Archive for category Movies

Why Doesn’t AMC Want My Money?



AMC Empire
Originally uploaded by imoteph9


Most businesses are thrilled when someone wants to give them money, but for some crazy reason whenever you’re dealing with Hollywoodnomics, logic seems to get turned on it’s head. Case in point: MoviePass

I love the movies, in fact I’d argue that I’ve probably seen more films than 90% of the population. As a moviehound, you would think that I would be one of AMC’s best customer’s, but the truth is that in the last 5 years, I’ve only seen 2 movies in the theater. While there are a lot of reasons why, it essentially boils down to the fact that it’s hard for me to justify paying $9 for a film, when I can watch it at home for free*

Now in reality, my TV isn’t actually free, but psychologically, it feels that way because I “rent” my content through services like Netflix and TiVo. While I’m sure that PPV and Blockbuster would prefer that I take advantage of their services, the simple truth is that the transaction fee involved (no matter how small) has made them persona non grata in my lifestyle.

I’ll be the first to admit that watching a film on my 60″ TV isn’t the same as seeing it in Imax, but when the choice is to pay money vs. seeing something for free*, it makes it a lot harder to accept the premiums that the theaters charge. Four years ago, I noted that consumers were making a transition from a pay per view model to a subscription model and that movie theaters would be wise to endorse the trend.

“Why not offer a monthly subscription fee to your local movie theater chains. Consumers would be happy to spend $30 or $40 per month in order to have the privilege of seeing films the way I did when I worked for the theaters. Instead of collecting $40 per year from me now, theaters could instead bring in $480 each year with an all you can eat model.”

A long time ago, I worked as an AMC projectionist and every Thursday night, I’d stay up to the wee hours of the morning screening the new films before they opened. Because of this experience, I know first hand how powerful a theater subscription model could be, which is why I’m so confused that my former employer wouldn’t recognize the brilliance behind MoviePass. What makes this all you can eat movie experience so special isn’t the access to the big hits that you’re dying to see, it’s being able to see mediocre films in a larger than life environment without having to put your wallet at risk. Yet for some strange reason, AMC isn’t interested in attracting customers to their most empty theaters.

Now I can’t speak for everybody, but in my case, had MoviePass existed back then, AMC would have collected $1,920 in ticket sales. Instead they’ve earned less than $40 from me and that includes popcorn.

Not everybody chooses to rent their content, but when you look at the number of cable, satellite, Hulu, Netflix, etc. subscribers, it becomes clear that a huge segment of society chooses to consume the bulk of their content this way. This is why, when I saw that MoviePass was going to create a subscription theater service, I thought it was a no brainer for the theaters involved.

Instead, AMC decides that they want no part of this? Can someone please help me understand how this makes sense because AMC’s justification that “plans for this program were developed without AMC’s knowledge or input,” or that “it does not integrate well into our programs and could create significant guest experience issues”, rings hollow in my opinion.

AMC could have picked up a brand new customer willing to buy tickets in bulk and instead of nurturing a new source of revenue (while MoviePass assumes the risk of proving an experimental business model), AMC has chosen to ban it because they weren’t consulted first? This seems awfully shortsighted and petty on the part of AMC.

If AMC really believed in the mantra, listen, learn, discuss, decide, execute, measure and … repeat, then they would have at least taken the time to see if MoviePass could bear any fruit. Instead, they’ve jumped straight to an execution (with a promise to repeat if anybody else decides that they want to give them buckets of money without permission.)

I could almost understand this reaction, if AMC had some type of similar program that MoviePass was competing with, but the reality is that AMC has failed dramatically when it comes to the execution of their customer loyalty programs.

For 25 years, AMC ran a program called Summer Movie Camp for kids. The idea was basically a seasonal version of MoviePass, except restricted to handful of old kids movies. Given it’s long run, one would think this was a homerun for the cinema, but I can tell you first hand that AMC did a terrible job of running it. Even on their own website, AMC admits it was a failure.

“Unfortunately, the number of guests has been fewer in recent years, with many shows operating with less than 25 guests in the auditorium. Last year, attendance dropped so significantly that we have made the difficult decision to discontinue the program.”

AMC’s most recent program, also looks like it will be a dud. Not only do consumers now have to pay $12 a year for the privilege of frequent customer membership bonuses, but they only save 10% off for every $100 they spend. This means that you would have to pay to see 33 films in a year before you would actually earn a free one under the program. It’s nice that they want to be so stingy with their best customers, but MoviePass really wouldn’t threaten this.

If MoviePase attracts moviehogs, then it will be uneconomical for them as a business. If they attract consumers like myself, who refuse to pay transaction charges for their entertainment, then it’s complimentary to AMC’s existing program and could greatly expand revenue. It’s hard to tell what the future holds for MoviePass at this point, but with the major theater cartels going hostile against this new innovator, I can only hope that independent theaters will be more interested in collecting hundreds of dollars a year from me instead.

Netflix Makes Deal With The Devil – Now Streaming Snuff Film Online

I’ve always enjoyed violent movies. A quick look at my Netflix’s rating history reveals a pantheon of horror films. Whether we’re talking Michael Myers or Alfred Hitchcock, there’s something about gratuitous violence that tickles my funny bone. When it comes to real life violence though, I am generally much more squeamish. Nearly ten years after 9/11, I’m still haunted by the news footage of people jumping to their deaths from the burning buildings. While some might argue that this line really shouldn’t matter, this distinction is often the difference between a black comedy and a documentary.

This difference may also help to explain how I can be thrilled to see Netflix adding Pulp Fiction to their watch now service, but dismayed to learn that they’ve also added Death Scenes 1 – 3. For those not familiar with the Death Scenes series, it’s a collection of extremely graphic video clips that show the murder and execution of countless individuals. It is “narrated” by Anton LaVey himself, the founder of the church of satan.

Back in the 90′s, I had friends who would trade Faces of Death VHS cassettes, but Blockbuster was never foolish enough to rent them in their stores. Netflix on the other hand doesn’t seem to have a problem renting snuff films to their members and I think this is a mistake. While I respect the fact that Netflix doesn’t censor other people’s movies, they have drawn a line by not offering pornography on their service. Whether or not, Death Scenes is a pornographic snuff film or a documentary I’ll leave up to my readers to decide, but before clicking on this graphic link to view the evidence, you should take a look at excerpts from how other Netflix members have described the film.

“I was very disappointed in the fact that so many of the scenes had no commentary or too little and seemed to just be a shock value show” – Steathl

“In my opinion, this footage does not qualify as a documentary. Rather, Id consider it more along the lines of a smutt film or Faces of Death with a heaping scoop of pointless thrown in for your viewing displeasure” – QBS 1996331

“There a couple of scenes that will stay with me forever. One was a boy of about nine dressed in 30s style clothing with his hands tied behind him and laying sideways after being executed. The other scene that I have trouble getting out of my head was the pre execution footage of a guerrilla rebel all of about 16 tied to a pole awaiting a firing squad. He looks directly into the camera and you are looking at a boy, face full of rage, terror and, defiance. The next scene he is executed with the other rebels.” – Sedatme

While I didn’t waste my time watching every minute of this film, I did see enough to know that this is closer to pornography then it is to a “documentary” and I would hope that Netflix would be able to see that. The idea of watching people being brutally tortured or murdered may appeal to some niche quarters of the internet, but it’s not appropriate on a site like Netflix.

Update – A quick check of the website, seems to suggest that Netflix has taken the series offline. With so many films that they’re licensing, it’s probably hard for Netflix to watch everything that comes in. My guess is that this film somehow slipped through the cracks and once Netflix became aware of it they reviewed it and rethought whether it was appropriate for their site.

Has The DMCA Created A Legal Bermuda Triangle For Downloads?

For the last several years, the entertainment industry has been doing their darndest to put The Pirate Bay out of business. Whether it’s been suing TPB’s users, going after TPB’s hosting providers or trying to make the site’s founders criminally liable for the behavior of their customers, it’s clear that TPB doesn’t have many friends in Hollywood. More recently, we’ve seen a legal settlement industry spring up where mass lawsuits are threatened against consumers for allegedly participating in P2P activities. Whether or not the entertainment industry has been successful in these endeavours is open to interpretation, but in their zeal to put an end to filesharing, they may have created an even more dangerous monster.

One could argue that it all started with YouTube, but over the past few years we’ve seen a shift in consumer behavior away from P2P and towards streaming and downloading services. To see proof of this trend, all one has to do is compare the traffic of TPB with the streaming/downloading search engine FilesTube.

According to Compete.com, over the last year FilesTube.com has been able to consistently attract 50% more visitors than TPB. Not too shaby of a feat considering that Filestube.com didn’t even exist 3 years ago.

Given their animosity towards TPB, one would think that entertainment executives would be celebrating the cultural decline of TPB with a round of cold beers and high fives, but the reality is that instead of curbing piracy, they’re merely redirecting that illicit traffic towards safe harbors where consumers don’t appear to be at risk. In the immortal words of Princess Leia, “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers”

By continuing to squeeze P2P users with countless numbers of lawsuits, the entertainment industry may have been able to establish a precedent that uploading content to the internet is a copyright violation, but what’s less clear is whether or not simply downloading that same content is actually illegal?

According to the Copyright.Gov FAQ website, “Uploading or downloading works protected by copyright without the authority of the copyright owner is an infringement of the copyright owner’s exclusive rights of reproduction and/or distribution. ” [Emphasis added by me]

Setting aside the ethical question of whether or not it’s moral to download grey area content, it is clear that US Copyright law places some restrictions on infringing downloads vs. legitimate ones. From the same FAQ page,

Whether or not a particular work is being made available under the authority of the copyright owner is a question of fact. But since any original work of authorship fixed in a tangible medium (including a computer file) is protected by federal copyright law upon creation, in the absence of clear information to the contrary, most works may be assumed to be protected by federal copyright law.” [Emphasis added by me]

Now I’m not a legal beagle, but I believe that this means that consumers can’t be prosecuted for downloading a movie, if the service they are using claims to be offering content with the blessing of the legal copyright owner. For example when I’m streaming (making a cached copy) of old episodes of Battlestar Galactica from Netflix, I’m not actually breaking the law because I have a reasonable belief that Netflix has licensed this movie for their subscribers.

Since many streaming sites are largely controlled by the company that is paying for the bandwidth, it would be relatively easy for the studios to hold these companies accountable if they did stray off of the straight and narrow path. Where the legal waters become more murky though is when service providers (streaming companies) allow others to upload content instead of taking charge of this themselves.

With YouTube receiving 35 hours of content per second, it would be impossible for them to screen every second of footage that is uploaded to their site. Because of this the DMCA offers YouTube a safe harbor as long as they respond to DMCA takedown requests and don’t encourage piracy. To date we’ve seen several lawsuits that have tried to challenge this exemption, but so far they’ve all been a bust for the entertainment industry.

So on one side of this digital triangle you have consumers who are exempt from legal liability as long as the service provider requires uploaders to claim ownership of everything that they upload, on the other side of the triangle you have the service providers who are exempt from liability as long as they respond to DMCA request and don’t uploading anything themselves and on the final side of the triangle you have the content owners themselves who must choose between trying to police an endless stream of piracy or to quietly embrace the millions of consumers who are now streaming their television instead of paying for cable.

In a perfect world, only the actual copyright owners would be uploading their content to these digital locker services, but because sites like Megavideo.com pay users based upon the number of plays their videos get, there is an economic incentive for rouge operatives to cheat the system by claiming content as their own. To Megavideo’s credit, they have a history of refusing to pay copyright violators, but from a practical standpoint there are many who’ve been able to collect royalties on other people’s content.

Also to Megavideo’s credit, the entertainment industry has a long history of embracing “piracy” while staying in the closet about this. For example, when Viacom sued YouTube for copyright infringement, some of the clips they sued over were uploaded by Viacom employee’s themselves. It would hardly seem fair to hold either YouTube or consumers who watched those clips liable for copyright infringement when Viacom was creating a honeypot to tempt web surfers with.

Some will argue that content owners would never do this, but there are many reasons why someone would choose to embrace piracy and the popularity that it can bring a film. Whether you’re trying to jumpstart a struggling TV series or you’re trying to increase licensing opportunities, just because someone doesn’t pay to view a video doesn’t necessarily mean that the creator won’t benefit from that attention.

One of the things I’ve noticed when browsing through the FileTube.com search results is that often times studios will be unrelentingly aggressive about filing DMCA takedown requests the minute infringing files are uploaded while other files will remain online for over a year without even being “noticed.” While it would be tough to argue that 100% of these files are being monetized by the original copyright holders, I do believe that many copyright holders have chosen to secretly monetize their content in this way, but aren’t able to publicly disclose this because of how it might impact their negotiations with more traditional video distributors.

While the uploaders who falsely claim ownership of copyrighted material certainly put themselves at legal risk, with most of the uploading activity occurring outside of US borders, it’s unlikely that many infringers will find themselves being dragged into US court.

Some will cry foul over this latest trend, but I do find it fascinating how alternative business models can thrive when copyright issues aren’t strangling internet startups.

For example, one of the unique ways that Megavideo is able to sell memberships for their service is by letting consumers watch a certain amount of video each day for free before being interrupted with a time out. By running their business this way, they are able to use each and every video as an advertisement for their paid service. Since you may be 80% of the way through a movie when the time limit hits, a consumer is given the opportunity to ask themselves whether or not the content is really worth paying for to see right away or if it is a piece of garbage that you don’t care about finishing anyway.

Can you imagine if you were able to go to a movie theater and didn’t have to pay for your ticket until you had already watched 80% of the film? It would probably hurt ticket sales for a lot of the big budget flops, but the really well made movies would be incredibly successful because they’d be able to convert a larger percentage of those free eyeballs into paying customers.

Whether or not content owners are embracing this business model may be unclear, but by aggressively pursuing P2P users, the entertainment industry has made it clear that downloading without uploading is a much safer alternative for consumers then participating in the P2P movement. As technology marches forward, we’ll find out whether or not this Bermudian Copyright triangle gets sorted out, but in the meantime the efforts to prosecute P2P users, only seems to be driving consumers from a clunky bandwidth intensive technological solution to offshore providers who are offering a more elegant experience.

It’s probably worth pointing out that the MPAA has claimed that movie streaming is still considered a form of theft, but instead of backing up their position by citing the appropriate copyright laws, they instead try to equate digital streaming with physical theft.

The problem with this position is that companies like Sony (one of the MPAA founding partners) is apparently offering a shoplifters paradise in the form of all you can stream free movies on their Crackle.com website. Other MPAA partners like 20th Century Fox have not only made their movies available online at their official sites, but have also licensed their content to a number of different distributors like Comcast’s Fancast.com. Since it would be impossible for the end consumer to know the contractual details of every one of these down stream relationships, it would hardly seem fair to hold the consumer liable if someone uploaded a clip that actually infringed.

While I’m entirely open to exploring other opinions that downloading (without uploading) is still a copyright violation, I’ve yet to see any legal evidence indicating that this is actually the case. What do you think, when you hit play on a Simpson’s clip on YouTube have you actually committed a crime?

Using Netflix + Pandora To Reinvent The Silent Film

Full disclosure: I’ve always been a huge fan of the rock opera. Tommy, Ziggy Stardust, yes even Aqualung. Some may celebrate the rise of the individual download, but I miss the concept albums that were designed to entertain for more than 3 minutes. I’m also a big fan of cinema. Even beyond the entertainment factor, I love being able to look into the past and see the shadows that film has left behind.

Unfortunately, as much as I enjoy watching old films, the soundtracks during the silent era are almost unbearable. The Jazz and Ragtime ballads may have been popular in their day, but they usually cause me to fall asleep within 20 minutes of starting a silent film. Because of this, I’ve more or less ignored nearly 2 decades worth of cinematic history, so when I saw Reddit user Feverdream post the following suggestion, you can understand why it may have caught my interest.

“[1]Put on silent movie “Metropolis” on Netflix [2]turn down volume [3]Custom quickmix on Pandora in a separate tab [5 6 7 8 9 ...]“

After trying out the instructions exactly, I’m proud to report that the results were amazing. In and of itself, Metropolis is a fantastic film. As a sci-fi fan, I’m really happy that I was able to see it. Even today, it’s probably still 30 years ahead of it’s time. When I combined it with music that was relevant to me, the film took on a life of it’s own. Just like when you sync Pink Floyd’s dark side of the moon with the Wizard of Oz, there were all kinds of intersections where the film and the music collided. It almost felt as if my custom Pandora mix had been made exclusively for that film.

What’s even better about the experience is that it’s not just limited to the film Metropolis. You can literally mash up any silent film on Netflix with a Pandora custom mix and it creates a very personalized experience. The dialogue, the acting and the plot all remain unchanged, but the addition of music that you actually enjoy creates a different sort of connection when watching the film. Throughout my experience, I noticed that my mind seemed to drift more. Instead of getting distracted by the explosions and witty one liners, I was actually thinking about the plot and trying to anticipate each step. It was as if the music was forcing the story to play out in my mind instead of on the screen.

Netflix only has about 25 silent films on their watch instantly service right now, but since you can sort by star rating, it’s pretty easy to find the ones that you’re most likely to enjoy. YouTube also has a pretty impressive collection of public domain silent films for those interested in playing at home.

The Netflix Cartel

Netflix CartelSince bursting on the scene 13 years ago, Netflix has been a huge ally for consumers trying to save money. For years Blockbuster had dominated the rental industry and whether it was abusive late fee practices or high rental prices, they took advantage of their strength. The value that Netflix passed onto consumers injected some good old fashioned competition back into the DVD market and led to new forms of innovation. While Netflix continues to remain one of the best values for your entertainment buck, the firm has recently started to engage in some very anti-consumer behavior.

Most notably, they’ve been trying to strike agreements with studios to delay when they offer new release DVD rentals to their customers. In exchange for lower prices, they’ve agreed to put all of the new movies by Warner Brothers on very long wait status for their customers. In exchange, they get lower prices that will help them to drive brick and mortar competitors out of business. So far most studios are only watching these experiments from the sidelines, but Warner Brothers has embraced this scheme with gusto and has followed up their agreement with Netflix by striking a similar deal with Redbox.

Ironically, Redbox actually dismissed an anti-trust claim against Warner Brothers, in exchange for being invited into this exclusive club. Now some will argue that the beauty of Netflix is their deep archived content and while 487 or the 488 movies in my queue currently show availability of now, they’re customers who do like to rent new releases. By making them wait, Netflix is creating an artificial rental window that allows Warner Brothers to charge higher prices for new release DVDs and causes the price for rentals to rise at rental firms like Blockbuster. In fact since striking these agreements, Blockbuster has raised prices on their DVD by mail program and reinstated late fees to their customers. This is a reversal of the price wars that consumers enjoyed over the last decade.

While Netflix and Redbox haven’t seen much in the way of customer defections from implementing this hostile policy, they may find their activities under closer scrutiny thanks to Susan Uman from Manhattan. In a lawsuit against Netflix, she argues that this latest rental window is nothing but anti-competitive collusion. Already, Netflix has been sued over a different arrangement with Walmart to carve up the sales and the rental markets, so it will be interesting to see how this one plays out.

According to USLegal.com, “collusion occurs when two persons or representatives of an entity or organization make an agreement to deceive or mislead another. Such agreements are usually secretive, and involve fraud or gaining an unfair advantage over a third party, competitors, consumers or others with whom they are negotiating. The collusion, therefore, makes the bargaining process inherently unfair. Collusion can involve price or wage fixing, kickbacks, or misrepresenting the independence of the relationship betweeen the colluding parties.”

While there is a fine line between collusion and standard industry business agreements, the deal that Netflix made cheats customers out of new releases and I think it crosses that line. They have in effect sold their first sale rights, in exchange for financial terms that give them an economic advantage over smaller competitors in their industry. According to this primer by the Justice Department, collusion tends to occur when we see some of the following conditions.

“-Collusion is more likely to occur if there are few sellers. The fewer the number of sellers, the easier it is for them to get together and agree on prices, bids, customers, or territories. Collusion may also occur when the number of firms is fairly large, but there is a small group of major sellers and the rest are “fringe” sellers who control only a small fraction of the market.

-The probability of collusion increases if other products cannot easily be substituted for the product in question or if there are restrictive specifications for the product being procured.

-The more standardized a product is, the easier it is for competing firms to reach agreement on a common price structure. It is much harder to agree on other forms of competition, such as design, features, quality, or service.

-Repetitive purchases may increase the chance of collusion, as the vendors may become familiar with other bidders and future contracts provide the opportunity for competitors to share the work.

-Collusion is more likely if the competitors know each other well through social connections, trade associations, legitimate business contacts, or shifting employment from one company to another.

-Bidders who congregate in the same building or town to submit their bids have an easy opportunity for last-minute communications.”

Looking over this list, it would appear that Netflix is very much in a position to abuse their market leadership status. With Movie Gallery in bankruptcy for the 2nd time and Blockbuster getting close to a date with the grim reaper themselves, Netflix and Redbox represent the future of the DVD rental industry. This limited competition has made it easy for them to enter into agreements that wouldn’t have been tolerated by customers five years ago. If Blockbuster had the finances to actually keep new releases in stock, one might argue otherwise, but their company is in survival mode and are now having to pay Warner Brothers more for each new release then their two biggest threats.

While Netflix and Redbox may not have their headquarters located in the same town, both have been aggressively courting Hollywood for access to their movies. Since the studios are largely controlled by a small handful of companies, it gives them the ability to collude with the limited DVD renters that are left.

Prior to their agreement with Warner Brothers, Redbox was on the outside of this club and was being forced to acquire their DVDs from outlets like Walmart because Warner Brothers refused to even do business with them. Now that they’ve stopped sticking up for the consumer, they have access to all the DVDs that they want to buy. If this doesn’t qualify as collusion, I’m not sure what does.

It’s hard to say how much legal merit this lawsuit will have, but from my viewpoint, I believe that Netflix, Redbox and Warner Brothers have created an illegal cartel to try and carve up the DVD market. Warner Brother’s gets to force consumers to buy new release DVDs, instead of being able to rent at lower prices and the rental companies get cheaper supply which helps to boost their profits. While I’m sad that Redbox gave up on fighting for consumers, I am glad that consumers aren’t afraid to fight back. Hopefully, Ms. Uman takes this case all the way, instead of settling at the last minute for a million dollar windfall.

How To Save Blockbuster

SuperBlockbuster

Ten years ago, Blockbuster video was on top of the world. They didn’t know it at the time, but it was the golden age for the video store. After years of reminders to be kind and rewind, consumers were adopting DVD players en masse and needed a source for their entertainment needs. For better or worse that source was Blockbuster.

With the internet buzz hitting a fevered pitch, Blockbuster was already hard at work creating a digital strategy. Given their dominate position in the video store industry, they even flirted with the idea of buying a small internet start up named Netflix for a mere $50 million.

With the entertainment world seemingly in the palm of their hand, Blockbuster was positioned to make the jump to digital better than anyone, but over the last decade they’ve made a series of blunders that now threatens to bankrupt them today.

Yet, in looking at their rise and fall, it’s easy to make the quick assumption that their problems were a result of technological innovation, but the truth of the matter is that they have no one but themselves to blame for the weak position that they find themselves in today.

Of all their missteps, the biggest blunder was assuming $1 billion in debt, so that Viacom could collect an obscene dividend payment when they sold the company to a naive public. That debt now hangs over them like an albatross across their their neck and has caused them to lose pace with their unencumbered competitors.

With revenues in steep decline, it will only get harder and harder for Blockbuster to continue to meet their obligations under this debt. Without the firepower to compete on a level playing field, their situation will only get worse

With the precariousness of their position becoming increasingly clear, Blockbuster has done everything from paying a high price to refinance their debt to hiring a bankruptcy specialist to help salvage what is left of their business.

Yet, despite the clear and present danger of their situation, Blockbuster has continued to keep their head buried in the sand. Over the years, I’ve offered my fair share of suggestions criticism for how they could improve their business model, but we’re now at a point where a tourniquet won’t save them, they must do massive surgery and Stat!

In an effort to try and preserve a dying part of the entertainment industry, I present to you, my plan to save Blockbuster.

With the future looking pretty bleak for just about any video store, how can a company like Blockbuster save themselves? By sacrificing their media business in exchange for an opportunity to reinvent their retail business.

What I’m proposing would be tricky and the devil really would be in the details, but with the right execution, Blockbuster could shed their legacy of debt, future proof their business and position themselves to take market share, instead of losing it.

Essentially what they’d need to do is create a “good Blockbuster” and a “bad Blockbuster” to isolate their problems.

On one side you would have their DVD by mail program, their DVD kiosks and their digital business. On the other side, you would have Blockbuster’s traditional video store business that so many are quick to write off.

Together, the two businesses are slowly strangling Blockbuster, but split apart, they could free them from the impact of years of stagnation and ineptitude on their part. What I’m proposing is that they spin off their good assets and use that money to pay off their debt.

In the past, Blockbuster tried to launch an aggressive initiative to boost their DVD by mail program, but by doing so, they only ended up cannibalizing their in store customers. As a result, they’ve all but abandoned the program and have allowed their future to slip away.

If an independent Blockbuster.com doesn’t have to worry about that cannibalization, they could focus on going head to head against Netflix. They could create a subscription program for their kiosks that could offer value that Redbox couldn’t match. They could be price competitive without having to worry about their legacy stores. The result would be a smaller Blockbuster with less meaningful revenue, but it would represent profitable revenue instead of losses.

Neither Netflix nor Redbox would be able to offer DVD exchanges at the kiosk level and through the mail, but Blockbuster could capitalize on both strengths. Yes, the company would be a mere sapling in the larger entertainment industry, but Netflix was once a sapling and they’ve been able to grow into a very large oak.

From the video store side of the equation, Blockbuster could focus on what they do best, maximize cash flow while transitioning their stores into a new business. Whether that means turning their stores into modern day Starbucks or a replacement for the now defunct Circuit City, there are still plenty of opportunities for smart and nimble retailers.

To date, Blockbuster CEO Jim Keyes has made this transition a priority for the company, but when they are forced to forgo tens of millions in capital expenditures, just so that they can service their debt, it limits how quickly they can make this jump. As a result, they continue to face pressure to close stores instead of turning them into cash flow producing machines.

Given all of the negative media attention, it may be hard to believe, but Blockbuster still does a ton of business. For the first 9 months of 2009, Blockbuster brought in over $1.9 BILLION in revenue. By comparison, Netflix brought in $1.22 billion during the same period. Yet, when you look at the differences in market capitalization, Netflix is over 20 times more valuable than Blockbuster.

Perhaps even more surprising is that Blockbuster would have turned a profit of $38.4 million during that 9 month period, had they been able to ignore their debt. Instead, that $38.4 million profit turned into a loss of $131.6 million for the company. Now you don’t need to have a Phd in math to know that losing over $100+ million per year starts to get expensive fast and perhaps even more damaging than the loss of the cash is the effect that these interest payments are having on their competitive ability.

Instead of being able to invest in their future, they’ve been forced to make cut backs. Instead of retrofitting their stores, they’ve been closing them instead. Instead of stepping up the marketing, they’ve been forced to dial back. The result is that more revenue shifts to Redbox and Netflix and their cost to acquire customers has plummeted. If this trend continues, you don’t need Dr. Doom to tell you that it will be curtains for Blockbuster. They must stop the bleeding and they must stop it now.

Now I know what you are thinking, if Blockbuster is a penny stock today, how are they going to come up with $1.6 billion to pay off their long and short term debt. Part of it comes from the assets that they are holding today. With $980 million in current assets, they should be able to keep a good chunk of their leverage in check. The remaining $620 million worth of debt would be paid off by spinning off their new media divisions.

According to the most recent data, Blockbuster currently has 1.6 million online subscribers. As of last September, they had deployed 1,000 kiosks, but were anticipating that they would have over 10,000 deployed by the end of 2010. While Blockbuster doesn’t break down their digital revenues, I think that it’s reasonable to suggest that this division would be worth anywhere between $25 – $75 million based on their market position and intellectual assets.

If you look at Netflix’s current valuation, it works out to be approximately $255 per subscriber. Assuming that you discount Blockbuster subscribers by 30%, it would value Blockbuster’s DVD by mail business at $285 million.

In February of 09′ Coinstar completed their purchase of Redbox at a valuation of approximately $350 million. At the time, Redbox had 12,500 kiosks suggesting a value of approximately $28,000 per kiosk. Assuming that Blockbuster can get to 10,000 kiosks, even at a 50% discount to what Coinstar paid at the bottom of the market, one could assume that this stake would be worth approximately $140 million without Blockbuster’s legacy stores or debt.

What these numbers suggest is that if Blockbuster were to do a spinoff, it’s easily conceivable that they could raise at least $500 million in the offering. Assuming that they start to market their DVD by mail and get it up to 2.5 million subscribers, it would value their new media business at approximately $660 million.

If they did the spin off in the form of a convertible bond, I believe that this number goes even higher, because bond investors could be given the option to return to their current position, if the spin off flopped.

While this sort of transaction would create a new competitor for Blockbuster Video, by getting rid of their debt, it would enable their stores to become profitable once again, which in turn would make it easier for Mr. Keyes to raise money for the marketing and store improvements that Blockbuster so desperately needs.

While I believe that this rescue plan could make Blockbuster competitive again, I don’t believe that their current management is willing to sell off their future, even if it means saving themselves. Despite all evidence of a dying industry, Keyes continues to insist that the video store is the cornerstone of what they do and has consistently defined Blockbuster’s competitive advantage as being able to offer entertainment across multiple channels. While it’s easy to point to Netflix and Redbox as the source of Blockbuster’s kryptonite, I believe that it is their own unwillingness to let go of the past that is preventing them from being a video superhero of the future. Only time will tell how indestructible they really are, but if they continue down the same path, they’ll end up as a mere footnote in the history of the entertainment industry.

Should Digital Movies Be Required To Offer Subtitles?

Normally, I tend to think that most regulations are bad. In a free market, businesses should be allowed to operate with a wide degree of latitude. At the same time there is a pragmatic part of me that understands there can be exceptions to this. Everyone should have the right to free speech, but that doesn’t make it right to run cigarette ads on Saturday morning cartoons or to claim that you’re a Doctor when you only bought your degree from an internet spammer.

For the most part, the television world has been forced to accept reasonable restrictions in exchange for the public bandwidth they use to deliver their content. In the internet world though, the content rules are more like the old west because consumers are opting into the service by paying for it. As long as you have the quickest draw, your behavior doesn’t matter as much and so far companies like Netflix have been more concerned about digital market share, then doing what’s right.

Maybe this is because internet audiences are still small compared to television or it could be that it takes time for rules and standards to develop and emerging markets don’t tend to care about these things. Whatever the reason though, there are parts of the television experience that aren’t making the jump to the internet.

Specifically, I’m talking about closed caption data. For years, television studios have been legally required to provide this information, so that people who are hard of hearing can also enjoy the content. While there are some technical issues associated with adding this kind of data to a movie file, technology is at a point where it could easily support this. The Matroska container for example, is able to include optional sub-title information along with video and audio data. Alternatively, because online delivery can microstream to people, files with the embedded sub-titles could made available to viewers who opted into them. This would involve keeping multiple copies of the same movies though and so far the digital movie industry hasn’t wanted to bear this cost.

While I’m loathe to suggest new regulations on a burgeoning industry, I also feel like we have a responsibility to consider the needs of everyone. It costs companies extra money to include wheel chair ramps at their physical locations, but we pay for that as a society because we want to treat everyone as equally as we can. As the traditional line between telecommunications and entertainment becomes blurred, it’s important that we don’t leave behind those less fortunate in life. Having a law that requires subtitles in order to qualify for DRM legal protections wouldn’t be popular with the entertainment industry, but it would fill a void that the market isn’t interested in addressing. Personally, I don’t know whether or not I’d actually support a legal mandate for firms like Netflix, Amazon and Apple to require this data, but I am interested in hearing your thoughts on the issue.

Update – Interestingly enough, I found out that the FTC is actually hosting a hearing (not sure if there was a pun intended) on this topic on Friday Nov. 6. It sounds like the entertainment industry’s position may not be represented, but they will have several prominent members of the deaf community weigh in on the topic. The event will run from 9am – 1pm EST and will be broadcast on the web at the FTC’s website.

Mirror Mirror On The Wall Who Makes The Best Recommendations Of Them All?

Netflix Drive In

When I was a kid, I grew up in middle of the sticks where my parents didn’t have access to cable TV. When satellite dishes first started to show up, my folks were early adopters and bought a ginormous pirate dish (that you’d actually have to crank by hand when you wanted to jump to different channels), but for the most part, my childhood television experience consisted of two fuzzy OTA choices, NBC and CBS.

Back then deciding what to watch was rarely a problem. If I didn’t like what was on one channel, I’d simply live with whatever was on the other. Of course since then, technology (and my life) have changed a lot.

In thinking about my home entertainment setup today, I’m amazed at how many choices I actually have. It’s as if I’ve overcompensated for my lack of choice growing up, by deluging myself with every media gadget or service that comes out today. Between Netflix, Comcast, Amazon, YouTube, a dual tuner HD TiVo (not to mention my dual tuner media PC) and a little friend I like to call Bit Torrent, there is no shortage of content to watch.

While having plenty of choices is fun, having too many can be just as paralyzing as having too few and as more and more technology companies continue to take their shot at crossing into the living room, managing all of this content is going to become an even more important task.

So far, there have been plenty of efforts to improve content discovery services, but the task is apparently, much tougher then I would have thought. Two years ago Netflix offered a million dollars to anyone who could improve their recommendations by 10% and they’ve yet to award the prize.

Over the years, I’ve signed up for a plethora of movie recommendation services, but last summer I realized that it was too difficult to sync my ratings between them all. Since I strongly believe that TV and movie suggestions is a crucial piece of the new media experience, I wanted to make sure that my metadata activity was giving me the most bang for my click. In order to test out the various movie sites, I decided to create a Netflix challenge and conducted a “blind” taste test to figure out what site actually makes the most relevant recommendations.

To set up my experiment, I randomly choose 5% of the 2,000 movies and TV shows that I’ve rated through the Netflix service. I then set up a new profile on Netflix, Blockbuster, Spout and Criticker and manually entered my ratings for these 100 films, into each service. According to Spout, these ratings represented 11.6 days and 181 minutes of time spent watching TV :)

After I had setup an identical profile on all four services, I then took a look at the first 50 suggestions from each site and compared it to what I had actually rated the film on my main Netflix account.

If the service suggested a movie that I hadn’t already seen, I disregarded it toward calculating the final scores. Essentially, what I wanted to figure out was which movie recommendation service provided the best recommendations based on my actual real life viewing data. After taking a look at all four sites, it was clear that Netflix easily won this challenge.

Of the 50 recommendations that Netflix made, 28 of them (56%) were for films that I had rated 5 stars on my main account. While they did include two 1 star recommendations (Fight Club & American Psycho), the average rating for their recommendations weighed in at 4.18. Critcker came in second place with an avg of 4 stars per recommendation, followed by Blockbuster at 3.96 and Spout at 3.87.

Perhaps even more interesting then the final scores though, were the services that helped me find movies that I had never seen before. Netflix’s results may have been higher then anyone else, but of the 50 recommendations that they made, there were only 11 films that I hadn’t already seen. This compares to 24 unknown content suggestions (48%) from Blockbuster and an astonishing 44 unknown recommendations (88%) from Criticker. In taking a look at the types of movies Blockbuster was recommending, I wasn’t all that impressed with the list of unknown films. Most of them were kids movies that I simply missed because I had no interest in them at all. Trying to decipher Criticker’s picks was a little more difficult because most of their picks were for indie or foreign based films. At first glance it would seem that while Netflix may make more accurate suggestions, Criticker may actually be the best place for finding films that go beyond mainstream audiences.

I’ve listed the breakdown of my results below, but I would encourage you to take these results with a grain of salt. With a sample size of 1, my survey isn’t very scientific and because the ratings of my Netflix sample profile were 100% identical to the ratings on my main profile, it could have influenced my results from Netflix. Nonetheless, at the end of the day, I was pleased to discover that Netflix appears to be the best place for me to be rating and interacting with movies. While I’m hopeful that their open API will eventually allow consumers to port their data between services, it feels good to know that my primary movie recommendation service is the most optimal one for me.

Netflix

Recommendations I’ve Never Seen – 11
5 star – 28
4 star – 4
3 star – 1
2 star – 1
1 star – 2

avg. 4.1794

Criticker
Recommendations I’ve Never Seen – 44
5 star – 2
4 star -2
3 star – 1
2 star – 1
1 star – 0

Avg Ranking 4.0

Blockbuster

Recommendations I’ve Never Seen – 24
5 star – 9
4 star – 11
3 star – 4
2 star – 1
1 star – 0

avg – 3.96

Spout

Recommendations I’ve Never Seen – 11
5 star – 18
4 star – 9
3 star – 4
2 star – 5
1 star – 3

avg. 3.87

The A – Z Movie Meme

Grand Lake Theater of Dreams

Last month Blog Cabins started a pretty cool meme where he lists his favorite movies A – Z. Since I’ve been slacking off on my posts for the last few months, I wanted to go back and share my own list with you. I’ve included some of my favorite TV series on the list as well, since I actually enjoy TV shows even more than movies. For most of the letters, there were clear winners for me, but on a couple of them it was pretty hard to choose. If you haven’t made your own list, it’s a lot of fun to try and put it together, especially if you happen to be a moviehound.

A – Alias
B – Blade Runner
C – The Cable Guy
D – Dawn of the Dead
E – Election
F – Family Guy
G – Glengarry Glen Ross
H – Heat
I – Interview With The Vampire
J – Jericho
K – Kingpin
L – L.A. Story
M – Memento
N – News Radio
O – Old School
P – Planet Of The Apes
Q – Quantum Leap
R – Reservoir Dogs
S – Survivor
T – True Romance
U – The Usual Suspects
V – Very Bad Things
W – Wall St.
X – X-Files
Y – Young Guns
Z – Zero Effect

How Netflix Could Make Watch Instantly Even More Viral

Free Netflix

Netflix sent me an email yesterday announcing their latest promotional offer. The offer allows me to give out a one month free membership to five different friends. This is two weeks longer then their normal free trial and is certainly a good deal for anyone who is interested in DVDs by mail, but who still haven’t tried the service. Of course this isn’t the first time that Netflix has reached out to their customer base for referrals, but this time around they’ve added a new twist by giving their customers an extra free disc for referring Netflix the business.

The addition of the bonus disc reminds me of the Columbia House CD programs that I joined in high school and college. Since Columbia House would give out four free discs for a referral, I worked overtime to sign up all my friends for the service. As a music fan, I got pretty “creative” with the promotions and even worked out CD “revenue sharing” deals with my friends. This time around though, I don’t think I’ll be knocking myself out just for a couple of extra free rentals next month.

While it’s hard to fault Netflix for a smart word of mouth advertising campaign, I do think that they could leverage their customer base even better with a little bit of creativity. Over the last two years, Netflix has continually improved their Watch Instantly service. While the initial rollout was restricted to a limited number of films and to watching it on an Internet Explorer browser, it’s been exciting to watch Netflix rollout more movies and devices to support the service. Netflix still has a ways to go before they perfect their VOD product, but everyday they continue to enhance the service and by the end of the year, I think we’ll see 15,000 titles, Mac support and even an internet enabled television set that is capable of tapping into the service.

Even with these improvements though, if all you did was read the press coverage, you wouldn’t know that the service was any better then when it was first launched. Despite the fact that Netflix now has over 12,000 Watch Instantly titles available, they are still frequently criticized for not having a large enough selection. I don’t really feel that this is a fair criticism though, because it ignores the high satisfaction niche appeal of the movies that are already on the service.

It’s true that Watch Instantly doesn’t have a lot of mainstream hits, but because Netflix has been able to spy on gauge demand by looking at their customer’s queues, they’ve been able to fill about 10% of people’s queues with Watch Instantly selections (while still keeping the cost for their movies affordable for the company.) These may not be the mega hits that drive marketing campaigns for new subscribers, but by letting ME see films like Super Size Me and the Inconvenient Truth or British Sitcoms like Coupling, it’s created an experience that I’ve enjoyed just as much even more then the DVDs that I watched this weekend. With over 50 watch instantly films currently sitting in my queue, there’s been no shortage of high quality films for Freeberg despite what you may have heard about poor selection.

The problem is though, that from the outside all that people see are bunch of lousy b-rated movies that couldn’t cut it on the big screen, even if the Watch Instantly consumers love them.

So what should Netflix do?

I would argue that the company is sitting on a potential viral gold mine with the service. There have been times where some of my posts may get picked up on another blog or two, but I know that I’ve written something really powerful when people start emailing it to each other. With all the buzz and marketing campaigns it’s easy to fake legitimate viral demand, but it’s a lot harder to inspire the real thing.

Netflix can continue to send out friendly reminders and bribe their customers into giving word of mouth by giving them a good deal for their friends and a free movie for them, but how much more powerful would it be if you were allowed to send a specific film that you really enjoyed to a friend or family member for free?

What this would do is change the word of mouth emphasis from Netflix’s service and would instead turn every single watch instantly movie into a powerful emotional marketing channel for them. If you saw a film that you knew your Mom would love and was able to share it with her at no cost, no credit cards and no hassle, how much more likely is it that she’d subscribe to see more films?

Netflix already does a good job of personalizing their recommendations, but by leveraging their customer base through this type of promotion, a user could individualize the gift to the unique tastes of their friends and loved ones. Essentially, it would allow Netflix to match up “lousy” niche watch instantly movies with the long tail demand that really does loves them (without having to know anything about the people in your social circle.)

In addition to creating a more favorable watch instantly impression on new customers, this would also provide a convenient way for their current customers to give “gifts” to the people that they know. Growing up in a big family has its advantages, but just about every month, there is another birthday, graduation, holiday etc. to celebrate. While many of my loved ones deserve to be recognized on these events, it would be really expensive to give out gifts to everyone for minor holidays or accomplishments, but if Netflix limited the program to X number of free movies to give out each month, I could at least send a quick email with a free movie link and some words of encouragement for those not as important events. It may not be the same as taking the time to pick out a real gift, but it would be a way for you to recognized a cousin’s wedding anniversary without breaking the bank.

The threat of course would be that this could potentially eat into gift certificate sales, but Netflix could always turn on and off the promotion depending upon its impact on demand.

There would also be an ancillary advantage to using their watch instantly program as a marketing tool in this way, in that it would help Netflix to leverage the popularity of the service without having to promote the juicy details of how successful they’ve really been. Despite all of their hard work, Netflix’s has been very reluctant to discuss any of the metrics associated with the service, even though they are very likely the number one internet delivery movie provider on the net. Some might argue that their reluctance to talk about their success is a sign of failure, but I believe that they are trying to down play the appeal of subscription based VOD while they still have an early edge on the competition.

Some may also point out that I can already give away five free watch instantly experiences through their current promotion, but I believe that a two hour targeted subscription to Netflix would be 30 times more powerful then their current 30 day offer. It’s hard to know if such a program really would be successful without seeing it in action, but hopefully Netflix would at least be open to experimenting with some trial groups and then taking a look at the numbers. I believe that this type of program would be a runaway success and would make Netflix even more viral without having to bribe their members.

If you’re interested in one of my five free memberships that I have to give out, feel free to leave a comment and I’ll be happy to shoot you the promotional code they gave me, and no, I won’t be sharing my extra DVDs with you, even though you could have squeezed me for two free CDs during my Columbia house days.