The lead story in The Wall Street Journal this  morning has a cataclysmic premise, at least in the retail world. I quote, "The Wal-Mart Era, the retailer's time of overwhelming business and social influence in America, is drawing to a close."
In it, reporter Gary McWilliams credits Wal-Mart with no less than boosting America's overall productivity, lowering the inflation rate, strengthening the buying power of millions of people, accelerating the drive to manufacture products (more cheaply) in Asia, driving countless mom-and-pops out of business and speeding the decline of Main Street. But, says McWilliams, the retailer's heyday is over and rival retailers are gaining by providing the qualities Americans find lacking at Wal-Mart: greater convenience, more selection, higher quality and better service.
As evidence of Wal-Mart's waning clout with suppliers, the story sites a new beverage introduction PepsiCo opted to do with Whole Foods instead of Wal-Mart; the declining % of sales P&G gets from Wal-Mart, and the behemoth retailer's inability to mandate widespread RFID tagging.
Of course, Wal-Mart is still the biggest thing going in retailing--and it is the leading DVD retailer by a large margin.. But what if its market share begins to slip? Or, in its quest to boost sales gains--which are just 1.3% this year, compared to 4.6% at Target, it decides other product categories supply a better ROI than DVD.
Studios have long talked about not putting all their revenue eggs in Wal-Mart's basket. But from all appearance, it has been just talk, while Wal-Mart has called the shots.
Is it time for a change? And which retailers will pick up the slack?

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Somebody’s gonna lose in the fourth quarter.

Nobody wants to say it, but there it is.

Despite relentless optimism by the studios, which are slamming everything they can into stores between Sept. 25 and Dec. 31, some titles are going to underperform.

That’s not to completely negate the spin coming out of pretty much all the studios right now that a rising tide lifts all boats. They are counting on a packed release slate that includes 15 titles that made more than $100 million in theaters to basically expand consumer purchasing just because there’s so much good stuff available. Even titles that in past years might have been held until January, are being released before Christmas to take advantage of this expected heightened consumer appetite for DVD.

That’s a fairly safe bet, but only up to a point—or down to a certain box-office, especially given the restrained spending most analysts are expecting for the holiday season (see Sweeting, page 6).

I hope it’s the year we see 15 (or more) home runs in the fourth quarter, with every title meeting or exceeding expectations, but that would be unprecedented. It certainly will call for innovative in-store merchandising and cooperative marketing between studios and retailers, who may be anxious to replace one glossy endcap with another after a slow week.

Two chains might win

Movie Gallery’s slam-bang closures of more than 500 stores may be the move that keeps the chain out of bankruptcy, and there’s a good chance it will bolster Blockbuster as well.

With so many Hollywood Video locations, now owned by Movie Gallery, adjacent to Blockbuster stores, Big Blue stands to pick up at least as much market share as nearby Hollywood/Movie Gallery stores, and possibly avoid store closures of its own.

Everybody wins

Wal-Mart’s move, with the help of several studios, to determine and eventually reduce the carbon footprint of a DVD will in time benefit all home entertainment suppliers. The retailer is in a singular position to influence the adoption of best environmental practices that span manufacturing and distribution, reducing the consumption of electricity, petroleum products, paper and other natural resources. In the words of Fox’s Steve Feldstein,

 

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There are still people in the industry who think the high-def format war is going to be over this year--I spoke to one of them yesterday--despite growing signs that it will extend at least through holiday season 2008, and possibly as much as one to three years beyond that.

Even some of the soothsayers who long ago annointed Blu-ray the winner as starting to hedge their bets. Forrester Research and the U.K.'s Understanding and Solutions both within the last week issued new reports backpedaling somewhat on earlier projections that Blu-ray would win as early as this year. 

These follow a recent Screen Digest report predicting that that format war will last for several years, forcing more studios to support both formats, and a missive in NPD Group's High Definition Report Series that showed there is a huge degree of consumer uncertainty over whether to purchase next-gen disc players, even among HDTV owners. 

Forrester, which predicted a Blu-ray win all the way back in 2005, still gives the Sony-backed format the edge, but notes that supporters have failed to land a knock-out blow to HD DVD and says the consequence of that will be at least 18 more months in the format war. In the meantime, Forrester analysts recommend a strategy revamp in the Blu-ray camp, including a viable player for $250 by Christmas. Yes, this Christmas!

U&S managing director, who also has been a vocal champion of Blu-ray, now expresses concern that "developments over the past few weeks have the potential to erode BD’s current lead, and there is growing concern throughout the industry that both high definition disc formats could be lost completely in a world of competing delivery options and viewing platforms."

The reason for the new (or newly acknowledged) uncertainly among analysts include: Paramount's and DreamWorks Animation's shift to support HD DVD only; the weak launch of Sony's PlayStation 3; consumer confusion over all HDTV; consumers' lack of awareness of next-gen DVD options; HD DVD's aggressive pricing and likely availability of sub-$200 players by Christmas; and the slower-than-expected development of advanced interactivity (BD Live) for Blu-ray..

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SEPT. 21 | It’s safe to say that the future of home entertainment is front and center on Wall Street following media investor confabs on opposite coasts last week.

Top execs from Disney, News Corp., Time Warner, Viacom, DreamWorks Animation, Lionsgate and others talked about the state of thier businesses at the Goldman Sachs Communacopia Conference in New York and the Merrill Lynch Media & Entertainment Conference in Marina del Rey, Calif., with home entertainment developments playing a significant (newsy, if not large) part in their presentations.

Probably most covered in the business press was some format-war nastiness at Goldman Sachs in which Disney chief Bob Iger (subtly) and News Corp. head honcho Rupert Murdoch (not-so-subtly) threw barbs at Paramount and DreamWorks for their turn to HD DVD exclusively, while showing their true Blu confidence with comments like Iger’s “We believe it’s a no brainer that the industry should be behind Blu-ray” and Murdoch’s “The public is going to want Blu-ray. The public can tell the difference.”

“Paramount switched out the other day,” Murdoch was widely quoted as saying. “God knows why.” Of course he then went on to say that he did know why—it was for a combined $150 million payment from the HD DVD camp. (Which many publications reported breathlessly, like it was new news, perhaps because Murdoch said it.)

The next day, DWA CEO Jeffrey Katzenberg struck back, still without commenting on the $100 million his studio reportedly received, saying, “It’s somewhat disingenuous for other companies to suggest that they were not compensated for endorsing Blu-ray.”

There were some more pragmatic views. Time Warner CEO Dick Parsons advocating format neutrality and focus on growing high-def overall: “Our objective is not to take sides on the format but to do what we need to do to get maximum penetration.” Katzenberg on cautious optimism for standard DVD in Q4: “Probably the greatest lineup of films ever coming to home video” but there are risks of “cannibalization not unlike what we saw at the box office this summer.”

But in a perverse way, the sniping over high-def formats makes the home entertainment business sound pretty dynamic, and dynamism is a good thing.

Home entertainment at no time in the past decade has stopped being a dynamic business, but Wall Street has not always viewed it that way. But if the likes of Rupert Murdoch and Jeffrey Katzenberg are feuding over high-def formats, there’s gotta be some big money in them, right?

If not now, then next year, or the year after, in one format or two, but it’s important that the money men see importance in the evolution of the still-dynamic DVD business.

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"Whoever wins, we'll all lose as movie studios and electronics goliaths take sides in the latest high-tech war."

That's the opening sentence in a Playboy magazine blurb on the high-def disc war, written by VB's own Buzz McClain...two and a half years ago (April, 2005).

A friend in the supplier community brought the old story to my attention this week, noting that 30 months after Playboy's take, high-def DVD has not yet become a replacement technology for standard-def discs, and that the public is still buying nine out of 10 discs in standard-def when BD and HD are available. She says, "not a single member of my staff has purchased either player."

While some of the studio allegiances have changed since 2005 (Warner is a dual-supporter;  Paramount has gone from HD DVD-only, to dual format and back again; and Fox got off the fence to support BD only), not much else has. Buzz wrote then "So you'll have to take sides, and it's going to cost you: Expect player prices to debut at $1,000 and up.With that kind of money at stake, only the most addicted technoholics will initially be game; smarter consumers may want to wait until a clear winner emerges (we hope) in a few years.

While player prices may be as low as $200 this year, there are still plenty of options in that higher price range and consumers are still waiting until a clear winner emerges (we hope) in a few years.
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The video download business could use a little voodoo, but Vudu probably won’t cast a strong enough spell to do the trick.

 

Despite new services coming online at a rapid clip—faster, it seems, than consumers are signing up for them—and the major Hollywood studios striking deals with anyone and everyone, new research from Screen Digest forecasts that the download business in the U.S. and Western Europe combined will amount to just $1.3 billion by 2011—in large part because of the fragmented approach of the studios .

 

Most studios are supplying content for online services that deliver content to PCs, like Blockbuster’s Movielink, Apple’s iTunes, Amazon’s Unbox, CinemaNow and Walmart.com, as well as set-top solutions like Akimbo, MovieBeam (built by Disney and now owned by teetering Movie Gallery) and the just-launched Vudu.

 

Across these services, there is limited mobility of downloaded files, often less than DVD quality, and not much differentiation of content, but a wide variation in business models.

 

Vudu, which launched with a fair amount of fanfare last week, asks consumers to buy a new set-top box the size of a hardcover book for $400, with which they can then stream (rent) and download (buy) movies at prices competitive with DVD, choosing from among 5,000 studio and independent titles (see story, page 8). One of its main advantages is that movies are stored on a sort of private peer-to-peer network so that files are delivered for viewing faster than on other services. That’s a neat trick, but perhaps not enough to justify the $400 price of entry.

 

The company touts its more than $21 million in venture capital financing like it is unaware of how much money other services have burned through without finding the success Vudu envisions. MovieBeam, with its set-top box priced at just $150, leeched more than $100 million from previous owners Disney, Cisco Systems and Intel Capital before Movie Gallery bought it for less than $10 million. The same numbers apply to Blockbuster’s purchase of Movielink from five major studios.

 

I may have to stick a pin in myself when Vudu becomes the first raging success of the movie download era, but I’ll chance it to make the point that there’s ample evidence to show that it’s high time the hype surrounding new video downloads be tempered, at least until the market becomes less fragmented and some sort of consensus starts to emerge about the best delivery and business models to attract consumers.

 

According to Screen Digest, the online digital movies segment will make up just 3% of all movie home entertainment revenue in the U.S. and Western Europe by 2011. The researchers point out that while this is smaller than many interested parties have expected, it is still a significant market that can bring incremental revenue to the movie business as DVD growth falls away. And it is a matter of if, not when, downloads will catch on, they believe.

 

“It will take time to reach a wider market penetration with these new devices,” says Screen Digest senior analyst Arash Amel. “We believe that this will start to become more mainstream beyond 2011.”

 

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Despite the fact that Shrek the Third and Transformers are coming out on HD DVD and Ratatouille, Fantastic Four: Rise of the Silver Surfer and Live Free or Die Hard are coming out on Blu-ray, neither of these new formats is going to be the “gotta have it” gift for the 2007 holiday season. Perhaps high-def buyers will push out past early adopters to the leading edge of the mass market, but true mass will not be touched. Studios and consumer electronics companies have assured that with one too many formats, relatively high hardware prices and too little consumer education as of yet about either.

For most retailers, the focus is not going to be on truly effectively selling HD DVD and Blu-ray, but on how to merchandise these two new SKUs at all during a season that promises more big box-office performers than this industry has ever seen on DVD—the format that is already in roughly
90 million American homes.

High-def disc formats hold huge untapped potential for growth in the long run. But for the rest of this year, the upside is in good old DVD, and retailers know it.

The bottom line on Paramount and DreamWorks Animation’s surprise announcement last week that they will support HD DVD exclusively going forward is that it will be a factor in prolonging the format war. All the hubbub last week about the two studios’ motivation and how much they were paid to go exclusive isn’t really important to either retailers or consumers. They are exclusive, at least for now, and that does slow Blu-ray’s momentum, at least for now.

One Blu-ray supporter mused to me last week about a potential “consumer and creative” backlash against Paramount and DreamWorks for denying them the opportunity to see their favorite films in Blu-ray. Creative, maybe, if Michael Bay’s quickly recanted midnight ramblings are any indication, but consumers? Not enough consumers are in the Blu-ray game yet to create a backlash.

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Sony and Disney have both begun referring to Blu-ray as "Blu-ray High-Def" in press communications and marketing materials. Probably a smart move to quickly communicate to consumers what Blu-ray is , but also an admission that "Blu-ray Disc" is confusing to the masses. 

Sony also has made broader move to market its full suite of high-def products under the an "HDNA"-themed campaign that uses the taglin "High Definition. It's in our DNA." It extends to all of Sony's brands, including Blu-ray and Bravia.

So far, Fox is still referring to "Blu-ray Disc."

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A retailer friend of mine and I recently engaged in an e-mail discussion about the media coverage of video downloads—which he finds disproportionate given the small percentage of the populace actually using downloads and the small amount of revenue generated.

Of course, he has a valid point.

The reason video downloads are given so much ink, in this publication and myriad others, is because they’re new, the services and business models are many, and everybody pretty much agrees they are an important delivery channel for home entertainment. But nobody knows which model will eventually prove a keeper, providing new revenue, adequate copy protection and consumer appeal. Information about new technologies and consumer adoption habits is valuable currency.

Several new bits of consumer research, however, point exactly to what my retailer friend was getting at—Internet users may be intrigued by online movie services but so far are not using them heavily and are not terribly satisfied with the experience.

DEG last week reported on the results of a study its content committee commissioned from research firm SmithGeiger that found consumers prefer watching DVDs or live TV to Internet streaming or downloading. The survey of 1,035 broadband subscribers who used the Internet at least three hours a week showed that only 10% chose streaming or downloading as their preferred method of movie watching, while 41% preferred DVD and 32% preferred good old live TV. The respondents who used online video were more likely to watch movie trailers or clips that were forwarded to them.

When asked what types of video they would be willing to pay for online, the largest group—24%—said they would pay for a movie if they could burn to DVD for multiple viewings, or the ability to watch a movie online at the same time that it’s out in theaters.

Another report released earlier this month by The Diffusion Group showed that Internet users are intrigued by download-to-burn but highly price sensitive. TDG found that 29% of adult Internet users are likely to purchase a movie download if it could be burned to DVD, but only 6% would “definitely” do so.

DEG’s findings followed by a week a survey from market research firm Parks Associates that found few U.S. consumers are satisfied with videos downloaded from the Internet. Just 21% of all video downloaders said they were generally satisfied with the experience, and only 19% said they plan to download in the future. Only 13% of respondents thought downloads were reasonably priced, and only 15% thought the Internet offered good movie selection.

Director of research John Barrett’s conclusion: “People don’t see a reason to use video downloading services. Sure, it saves a trip to the video store, but it takes longer, looks worse, and you end up watching it on a 17-inch screen.”

The bottom line for video retailers may be laid out in yet another recent report by TDG, which in “Movie Rental Behavior and Proclivity to Use Online Services” finds that the dominance of video stores continues to give way to alternative sources such as direct mail, video-on-demand and pay-per-view. Online movie services, however, have a negligible impact at this time, according to TDG, with just 2% of adult broadband users having rented an online movie and only 1% doing so with any frequency.

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This line of reasoning is also put forth by Craig Kornblau, chief HD DVD supporter in his role as head of sole HD DVD exclusive studio Universal Studios Home Entertainment. In an interview on, of all places, the Blu-ray studios’ promotional Hollywood in Hi-Def Web site (hollywoodinhidef.com). Kornblau says that without the format war, even after more than a year in the market, the lowest-priced players would still be priced out of reach of most consumers. He says Universal chose HD DVD because of its affordability and interactivity, and the studio is sticking for now.

There’s a lot of evidence that makes it easy—as the Blu-ray supporters have been doing for months—to declare the war all but done, with Blu-ray as the winner: Blu-ray is outselling HD DVD software; Blu-ray players are on the move to collectively outsell HD DVD players (see story, page 6); and most blockbuster titles in Q4 will be available on Blu-ray.

But while Blu-ray may be pulling ahead, it’s by nowhere enough to kill HD DVD, which with a third or so of the market, is far from on the ropes.

Watch the Q4 news to see how many of the new records set are by Blu-ray titles alone, and how many come from Warner or Paramount, which support both formats.

All that said, internationally Blu-ray enjoys a wider margin of close to 3:1 over HD DVD. In its report of first-half home entertainment sales internationally, research concern Media Control GfK International shows consumers outside the U.S. bought about 650,000 units of Blu-ray software, valued at more than $23 million, with HD DVD selling just around 240,000 units valued at about $8.5 million in the first half.

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Yesterday's L.A. Times placed the story about six miners trapped in a Utah cave-in well-inside the front section (actually, on A8),  while page 1 carried a brief, odd story no more than 8 inches long, headlined "Videos as a baby brain drain."

The news, from a study by the University of Washington in Seattle, was that for every hour a day that babies 8 to 16 months old viewed popular videos such as Brainy  Baby or Baby Einstein, they knew six to eight fewer words than other children.

Why didn't someone tell my (video-watching and highly articulate) kids before they conversed their dad and me to distraction?

Now, I will no more endorse using DVDs as a babysitter than I will feel guilty for sometimes letting my kids watch them--even before they were 2 years old (in violation of American Academy of Pediatrics recommendations).

My point is simply that these stories--and many studies--can't don't begin to take into account all the factors that go into vocabulary development, including genetics, home environment (outside of TV viewing), and how--and how much--parents talk to their children. 

No thinking parent really thinks they are going to make their baby smarter just by plopping him or her in front of the right videos--at least none that I know. A professor involved with the study noted in the Times that children whose parents read to them or told them stories had larger vocabularies. Who woulda guessed?

'Educational videos make for dumb kids' is just too easy a headline, and it paints with way too broad a brush.

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Check out the July 30th WaxWorks/VideoWorks mailer for a prime example of what the windows game has come to. Pages 10 and 11 carry an ad for Fox's Fantastic 4: Rise of the Silver Surfer, coming on DVD...  well, it doesn't say when it's coming. 

According to the ad, the title is available as both a single "flipper" DVD ($27.98 SRP, $19.95 MAP, $43.48 Canadian), and "The Power Cosmic Edition" 2-Disc Set. Preorder date for direct accounts and pre-packs through distribution is Aug. 8--the day after tomorrrow--with single orders through distribution due Sept. 5. The street date is... well, it doesn't say when it's coming.

Make sure you get your orders in, though. Two weeks ago, VB reported that retailers are expecting Silver Surfer on Oct. 2, and based on the prebook dates I'm thinking that's a pretty fair bet. 

The fact that the street date is not in such a detailed trade ad just goes to show to what lengths studios will go to get their home entertainment business done will hiding the DVD release date from theater owners and the press. (Theater owners hate to read DVD release announcements in, say, USA Today, while they're still devoting screens to a waning blockbuster.)

In the case of Silver Surfer, it doesn't even have a particularly short theatrical-to-DVD window, with more than 15 weeks between its June 15 theatrical premiere and an early October DVD bow. 

In our story of two weeks ago, VB reported the expected dates for a number of summer theatrical blockbusters (based on info from multiple retail sources) and we got our keyboard-tapping fingers slapped by more than one studio--not for publishing anything incorrect, necessarily, but for jumping the "announce." 

Since we reported in that story that retailers were expecting Shrek the Third on Nov. 13, the title has been officially announced for ... Nov. 13. And Spider-Man 3 has been announced for Oct. 30, a date retailers had circled for weeks before it became official.

Most, if not all, of the summer blockbusters have obviously been "announced" to key retailers...





 



 

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