in our industry, as well. Granted, the same obstacle to EST exists in the shady underground as well: it's a hassle to download and share an entire movie. But the rash of mobile and portable devices that employ much-smaller file sizes--who needs high-definition on a three-inch screen?--is something we all need to be aware of. And as download speeds become faster and faster, ultimately there will come a day when a full movie, even in glorious high-definition, can be downloaded in a matter of seconds.

We need to be ready for that day. As the CNET story says, it's hard to compete with free.

 

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This Year's CES Is All About Fun

The author with the DEG's Amy Jo Smith and Warren Lieberfarb.

After spending three hours walking the convention center floor at the Consumer Electronics Show in Las Vegas this afternoon, I briefly closed my eyes and visualized a giant yellow smiley face.

This year's CES certainly won't be remembered for innovation. 3D, which was all over the place, was actually introduced at last year's show. And tablets, the other Big Deal, originated with Apple's iPad, and Apple is conspicuously absent, choosing to stage its own shindig rather than share the spoils here in Las Vegas.

But that's OK with me. The lack of innovation has lowered the pressure level on exhibitors, so instead of trying to outdo each other they're simply refining their products and having a ball while they're at it.

The Panasonic booth had all sorts of viewing stations where visitors can watch music, games, sports, movies, you name it in state-of-the-art 3D. Among all the competing formats out there, Panasonic, for my money, has the best 3D, and the company certainly celebrated its leadership position by focusing on the fun factor more than anything else. No more hard sell on 3D--just a demonstration of how fun it can be to watch.

20th Century Fox deserves kudos for using CES to announce the September 2011 release of the Star Wars franchise on Blu-ray Disc. Again, nothing really new here--we all knew the films were eventually going to be released on Blu-ray Disc--but by making the announcement here at CES 20th Century Fox brought a little bit of Hollywood to the show floor. It was, well, fun.

I also got a kick out of Smart TV, which lets you toss the remote and instead manipulate your television with a hand clap or other gesture; Casio's new line of digital cameras and online editing program that lets you turn photos into works of art ("It's time we brought some fun to digital photography," the pitchman said during the stage presentation"); and Microsoft's Windows 7 display, with demonstrations on how to use such features as Windows Live to create wonderful movies and slide shows.

I also liked the book-like cover for the Kindle, the really cool new video game chairs (including one with pockets for snacks, extra games and even the Guitar Hero guitar, so Junior never has to get up except to go the bathroom), and these caps that let you snap your smart phone under an extended brim so you can create your own little movie theater.

Fun, fun, fun.

The mood of the attendees and exhibitors, even those from the studios, also seemed remarkably upbeat, with plenty of optimism that the economy is going to get better and these fun new devices will catch on with consumers.

A few more random thoughts and observations from the show floor:

--I never would have imagined seeing so many different skins, cases and protective coverings for iPhones and iPod Touches. There were aisles and aisles of them--a whole new industry for a product made by a company that doesn't even exhibit here.

--Why are we still seeing car DVD players? Let's go Blu-ray. I know, the picture doesn't really matter on such a small screen, but there are two other compelling reasons why we should ditch DVD and put Blu-ray players in cars: 1) better disc protection (Blu-ray Discs have a protective coating, while DVDs don't) and 2) flexibility (I know combo packs have become increasingly common, but in many cases consumers still have to choose between buying the DVD or buying the Blu-ray Disc). Blu-ray turns 5 this year. By now, everyone should be onboard.

--It was good seeing Warren Lieberfarb, the father of DVD, at the DEG: The Digital Entertainment Group event Thursday night. If it wasn't for Warren, our business might not have survived as long as it has. We all owe him a tremendous debt of gratitude.

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Yes, Virginia, There IS a Disc Business!

I take pleasure in answering thus prominently the communication below, expressing at the same time my great gratification that its faithful author is numbered among the friends of Home Media Magazine:

Dear Editor—

I am 8 years old. Some of my friends in the consumer media say the packaged media business is dying. DVD sales are falling, fast; Blu-ray Disc has yet to really catch on; and the whole world is moving toward electronic delivery. Papa says, “If you see it in Home Media Magazine, it’s so.” Please tell me the truth, is the packaged media business dying?

Virginia O’Hanlon

Virginia, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except what they are told. They think that nothing can be which is not comprehensible by their little minds. All minds, Virginia, whether they be men’s or children’s, are little. In this great universe of ours, man is a mere insect, an ant, in his intellect as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

Yes, Virginia, there is a vibrant and viable packaged media business. It exists in stores large and small, by mail, in vending machines. People are still enjoying movies, TV shows and other entertainment on disc, and they will continue to do so for the foreseeable future. To be sure, they may have slowed the pace of buying DVDs, but more and more of them are switching to Blu-ray Disc and starting their collections all over again, albeit at a slower pace due to the troubled economy. Others have gone back to renting, since renting a movie, thanks to Netflix and Redbox, has never been cheaper or easier. Alas! How dreary would be the world if there were no packaged media business! It would be as dreary as if there were no Virginias. There would be no true high-definition picture, no movie theater sound, no extras, no special features, no commentaries! We should have no enjoyment, except that which we glean from our computers. The eternal light with which childhood fills the world would be extinguished.

Packaged media dying? Not hardly, Virginia. To the contrary, it lives and will likely live on and on and on. It will continue to make glad the heart of childhood, and be the preferred way of bringing entertainment into the home — and keeping it in our homes, to cherish and enjoy over and over again — for a long, long time.

(Apologies to Frank P. Church and the New York Sun.) 

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More 'Discs are Dying' BS

The barrage of reports in the press that DVD and even Blu-ray Discs are relics of a bygone era and everything's moving to the Internet would have you believe that all of us in the home entertainment business had better look for new jobs.

The 24/7 Wall St. website even went so far as to post a story on "The Five Businesses That Killed the DVD" (to read it, ), even though two of those businesses, Netflix and Internet-enabled Blu-ray Disc players, are actually helping the disc stay alive. Despite lots of talk about streaming, Netflix is still very much a disc-based rental service, and while consumers seem to be enjoying the ability to stream movies as well, a point could be made that we won't know how deep that enjoyment runs until Netflix starts charging consumers for the privilege instead of letting them stream away for free. As for Internet-enabled Blu-ray Disc players, the whole idea of letting consumer hook up their players to the Web is to provide them with updated materials and content to supplement what's already on their disc.

It's sort of like what we're seeing in the game world: My sons, and millions of kids and young adults like them, play Call of Duty: Black Ops online, with an ever-widening circle of friends, both real and cyber. But to do so they still had to buy the disc, $650 million worth in just five days.

My point here is that while Web-based viewing, downloading and networking very well could be the wave of the future, it doesn't necessarily mean packaged media is doomed. The two don't need to be mutually exclusive.

And for those who call me an old fogey and insist "it's a generational thing," let me say this: My 8-year-old records "Spongebob" episodes from the TV and, when I'm not looking, tries to watch "South Park" episodes on YouTube. But he also covets his brother's cherished set of "Futurama" discs, housed in a huge plastic "Bender" case, and put on his Christmas list "South Park DVDs."

My two older boys, who have effectively shut little Hunter out of their lives, also enjoy YouTube and Hulu. But on weekend nights, one or the other comes downstairs and retrieves a couple of Blu-ray Disc or DVD movies to watch with his brother.

Sometimes they invite me to join them, but lately I've been declining: I'm too busy watching those wonderfully restored "Perry Mason" DVDs on the 65-inch plasma TV in our family room.

And apparently I'm not alone. We all know what a huge success Black Friday was, with consumers snapping up a grand total of more than 50 million discs, according to studio reports. Granted, most of them were purchased at rock-bottom prices, but the concept of going out and buying entertainment on a disc doesn't appear to be nearly as strange or foreign as some of these media reports suggest.

Peaceful coexistence. That's how I view the physical and digital worlds. And the moment someone proves me wrong is when I'll start updating and sending out my resume.

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Disc Deluge

While final numbers or even preliminary numbers aren't in, early reports indicated Black Friday was a huge day for the home entertainment industry, with consumers crowding into stores like Walmart, Target and Best Buy and leaving with armloads of heavily discounted DVDs and Blu-ray Discs.

The deluge indicates one thing: Disc sales have become increasingly price-sensitive, although maintaining this pace will bring us closer and closer to the tipping scale, where it's more profitable for studios to sell fewer downloads than mass quantities of uber-cheap discs.

The one saving grace is that retailers, not studios, took the hit this time around. But while we may exult at the gobs of DVDs and Blu-ray Discs that were snapped up by bargain-hunting consumers, we must also accept the sobering thought that selling DVDs for under $2 and Blu-ray Discs for $5 is simply not sustainable.

We don't want to train consumers that this is the new reality, that this is all that discs are worth. But I think consumers are smart enough to know that Black Friday means some truly incredible deals--heck, Walmart was selling laptops for less than $200, while Best Buy had a Toshiba Blu-ray Disc player for $59.99--and that once the post-Thanksgiving discount madness is over, they will once again be charged more realistic prices.

For the sake of our business, I'm hoping Black Friday rekindled the emotional bond consumers in the not so recent past developed with their movies and TV shows. The concept of owning and collecting, after all, was an outgrowth of DVD, a relatively new habit. When our collections began to spill out onto the floor and laundry room cabinets, we applied the brakes, and while many of us do intend to replace at least our favorite movies with Blu-ray Discs, the troubled economy has prevented us from doing so.

Black Friday turned even the most cautious collectors into hoarders. At Best Buy, I saw lines of people with huge stacks of DVDs ($3.99) and Blu-ray Discs ($7.99-$9.99) in their arms; at the Target store in Oceanside, Calif., that I visited, every single $7.99 Blu-ray Disc was gone by 10 a.m.--and we're talking catalog titles such as Serenity, Taken, Wanted and the three Lord of the Rings films, which from what I'm hearing were the first to go. Walmart was an utter zoo, thanks largely to more than 90 DVD titles--including Ice Age, Sex and the City and the Bourne and Lord of the Rings trilogies--priced at just $1.96 apiece. Walmart also blew out some 60 Blu-ray Disc titles at $5, including Batman Begins, Live Free or Die Hard and The Dark Knight.

Obviously, these prices can't last, but they sure caught the consumers' attention. And with economic recovery, true economic recovery, still months, if not years, away, we need jolts like this to keep packaged media in the spotlight--and in the home. We need mass feeding frenzies to ensure consumers don't lose their appetites for buying discs, for owning and collecting movies.

We just can't do it all the time.

 

 

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I've Got Friday on My Mind

I can't even count the number of high-ranking studio executives who over the last few weeks have told me that they won't really have a good handle on how DVD and Blu-ray Disc sales are faring this holiday season until after Black Friday.

The Friday after Thanksgiving, of course, marks the unofficial start of the holiday shopping season. It's a day when retailers stumble all over themselves trying to lure consumers into their stores through steep price breaks and other incentives, in the hopes that once they get a taste of the amazing bargains each retailer has to offer, they'll come back again and again and again.

In the world of home entertainment, Walmart, Best Buy and Target are on the front lines of Black Friday DVD and Blu-ray Disc sales. Costco, Sam's Club and Fry's are not far behind.

Each year, word of what awaits consumers at these and other retailers seems to leak out earlier and earlier. This year, word is that Walmart will sell wireless Blu-ray Disc players for as low as $69. That's a big development for our industry, since one of Blu-ray Disc's killer apps, as far as studio marketers are concerned, is BD-Live, which relies on Internet connectivity to deliver new and updated extras. The problem is, most Blu-ray players currently in homes aren't wireless, which means there's a fat chance that player will ever be connected to the Internet.

Walmart also is reportedly going to offer up to 60 Blu-ray Disc titles for $5 each. To me, that's an even bigger boon for our business, since one of our biggest challenges right now is to get consumers to rebuy their movie libraries. I've spoken to lots of people who are hooked on Blu-ray, and they'd like to eventually replace all their favorite DVD catalog titles with high-definition discs. The problem is, they can't afford to do so.

Just last week, I received a letter from a gentleman who said he's "been working on switching my whole DVD collection (some 500+ DVDs counting TV show seasons)."  He bemoans the fact that so many films have not yet been released on Blu-ray Disc but is "really glad the studios are starting to get off their butts" and releasing more catalog titles on Blu-ray Disc. Referencing a recent column I wrote on catalog titles on Blu-ray Disc, he had this to say: "You mentioned that they will need to unearth some more extras to hook us but in truth I never watch any of the extras on a DVD and I'm sure many people would be happy to forgo the 'extras' to get the movies quicker and possibly cheaper. The reason I've converted to Blu from DVD is the superior picture quality over DVD and the fact that Blu-ray Discs are more durable. No more scratches making the movie freeze or skip! Watching movies on Blu-ray is a lot closer to the 'true' movie experience since the HD format looks near enough to the quality of the movie as seen in the theaters that I never feel the need to go out to see a movie unless it's one I want to experience on the larger screen. The only extra worth increasing cost over is the addition of the digital copy, since most people now want an easy way of playing their movies on wide variety of portable players without the need to 'rip' the disc."

So I think I speak for many studio executives when I say Black Friday can't come soon enough. Sure, it's unlikely retailers nor studios will make much money from Blu-ray Disc sales on Nov. 26. But if they can get consumers hooked on the Blu-ray Disc experience--and price, as well as title availability, seem to be the key here--I honestly can't think of a wiser investment.

 

 

 

 

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Classic Movies on Blu-ray? You Betcha!

One of the more interesting panel discussions at today's Blu-Con 2010 conference in Beverly Hills was the one on marketing classic movies on Blu-ray Disc. Theatrical catalog, you may recall, has taken a precipitous hit these last few years, as the DVD format has matured and studios have pretty much run out of marketable catalog titles to release, and re-release, on disc. There are, after all, only so many times you can get the average consumer to buy the same movie, regardless of how many new extras you put on the disc. This year alone, by some accounts, the theatrical catalog business is off by something like 40%, accounting for the lion's share in the overall decline in DVD sellthrough.

I've felt for some time that theatrical catalog and Blu-ray Disc are an ideal match, with one igniting interest in the other. And with Blu-ray Disc now crossing the 20% penetration mark, according to figures provided at the conference by Pioneer's Andy Parsons, studios are starting to release their marquee catalog titles on Blu-ray Disc, as exemplified by such recent releases as The Sound of Music from 20th Century Fox, The Bridge on the River Kwai by Sony Pictures Home Entertainment, The Exorcist and The Maltese Falcon by Warner Home Video and The African Queen by Paramount Home Entertainment.

Panelists spoke of the challenges they face in marketing these films, and agreed the value proposition has to be right--they need to not just clean up the print to the point where the picture, and sound, are virtually perfect, but they also need to unearth more extras to really hook the movie fan.

I happen to believe selling classic movies on Blu-ray Disc will soon get a lot easier. The early adopters who bought into Blu-ray two or three years ago focused on the new hits and recent hits, but at this point they are ready for more. We may not see a full-scale conversion of libraries as we saw when DVD replaced VHS--I think a lot of us have quite a few movies in our homes that cause us to scratch our heads and say to ourselves, "Do I really need this?"--but by the same token we don't want to parse down our collections to just a handful of films.

I speak from personal experience. Four and one-half years after the format was launched, and three years after I brought Blu-ray and high-definition into my home, I am finally dumping most of my DVDs--and the ones I am keeping, I am eager to get rid of as well. Once they come out on Blu-ray Disc, I intend to do so, and it's not just the better picture and sound. It's an emotional thing; those DVDs in their "keep cases" are beginning to look every bit as clunky as my videocassettes did when I began collecting DVDs. I just pulled out a boxed set of 20th Century Fox's "The Omen" movies and replaced it with a slim Blu-ray collection. "Look at how much less space it takes up," I remarked to my oldest son--then thought to myself, "Man, that's the same reaction I had when I got rid of all my VHS tapes."

One hallmark of us collectors is uniformity. And I am at the point where I no longer want bulky DVDs cluttering up my rows of neat little Blu-ray Discs. Think I'm alone? Just you watch. There are a lot of Blu-ray Disc fans out there, and eventually they'll come to the point where they will no longer settle for anything less. They may not repurchase all their movies, but I believe they'll replace enough of them to give our business a significant boost.

 

 

 

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Requiem for a Video Store

Great article in the Chicago Tribune on the gradual disappearance of the brick-and-mortar video store. to read it.

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Netflix and Hollywood: What's the Deal?

I came across an interesting story in The Wrap that alleges Netflix could have wound up being owned by the very same studios that are greedily eyeing the subscription rental service's 36% share of the home video rental market.

According to The Wrap story (to read it, ), when Reed Hastings launched Netflix in the late 1990s, he cut a deal with Warner Home Video to share revenues on DVD rentals in return for warrants in his company. Other studios soon cut similar deals, The Wrap says, citing "two individuals with knowledge of the deal." But in 2002, when Netflix went public, the studios began selling their stock in the young company, and a year later all had given up their ownership stakes.

Talk about the one that got away. If The Wrap story is true, the studios would have been wise to hang on to Netflix, since it effectively controls the rental business and, what's more, its stock is now valued at tenfold the IPO price.

But those were different times, and one can hardly blame the studios for selling out when they did. For starters, the only reason Warner and the other studios got involved with Netflix in the first place was to attempt to rein in Blockbuster, which at the time was making what the studios considered unreasonable demands on product pricing and availability. Blockbuster wanted more copies of the hits at a reduced rate, and the studios worked themselves into a tizzy trying to placate Blockbuster while at the same time not running afoul of the law by offering similar copy-depth deals to all retailers. Netflix, with its revolutionary new model, was regarded by Blockbuster as a threat, and that's probably the only reason Reed and his team even got the studios' attention.

Fast forward to 2002. DVD had come onto the scene five years earlier, but hadn't really hit its stride until the turn of the millenium. As consumers flocked to stores to buy discs and sellthrough kept posting double-digit year-over-year gains, the rental business appeared to be on its last legs. DVD sales would flourish forever and rental was doomed to extinction, so why would any studio want to even be associated with a company whose primary business was renting videos?

The first signs of trouble didn't appear until the fourth quarter of 2005, when sales growth slowed from the double digits to the single digits. Then came the recession and sales began to decline, while rental, given up for dead, suddenly found new life, fueled by the cost-effectiveness and simplicity of renting by mail.

Netflix was hailed as the savior of rental, but by then, of course, the studios were long gone.

In hindsight, the studios would have been on Easy Street had they maintained an ownership stake in Netflix, but I have to give a nod to The Wrap writers Dylan Stableford and Brent Lang for noting, "Of course, the innovation that has fueled Netflix's success and move into digital distribution might not have happened had so many sprawling publicly traded companies owned a piece of it."

Now, there's some food for thought.

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Reaper Awards = SUCCESS!!

Forgive me if I crow about our second annual Reaper Awards, in which we teamed with influential website to launch an ambitious national consumer vote to determine the best horror DVDs and Blu-ray Discs of the past year--and in which a panel of judges selected the most anticipated new horror DVD and Blu-ray Disc releases of the fourth quarter.

The contest, promoted both on Home Media Magazine's website and DreadCentral, was touted on hundreds of other websites, including a fair amount of fan sites. Thousands of fans voted, twice as many as last year, and there's no telling how many additional thousands of consumers we reached both with advance word of the contest and through post-show coverage. At the event, held last Tuesday night at the Hotel Roosevelt in Hollywood, we had representatives from 36 media outlets, and a cavalcade of stars and other famous names lining our red carpet, including Tom Holland, writer and director of horror classic A Child's Play; Paranormal Activity director Oren Peli; and up-and-comer Sarah Butler, star of the new I Spit on Your Grave remake. (For a recap of the awards ceremony, click here; for our story on the winners, click here.)

The press coverage of the awards, and the event, has been, quite frankly, overwhelming. We received writeups from newspapers and websites from around the world, including the , popular horror site , and the .

For years, we've been asked by the studios to "deliver the consumer," and not just the video retailers who for years have been our primary audience. Tuesday night, we took a big step in that direction--and I promise you, there will be more!

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