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.
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.
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.
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."
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.
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
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.