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Thomas K. Arnold is considered one of the leading home entertainment journalists in the country. He is publisher and editorial director of Home Media Magazine, the home entertainment industry’s weekly trade publication. He also is home entertainment editor for The Hollywood Reporter and frequently writes about home entertainment and theatrical for USA Today. He has talked about home entertainment issues on CNN’s “Showbiz Tonight,” “Entertainment Tonight,” Starz, The Hollywood Reporter and the G4 network’s “Attack of the Show,” where he has been a frequent guest. Arnold also is the executive producer of The Home Entertainment Summit, a key annual gathering of studio executives and other industry leaders, and has given speeches and presentations at a variety of other events, including Home Media Expo and the Entertainment Supply Chain Academy.

TK's Take
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14 Jul, 2009

A Blockbuster of a Perception Problem

I read with interest our report on the see-saw share prices of Netlix and Blockbuster (see Erik Gruenwedel's story by clicking here). Netflix share prices see-SOARED to a three-month high on speculation that the aggressive online DVD rental pioneer may be acquired by Amazon. Blockbuster shares, meanwhile, took a dive to close yesterday at 58 cents, down 82% from a 52-week high of $3.19 per share Aug. 6, 2008. Heck, I remember when Blockbuster shares were trading at well over $15 per share--and thinking, "Man, that's bad--they sure took a hit since they started trading at $25 a share." I checked around the Web a little and found this little ditty from Smart Money, dated May 2005: "Low expectations have already taken their toll on Blockbuster's share price. The stock has bounced around a much-diminished ranged of highs and lows this year, ending 2004 at $9.54 a share, dropping below $9 for parts of March and April, and hitting a recent low of $8.45 a share on March 30. That's about half of the stock's 52-week high of $16.41 touched precisely 52 weeks ago." Boy, what Jim wouldn't give to be at $9, eh?

The sad thing is that Blockbuster's low value in the eyes of the investment community has everything to do with the perception that video rental, at least the traditional store-based model, is a relic and anyone associated with it isn't worth beans. Investors are keen on Netflix, mostly because of the company's history of strategic thinking, smart forecasting and willingness to talk about what's going to happen next (streaming). They also like Redbox because, well, those dollar kiosks are making a heck of a lot of money, and everyone's reading the reports that in this troubled economy people are looking for bargains and what's a better deal than a buck a night for a hot new movie?

And yet I can't help but wonder, if Netflix and Redbox had both emanated from a brick-and-mortar rental-store operation like Blockbuster, would they be the darlings that they are? Or would investors thumb their noses at them the way they do at Blockbuster, and accuse them of desperate tactics to remain afloat?

Everytime Netflix or Redbox make a move, investors applaud. Everytime Blockbuster makes a move--even if it's the same moves Netflix or Redbox have made, like offering subscription rentals or launching a fleet of kiosks--it gets lambasted as a dinosaur that doesn't know when it's time to sink back into its mudhole and let nature take its course.

Shaking a bad reputation can be a real bitch--even when that reputation isn't deserved.

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13 Jul, 2009

Is Wal-Mart a Big Baddie--Or Not?

I've been chastised severely by a couple of people for my blog entry from last week in which I blasted Wal-Mart for allowing kiosks into its stores that directly compete with the chain's DVD sellthrough business. I surmised the chain had allowed kiosks in because it was losing faith in DVD, a point underscored by Wal-mart's lackluster merchandising of Blu-ray Disc.


My two callers — and neither of them is a Wal-Mart executive, by the way — both stuck up for the chain, which by most accounts is responsible for about 40 percent of total DVD sales in the United States. It isn't so much a case of Wal-Mart losing faith in DVD, they told me, as it was one of Wal-Mart simply being a smart retailer and following the money. While it is true that for years Wal-Mart used the DVD sales frenzy to drive customers into its stores, the chain's “loss leader” strategy wasn't entirely of its own making. Wal-Mart never drove prices down, bur, rather, reacted to deep discounting by Best Buy and others. As a result, studios were actually making more money from DVD sales than consumers were spending on them.


Wal-Mart approached the studios several times and asked for lower wholesale prices, but the studios didn't budge, according to my callers. So now that DVD sales are down and Redbox rental kiosks are the hottest thing going since bipods, Wal-Mart doesn't feel any sense of obligation to prop up the DVD sales business in any way. Instead, the chain is going with the money and leasing space to Redbox — I'm sure, for a cut of the action.


By allowing Redbox kiosks into its stores, my callers argued, Wal-Mart also is doing what all smart retailers should do: strive to give their customers a choice. Wal-Mart customers can still buy DVDs, but now they can rent them, as well.


Readers, I'd be interested to hear where you weigh in on what is clearly a divisive issue. Is Wal-Mart a big baddie that used DVD sales to drive traffic into its stores, and is now turning its back on the sellthrough business and going with the hot new kid in town, Redbox? Or is Wal-Mart merely being a good retailers and doing something that can enhance both its revenues and its customer service?


I'd love to hear from you.


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10 Jul, 2009

Tweet Tweet!

Interesting story in today's The Wrap about Twitter's impact on box office. In a story titled "Studios Wrestle with B.O. Twitter Effect," editor Sharon Waxman, a tenacious reporter and excellent writer, notes that Friday is fast become the make-it-or-break-it day because of the "near-instantaneous word of mouth effect" made possible by Twitter and other social-networking sites, which let people communicate fast and en masse. Waxman notes that "the burgeoning popularity of Twitter has created an exponential effect ... that one marketing expert termed 'marketing velocity.'" And this "marketing velocity," Waxman writes, can have a devastating effect on movies that opening-day audiences don't like. She quotes consultant Gordon Paddison as saying, “If you’re tweeting and people are catching that live and they’re out at drinks and were planning on seeing the movie tomorrow -- that hurts."
For Waxman's full story on The Wrap, .
I wonder if the Twitter Effect will have an impact on new DVD and Blu-ray Disc releases, as well. Just imagine, early Tuesday morning, the first buyers of the hit-of-the-week tweet their 140-character reviews to their legions of loyal followers, and by the next day sales are either through the roof or dead. It's somewhat scary, somewhat promising, a high-takes crap shoot, if you will. I wonder if studios will start hiring Tuesday tweeters to blast positive things about their new releases. That's an interesting concept, a whole new marketing scheme....
All right, enough for now. All this talk of Twitter--well, it just makes me want to tweet. So I will.


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9 Jul, 2009

Are Budget DVDs the Rice Cookers of Our Industry?

Got a chuckle this morning when I checked Wallet Pop for its latest lists and found bargain DVDs right up there with ice cream makers, Polaroid cameras and ear candles on the consumer finance Web site's listing of "20 Most Worthless Pieces of Junk."

According to the introduction, "Have you ever been the victim of hype? Look in those tippy-top kitchen cabinets, or in the attic or in the basement, and we bet you can find a stack of items that you were convinced you needed to have, only to put the thing away to gather dust until your next yard sale. Our WalletPop bloggers found our houses stuffed with these things, and we put together a list of the 20 most worthless pieces of junk ever known to man."

Bargain DVDs came in at No. 12, right between "trade show swag" and ear candles. According to Wallet Pop, "Even the best films on DVD lose their appeal after maybe six plays. This is why budget DVDs, even if you pay just a dollar for them, represent nothing more than stealthy, dust-gathering clutter slabs. Budget DVDs can make sense if repurposed as drink coasters or Frisbees, but that's about it."

I clicked the link for "more on bargain DVDs" and was led to this rant from blogger Lou Carlozo: "... As the Chicago Tribune's DVD critic for two years, I saw all manner of budget dreck cross my desk. That included everything from 1940s 'lost classic' movies (usually, these were lost in 1942 because no one bothered to look them up again) to repackaged B movies with 'bonus features.' These usually amounted to nothing more than the trailer and a still photo gallery with lame-o captions. To borrow a cliché from the compact disc world, budget DVDs can make sense if repurposed as drink coasters or Frisbees, but that's about it. When cleaning the basement, you must promise yourself, if you spot one, not to give in to the siren cries of the Great Hoarding God. Box them up, take them to a local thrift store ... and don't even hang them from you car rear view, lest the cop that pulls you over begins to wonder about your bad taste as well as your traffic violation."

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8 Jul, 2009

'12 Rounds' to the Top

The action flick 12 Rounds, from 20th Century Fox Home Entertainment, was the top DVD and Blu-ray Disc seller the week ending July 5, but it was something of a hollow victory. The film is one of the final releases from Fox's ill-fated Fox Atomic division, formed two years ago to create low-budget fare for teens, and it soared to the top of the sales chart with fewer than 150,000 units, a feat made possibly simply by the fact that there was hardly any competition. 12 Rounds debuted at No. 2 on Home Media Magazine's video rental chart for the week, right after Gran Torino, which regained the No. 1 position nearly a month after it was first released. Oh, where have all the new movies gone....?  Click here for the full story.

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7 Jul, 2009

Wal-Mart is a Battlefield

The home video industry is at war with itself, and the bloodiest battlefield is the friendly neighborhood Wal-Mart store.
It's no secret that DVD sales are slumping, victims as much as anything else of the troubled economy. The first quarter ended with sales down 15% from the first quarter of 2008 and the second quarter, from the preliminary reports I've heard, wasn't much better. Of course, in this economy being down 15% is hardly a disaster, but even so studio executives can't help but grimace when they see reports that video rental, thanks to the mushroom-like proliferation of Redbox kiosks and the continued surge of Netflix, is holding steady and may even be trending upward.
The collapse of revenue-sharing deals means the studios no longer share in any of the spoils, so they are understandably edgy when they see sales go down while rentals go up. They can't help but feel that in this Great Recession we're in, people are looking for bargains, and renting a movie all of a sudden makes a lot more sense than it did in the old days when everyone was rolling in dough and the average consumer didn't think twice about picking up the latest new release at $15 a pop.
Nowhere is the spectre of cannibalization more vivid than in Wal-Mart stores, where Redbox kiosks are sprouting up in the entryways and, conventional wisdom holds, seducing consumers with the promise of dollar rentals before they can even walk into the store and browse the new release DVD sales section.
Pleas to Wal-Mart that the chain is only hurting itself seem to be falling on deaf ears, according to what I'm told. Apparently a completely different party controls the front of the store than the rest of the store, and as long as that party pays its way Wal-Mart management is not going to interfere--regardless of how this may affect the chain's regular retail business.
Now, you know damn well this is a bunch of hooey. If Wal-Mart seriously believed Redbox kiosks were cannibalizing their DVD sellthrough business, they'd shut them down in a heartbeat....unless they didn't care.
That's the only logical explanation, supported by Wal-Mart's conspicuous, and continued, lack of effort in merchandizing Blu-ray Disc. It's almost as though the chain, which made tons of money during DVD's boom years by using the category as a loss leader to drive traffic into its stores, has lost faith in packaged home entertainment.
Dumb move. Blu-ray has the potential to be every bit as big as DVD, and I am convinced that once the economy starts to recover it will quickly gather the steam it needs to really take off. And standard DVD, meanwhile, will be one of the first consumer products to bounce back.
Wal-Mart executives have been through this once before; home video was going through a similar slump in the late 1990s, before DVD came along. Back then, Wal-Mart took a gamble, got behind DVD in a big way and emerged a big winner.
Hasn't anyone over there heard of history repeating itself?
Either dump the kiosks or really step up DVD/Blu-ray Disc departments and storewide promotions. Let's put an end to this war that no one can win.


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6 Jul, 2009

By the Numbers

Ralph Tribbey has an interesting way of looking at things. If some people look at the world through rose-colored glasses, then Tribbey, publisher of the weekly The DVD Release Report (and, in the interests of full disclosure, dear old dad to our senior reporter, Chris Tribbey), looks at our business through a pocket calculator.
He's by the numbers, for the numbers, heck, maybe even of the numbers. It wouldn't surprise me one bit if he selected his son's name based on numerology. Let's see, C-H-R-I-S-T-R-I-B-B-E-Y.....
This week's newsletter shows some interesting industry trends, based on, yes, the numbers.
For starters, the DVD business is now officially in six-figure territory, with the total number of DVD titles in release since the format's inception 12 years ago at 101,119, a gain of 257 from the previous week.
Warner Home Video is the top distributor of Blu-ray Discs, with 222 titles on the market, or 15.3% of the total. Sony Pictures is No. 2 with 210 titles, although so far this year the studio has brought out more Blu-ray Discs than any other studio, 46 (to 20th Century Fox's 44 and Warner's 40). Overall, 20th Century Fox is a distant No. 3, with 146, followed by Walt Disney Studios (109), Paramount (91), Lionsgate (71) and Universal (59).
New theatrical releases account for 43.4% of all Blu-ray Discs that have been released since the format launched in June 2006. Theatrical catalog is a distant No. 2, with 17.4%, followed by special interest at 10.7% and music at 7.3%. The total number of Blu-ray Discs that have been released over the last three years is 1,583, with 34 titles already discontinued.
On the regular DVD front, despite talks of theatrical-to-video windows getting longer again, the numbers show continued shrinkage. For all titles this year that grossed at least $25 million at the box office, the average has come to DVD just 119 days after its theatrical bow, a new low. Last year the average was 127.8 days; in 2007, it was 126 days; in 2006, it was 129.2 days; and in 2005, it was 141.8 days.


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1 Jul, 2009

Big Surprise On Top of the Charts!

You've got to love the doldrum days of summer. Studios take a break from releasing high-profile theatricals so consumers can focus on what's at the movies, and that leaves the charts open to some interesting alternatives. Topping Home Media Magazine's rental chart this week is The Code, a direct-to-video thriller from First Look Studios starring Morgan Freeman and Antonio Banderas. The Code also debuted at No. 8 on the Nielsen VideoScan First Alert sales chart, while Disney's Confessions of a Shopaholic, a comedy with just $44.3 million in theatrical earnings, was the week's top seller. For the full chart story, click here.

Here are the week's top 10 sellers, according to First Alert, with percentage of sales coming from the Blu-ray Disc version. As you can see, Blu-ray certainly is picking up steam--quite a far cry from even a year ago, when the average title drew maybe 3% to 5% of its total sales from Blu-ray Disc.

1. Confession of a Shopaholic, 5% BD

2. Gran Torino, 15% BD

3. Transformers, 21% BD

4. Tyler Perry's Madea Goes to Jail, not available on BD

5. Inkheart, 13% BD

6. Pink Panther 2, 7% BD

7. Family Guy Volume 7, not available on BD

8. The Code, 15% BD

9. Friday the 13th, 17% BD

10. Taken, 20% BD


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30 Jun, 2009

Big Buzz About Paramount

Big industry buzz today about a Financial Times story that says Paramount Pictures is looking to merge its home entertainment division with that of another studio and is in fact in "advanced talks" with Sony Pictures and 20th Century Fox.  The Financial Times story quoted "several people familiar with the situation" but had no on-the-record comments from anyone at any of the three studios.

According to the story, "The talks have focused on combining DVD production, distribution and back-office functions. One proposal would see Paramount begin using Sony’s DADC DVD production system rather than Technicolor’s system, which the studio currently uses. ... Following the merger, Paramount and its partner would outwardly continue to operate as separate entities. The two studios would also keep their own marketing and sales operations."

My take: There's probably an element of truth to the story, although I think calling it a "merger" is a stretch. And I do have it on good authority, from someone who works on the Paramount lot, that a replication change may be coming down the pike. "I see the Sony DADC guys running around there practically every week," this person wrote to me in an email. "Since they replicate with Technicolor, there's no reason for Sony to be there unless some distribution discussions are going on."

Wagging tongues say a third studio may also be in talks with Paramount: Universal Studios.

The merger rumors follow by two weeks a report by Reuters that a leading investment firm thinks Paramount Pictures could itself merger with another studio. "Today there are seven or eight motion-picture studios. A round of consolidation will occur in the next six to 12 months because of the costs of financing, prints and advertising, the benefits of globalization and such,” Reuters quoted CEO Mario Gabelli of investment firm Gamco Investors Inc. telling Barron's. "We hear talk of something going on."

To see Home Media Magazine's coverage of the Reuters story, click here.

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30 Jun, 2009

The Great Divide

Smart move by E1's Dan Gurlitz to make his company's upcoming season one release of the Sci-Fi Channel series "Sanctuary" more rental friendly by including an extra copy of the first disc. That gives each store that buys a copy two chances to snag viewers, not just one, and then hopefully get them hooked enough that they'll want to rent the three additional discs, each packaged individually, as well (see Chris Tribbey's story here).
It's nice to see a supplier reaching out to the much-maligned rental dealers, who certainly haven't been getting the respect they deserve for years, at least not from the major studios. From the day a cadre of pioneering rental dealers birthed the entire home video industry back in the late 1970s, studios have been doing what they can to stamp out rental, or at least share in the spoils. When the revenue-sharing deals that at last gave them part of the action expired, chiefly because the business shifted from $100 videocassettes to $20 DVDs, the studios renewed their unspoken campaign against rental, a campaign we now see intensifying because of the success of Netflix and Redbox.
The fact that Netflix uses a subscription model irritates the studios to no end, since it's no longer neat and easy from an accounting standpoint. Revenue-sharing monies would be hard to track and even harder to predict — assuming revenue-sharing deals are still in place. Redbox, with its ubiquitous kiosks, is a whole other beast; if the studios can't stand Reed Hastings, chairman and founder of Netflix, then the executive team at Redbox is collectively branded as Public Enemy No. 1. Not only does Redbox not share any revenue at all with any studio, but the company also rents DVDs for a buck, which studios say devalues their product. Adding insult to injury, kiosks are popping up all over like mushrooms after a rain, including in Wal-Mart stores, where they provide would-be DVD buyers with a much cheaper and more convenient way to watch movies, particularly in this economy.
Publicly, studio executives will issue platitudes like "Rental continues to be an important part of our business." But privately, they are dissing rental with uncharacteristic rage, their anger fueled in part by the fact that DVD sales are down while rentals, by most accounts, are up.
When a certain trade publication wanted to do a tribute to Reed Hastings, not a single studio bought a congratulatory ad. And Blockbuster, the traditional queen bee of the rental business, also is in the crosshairs, in the Paybacks-are-a-Bitch Department.
In the late 1990s, before DVD and sellthrough forever changed the equation, Blockbuster was the top video retailer in the world, and the chain promptly used its clout to bring the studios to their knees, squeezing favorable terms out of them to allow it to bring in significantly more copies of hits on the cheap.
Ultimately, Blockbuster was outsmarted by the studios, who turned this ploy around and ended up with lucrative revenue-sharing arrangements. But the studios never forgot Blockbuster's arrogance, and when the chain fell on hard times — due to the rise of sellthrough on one side and the emergence of new business models, like Netflix and Redbox, on the other — there's not even the slightest trace of sympathy in Hollywood. Indeed, rumors are wide that studios are cracking down on credit, squeezing Blockbuster at a time when the chain can least afford it.
Blockbuster continues to fight back, however, most recently by rolling out its own fleet of kiosks (I can just imagine studio executives frothing at the mouth over this) and now by announcing new releases will rent for just $1 a night, the same as Redbox (see our story here).
Studios, it's your move. I can hardly wait to see what comes next.


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