But, lo and behold, Sony came out and reported a sensible 130,000 units of Spidey 3 sold in six days. They’re claiming that’s a record for the studio—not even the industry’s top Blu-ray title bow to date, which probably goes to Warner’s 300 (though Warner never exactly broken down the number between formats).

 

Interesting stuff from David Bishop in Susanne Ault’s story , in which the Sony chief talks about shipping more than 400,000 units of Spidey BD with no real worries of returns because the studio is filling a new pipeline for high-def.

 

In terms of standard DVD, Sony has not even released a first-week sell-through number for the latest Spidey installment, focusing the discussion instead on managing expectations for the third entry in the franchise.

 

Sony’s temperance about numbers might strike some as a sign of title weakness, but sources put the total first-week DVD sales at somewhere north of 4 million, when using the every-last-unit accounting method that has become the norm among studios. A solid hit, for sure, if no record breaker.

 

If Sony is correct about the correlation between box-office ($337 million for Spidey 3) and home entertainment home runs weakening as the sequels multiply, moreover, one has to wonder what that means for the other big three-peats to come: Disney’s Pirates of the Caribbean: At World’s End and DreamWorks Animation/Paramount’s Shrek the Third, due Tuesday.

 

Across WGA strike-plagued Los Angeles, studios are considering, and in some cases, beginning to do some expectation management of their own.

 

Just weeks ago, at the end of the third quarter, many execs were predicting the fourth quarter would be big enough to make up ground lost earlier in the year and draw 2007 ahead of 2006 revenue. Maybe that was a little over-optimistic. Maybe not.

 

But in sales projections, as in life, it’s always better to underpromise and overdeliver.

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Am I the only one getting a tad bit of deja vu from Jim Keyes turnaround strategy for Blockbuster?

A "merchant culture" focusing on DVD sales, snacks, music and posters? 80% of the chain's revenue on Shrek the Third will come from sell-through? Sounds awfully reminiscent of that Big Blue CEO of a decade ago, Bill Fields.

And we all know how that ended.

To be fair, home entertainment has changed dramatically in the past decade. Sell-through was just a fledgling business in the Fields era, perhaps the reason the sales focus of that era seemed so, well, unfocused. 

Blockbuster for almost its entire corporate life has been moving strategically toward serving up multiple forms of entertainment, in any way consumers want it. (Remember Blockbuster Pavilion? Been to the Blockbuster theater in Mexico?.) And, DVD purchases are certainly where most consumers spend the bulk of their entertainment dollars.

Seems to me, though, that rental is still key to keep the foot traffic up at Blockbuster stores. You've got to be really, really convenient if you want consumers to pay for a DVD than they have to at Wal-Mart or Target.  

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Update on my last post about the other Blu-ray studios debating Paramount's claims that Transformers set a high-def record when it was released on the 16th. 

The Blu-ray spin masters also took told their story to Nikki Finke's Deadline Hollywood Daily, which published their claims and Paramount's rebuttal in detail, including unnamed Blu-ray execs calling Paramount's press release a "big ass, fat, stupid lie." Then the Blu-ray camp made much of  Finke's blog at its Blu-ray Festival junket in Hollywood this week.
 
As we've said before, Blu-ray definitely holds the upper hand in the spin war, regardless of any ups and downs in the format war itself. 

Be nice if they could follow up their knocks on Paramount and HD DVD with a legit supremacy claim of their own.

Spidey 3's been in stores more than half a day. Is that press release ready yet?

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Prediction: Within two weeks  the week, we’ll see a press release trumpeting record-breaking Blu-ray Disc sales of Sony’s Spider-Man 3.

The fourth quarter is primed for one boast after another, with a record four films that made more than $300 million at the box office—Pirates of the Caribbean: At World’s End, Spider-Man 3, Shrek the Third and Transformers—and 15 more titles over $100 million due at stores in the coming weeks.

The studios are all hoping against hope that the combined firepower of these titles will pull DVD sales, which were running more than 4% down at the third-quarter mark, at least even with last year.

The studios each need their own blockbuster theatricals to perform like gangbusters on DVD, and, because Wall Street’s perception of the vitality of the home entertainment sector as a whole also affects their companies’ stock prices, the studios also need the industry to perform well. They are pulling for one another, at least up to a point—as far as standard DVD is concerned. And DVD will make up more than 95% of consumer sales this holiday season.

It’s over that sliver of the market that’s left—the 1% to 5% made up of high-def discs—where the real dog fights will break out. The sliver that is still so small it won’t really influence the overall market, and is so hotly contested because of the format war.

Paramount last week sent out a press release touting its sales of Transformers—a record for the year, according to the studio, with 4.5 million DVDs sold in one day and 8.3 million in one week. It also claimed record high-def sales of 100,000 Transformers HD DVDs sold on day one and 190,000 units sold in the first week.

As might be expected, other studios immediately started chewing over the numbers—and in some cases, spitting them back. There was skepticism over the 8.3 million DVDs, as there is over every number issued by a studio but not immediately confirmable by a third party. But more doubt was focused on the high-def claim.

“Impossible!” said critics, pulling out retail data that showed a much smaller number of units sold through at Best Buy, Wal-Mart and Target—three retailers that together account for well over half of high-def retail sales.

The rub for Blu-ray studios was that at 190,000 copies, the Transformers HD DVD trumped the fastest-selling Blu-ray title, Warner’s 300. (Though Warner never broke out Blu-ray sales on the titles, they are believed to be about two-thirds of the 250,000 units the studio initially sold on both formats.)

Blu-ray has by most accounts been selling twice as many units as HD DVD, making the Transformers claim a bitter pill indeed.

I don’t know how many copies Transformers really sold. But I would like to see the tie ratio to the Xbox 360 HD DVD drive.

And I can’t wait to see how many copies Spider-Man 3 sells on
Blu-ray.

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There is always more complexity and nuance to industry market data than we have the time or space to get into in our quarterly reports . The top line is that year-to-date, the industry is still down from last year, but rental and sales have narrowed the gap since earlier in the year. That’s a story the studios are anxious to get out, along with their optimism that all the box-office hits due in the fourth quarter will be enough to pull 2007 even with, or ahead of 2006.

There was a fair amount made earlier this year of the fall-off in new releases, and while the theatrical new release business is weaker than last year, it is probably only by about 3%, so actually performing better than the business as a whole, according to some studio estimates. TV new releases overall, however, may be down more than 10%, despite hits such as Heroes, and new direct-to-video titles have fallen off a cliff, despite the strength of Cinderella III, released early in the year.

On the catalog side, TV and direct-to-video sales look to be relatively flat, while theatrical may be down 5% or more, according to studio estimates.

VHS, meanwhile, has dwindled to the point it has ceased being a topic of conversation, representing less than $20 million in sales, or about 15% of what the fledgling high-def disc market is capturing.

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 Susanne Ault reports  that key consumer electronics retailers are looking to increase/maintain their profit margins in the face of falling HDTV prices by selling TV buyers more accessories, including high-def DVD players. Could be beneficial all around, since software sales will grow with hardware penetration.

Challenges to that goal, however, include forecasted weak consumer spending this holiday season (Wal-Mart just last week slashed prices on more than 15,000 items in hopes of getting the Christmas party started) and the dang format war, which is causing consumers to delay next-gen DVD purchases.

The Consumer Electronics Assn. last week revealed the results of its 14th annual “CE Holiday Purchase Patterns” study, which predicts that consumer electronics will account for 22% of all holiday gifts given. High-def DVD players, however, don’t make the top gift lists.

Among the Top 5 CE gifts adults wish for are MP3 players, notebook/laptops, videogame systems, digital cameras and any type of TV. For teens, MP3 players, digital cameras notebook/laptops, computers and any type of TV made up the list.

That could make it more challenging for retailers who are betting their profit margin they can upsell high-def players with HDTVs.

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With consumer purchases of DVD flat,
studios and retailers alike have an interest in seeing high-def reach its full potential, And even with the format war as a significant obstacle to consumer adoption, a couple of retailers are outperforming their general market share in high-def.

Best Buy and Amazon both have strong followings among early adopters and film buffs, but each credits consumer education with helping it grow its high-def share.

With that in mind, last week I visited Amazon’s new “High Def 101” reference online, as well as Bestbuy.com.

Amazon’s High Def 101, reached through the site’s DVD home page, is a great consumer resource that all retailers ought to check out and consider emulating. Under the heading “Learn. Shop. Discuss.,” the retailer has primers on a variety of topics (HDTVs, cables and accessories, gaming systems, high-def movies and players), answers to frequently asked questions, definitions of high-def terms, a blog and even examples of home theater systems, which can be put together for $1,000, $2,000, $3,000, $4,000 and “more.” In browsing the resource, the only complaint I had was that the difference between HD DVD and Blu-ray was not among the FAQ—but it was addressed thoroughly in the high-def movies and players primer.

Best Buy has very similar information, through links to partner Cnet’s Home Theater Resource Center, which has lots of explanations, delivered by an enthusiastic Cnet editor on video.

Not all retailers will have the same resources as Amazon or Best Buy, but it would benefit most to get in the consumer education game.

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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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