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.]]>
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.]]>
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?]]>
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.
“Put on silent movie “Metropolis” on Netflix turn down volume 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.]]>
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.]]>
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.]]>
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.]]>
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.
Recommendations I’ve Never Seen – 11
5 star – 28
4 star – 4
3 star – 1
2 star – 1
1 star – 2
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
Recommendations I’ve Never Seen – 24
5 star – 9
4 star – 11
3 star – 4
2 star – 1
1 star – 0
avg – 3.96
Recommendations I’ve Never Seen – 11
5 star – 18
4 star – 9
3 star – 4
2 star – 5
1 star – 3
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
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.]]>
Just when you thought it was safe to salvage your Moviebeam box for spare parts, there’s new hope on the horizon that Moviebeam may once again be coming to a television screen near you. Like a zombie from a bad horror flick, Moviebeam continues to rise from the dead feasting on the rotted brains of media moguls and venture capitalists with each new incarnation.
According to the Daily Bankruptcy Review, Movie Gallery has asked for bankruptcy court approval to sell their VOD service to Dar Capital Limited at a $2.25 million price tag.
“Movie Gallery pulled the plug on its-on-demand movie service, called MovieBeam, in December as part of its restructuring under Chapter 11 protection. Dar Capital Limited has agreed to buy MovieBeam, which had about 1,800 subscribers at the time it was shut down. The service required customers to purchase a television set-top box that allowed them to order films for between $1.99 and $4.99. Movie Gallery said in court papers filed Thursday that it began shopping the MovieBeam business soon after shuttering the service and that 14 parties showed an interest in the company. Dar Capital is picking up MovieBeam’s remaining assets, which include certain trademarks and intellectual property associated with the business.”
While the resurrection of Moviebeam will be welcome news for the 1,800 customers who initially ponied up the dough for a box, the sale of the service represents another bitter defeat for Movie Gallery. Just last year, they paid $10 million for the service. Initially, they had hoped to use Moviebeam to strengthen their digital strategy, but when they couldn’t convince in store customers to invest in yet another set top box, they shuttered the money losing service and cut off the early adopters who had plunked down hard earned cash for the box.
If the courts do allow the sale to take place, I’m not convinced that Dar Capital will have much luck in performing CPR on this one. Moviebeam fatal flaw was that that it suffered from a lack of choice and I don’t see this being any less of an issue for Dar Capital. If consumers could get access to everything on demand, paying an upfront fee wouldn’t be as much of a big deal, but with a miniscule selection of movies, it’s hard to justify spending money on a box, especially when you still have to pay for the content.
Even at the heavily discounted price of $2.25 million, this still means that Dar Capital will be paying $1,250 per subscriber. At this cost, they may be better off subsidizing the cost of 2,000 boxes and starting their own service. Then again, it’s entirely possible that Dar Capital is more interested in the bandwidth agreements, then the actual customer base. Moviebeam delivers their movies by piggybacking on PBS’ bandwidth.
Last week, Sezmi launched their wunderbox with promises of a bandwidth delivery system that sounds eeriely similar to the one that Moviebeam implemented. Given the amount of bandwidth that Sezmi will need to deliver on their high definition promises, it wouldn’t surprise me if Dar Capital flips Moviebeam’s bandwidth, instead of turning the service back on. It’s still too early to know what Dar Capital’s end game will actually be, but we should know more on May 8th when Movie Gallery is due back in court.]]>
“A method wherein contents of DVDs may be restricted based upon purchased certificates is provided. The certificates allow for secured information on playback. Specifically, whenever a DVD is to be played, a certificate is consulted to determine whether the content of the DVD should be played with or without commercial interruptions. If the certificates provide for commercial interruptions, then commercials can be obtained from an online service that renders commercials on demand, or from the DVD itself. In such a case, the content of the DVD may be interspersed with commercials.”
I’m usually a fan of new DVD technology, but I’ve got mixed feelings on this one. Every now and then, I’ll come across a DVD that won’t let me skip past the previews and it drives me absolutely nuts. If I’ve already paid for my content, then should I be forced to watch advertisements? It makes me feel like the studios are double dipping.
On the other hand, I could see plenty of advantages to having ad supported DVDs. There are a lot of people who aren’t willing to pay money, in order to watch a DVD. If they can catch up on a series by dealing with the ads, then this technology could introduce time shifting to an entirely new audience. It could also open up new distribution channels for content providers. For example, if McDonalds included ad supported Disney flicks in their Happy Meals, I’d wager that they would reach more viewers, then Friday nights on ABC.
With advertisers already scared to death of the ad skipping powers of the DVR, I could see studios adopting this as a way of shoring up advertising revenue. I’m certain that the TV producers would prefer live viewers, but if a consumer ends up watching the ads eventually, then why should it matter, when they see the program?
One of the more interesting components to the IBM application, was it’s focus on internet delivered advertising. Whenever I’ve been forced to watch previews on DVDs, it’s typically been for movies that were released a long time ago. While the previews may have been relevant seven years ago, they seem a little outdated today. I don’t think that the free DVD consumer market is going to have the latest internet connected DVD players, but I still found it interesting to learn, that IBM is working on a solution to this problem.
I don’t see this patent making it all the way through the application process, but I do expect that we’ll see more of these types of advertisements in the future. The optimist in me, would love to see this technology used to reach new consumers, but my inner cynic knows that the studios would rather unleash ads on paying viewers, then risk cannibalizing their precious DVD. I don’t fully understand IBM’s motives for filing the patent, but thought that it was an interesting solution for bringing entertainment to the masses.]]>
Over the last few years, Iâ€™ve followed the DVD rental industry pretty closely. During that time, Iâ€™ve been one of Blockbusterâ€™s biggest critics and have frequently blasted the company for failing to adapt to the digital age. With their core rental business experiencing massive deterioration, Iâ€™ve had very few positive things to say about the company.
Their hyper-focus on competing with Netflix, has cost the company dearly and was a huge blunder by Blockbusterâ€™s previous management. In order to try and counteract Netflixâ€™s momentum, Blockbuster ended late fees, started a price war against a well funded innovator with little debt, and they massively cannibalized their higher margin in-store business. All in a desperate attempt, to differentiate their online service. Meanwhile, their executives took home pay packages that were unconscionable, especially when you consider Blockbuster’s dwindling resources and their dismal financial performance.
At the end of the day, their fight against Netflix has cost them at least a half a billion dollars and they still only have 3,000,000 subscribers.
Six months ago, I would have told you that there was nothing that Blockbuster could do to save itself. I had seen Antioco and Co. make too many poor decisions, to believe that they could figure out how to turn the company around. Instead of increasing prices, they were lowering them by offering unlimited total access rentals. While the program proved to be popular with consumers and the Mad Money crowd, it wasnâ€™t an acceptable long term solution for the challenges that Blockbuster faces.
Of all the decisions that Iâ€™ve seen the company make, squeezing out Antioco may have been their best one. Ironically, the one move that I think was good for shareholders, turned Mad Money against them and started the spiral towards a new 52 week low today.
With so much going wrong for the company, I had low expectations when they brought in Jim Keyes to takeover at the helm. With the future of rentals being digital, I didnâ€™t immediately appreciate the importance of bringing in a retail specialist.
Over the past few months, Iâ€™ve watched as Keyes has taken over and while it will take him time to steer Blockbuster back on course, his immediate move to cut advertising and unlimited rentals was one that made economic sense.
What a lot of people interpreted as Blockbuster refusing to face reality, I saw as an admission that they had lost their focus on their most profitable customers. In the short term, this is a good thing because it helps to stem the losses from the Total Access program, but itâ€™s not a long term solution.
Following Blockbusterâ€™s 3rd quarter earningâ€™s call, I could understand why their shareholders might be nervous, but after listening to Keyes unveil his turnaround strategy at their analyst event, I was shocked to see such a negative market reaction to his ideas. Analysts slammed the event as being big on dreams and light on details and since the event, Blockbuster’s market cap has taken a 20% haircut.
What otherâ€™s may have interpreted as bad news, I saw as a stroke of genius. Keyesâ€™ prescription for saving Blockbuster is the exact remedy that they need, in order to remain relevant in a digital age. There is little doubt that there will come a time where we see the end of the DVD rental, but for the first time, Blockbuster is willing to admit this and they laid out a compelling plan for how they will adjust to this transition.
Keyes discussed several initiatives, but at the heart of the strategy was a plan to evolve from a rentailer to a retailer. While the differences may be subtle, the details have tremendous implications on the viability of Blockbusterâ€™s business model.
Dedicate More Square Footage To Retail
While Blockbuster has seen their brutal selloff, shares of Gamestop have caught on fire. The market clearly has no faith in the future of DVD rentals, yet they are still willing to invest in profitable retailers. The rental industry is a tough business and as that stream dries up, Blockbuster needs to be able to replace this with higher profit opportunities.
In order to accomplish this goal, Keyes has worked out an agreement with Sony to provide 2000 PS3 kiosks, in their stores during the holidays. I view this as an an early test for the viability of Blockbuster’s retail approach. I believe that the consoles will sell well among Blockbusterâ€™s customer base and will lead towards more high end consumer electronics.
By focusing on selling higher ticket items, Blockbuster stands a better chance of covering their fixed costs. People are already going to Blockbuster to rent their movies, but if they can start to buy things like computers, cellular phones, HDTVâ€™s and Blu-Ray players, it will give Blockbuster an opportunity to capture some of the money that retailers like Best Buy are able to take in.
If Blockbuster is successful with this transition, they could even get to a point where they could use rentals as a loss leader to drive higher revenue transactions. If you can sell enough HDTVâ€™s, the decline in rental revenues becomes less of an issue. What some might see as the abandonment of the rental market is really Blockbuster pursuing better market opportunities.
Invest In Kiosk Technology
Itâ€™s no secret that I believe that burn on demand could save the DVD rental industry. As a tech savvy consumer, I have lots of options for streaming digital content to my television, but most people still prefer the good old fashioned DVD. Even after the digital revolution gains critical mass, there will still be a need for movie rentals. While itâ€™s easy to believe that everyone has a computer and internet access, there is still a large part of the market that VOD and Netflix, canâ€™t get at.
The problem with Blockbusterâ€™s retail initiatives, is that this will eat into the selection and inventory. If half the store is dedicated to selling consumer electronics, it becomes challenging to offer as many choices. Burn on demand can solve this issue for Blockbuster. By taking care of the heavy lifting, Blockbuster can make it easy for consumers to watch an even wider range of content.
Keyes plan to invest in burn on demand technology shows that he understands the savings and impact, that this technology can have. My only reservation about his approach, is his intention to introduce the kiosks at the store level. Kiosks can provide a lot of efficiencies, but they don’t do well with volume. I can see the potential in letting franchisees use the technology in non-video store locations, but believe that Blockbuster needs a different solution at the store level.
Everybody knows how to work a printer at the supermarket, but there is a reason why people still go to Kinkos. They can handle volume like nobody’s business.
Burn on demand kiosks will be good for expanding into supermarkets, coffee shops and fast food restaurants, but Blockbuster will need dedicated servers and lots of burners at the store level, if they want to provide a superior experience at their retail locations. By handling the heavy lifting for consumers, they could bypass a significant technological hurdle in the adoption of burn on demand DVD.
Shifting To More Revenue Sharing Arrangements
One of the biggest weaknesses in Blockbusterâ€™s business model are the high fixed costs that they have to deal with. Blockbuster canâ€™t get rid of the lease payments or all of the employee costs, but they can reduce their leverage by approaching their stuido partners. Whether rental will eventually die or not, the studios want to protect the DVD stream and have an incentive to work with Blockbuster towards ensuring their survival. In order to get less up front costs, Blockbuster will be forced to give up their gross margins, but it will allow them to keep top movies in stock and to offer a burn on demand experience.
Raising Prices and Reinstating Late Fees
Over the past few years, weâ€™ve seen the price of a lot of products go up. Whether itâ€™s higher gas prices or postal rate increases, the cost of living has been increasing. When it comes to rental though, weâ€™ve seen price deteriorate. The DVD price war has taken it’s toll and there is more than enough justification for Netflix and Blockbuster to increase prices. This strategy is probably the most risky, because if Netflix didnâ€™t follow through with their own price increase, there could be a severe reaction against Blockbuster.
One of the things that has always impressed me about Netflix, has been their commitment to testing ideas before implementation. When Blockbuster ended late fees, they took a shotgun approach and hoped that it would pay off. It obviously didnâ€™t.
When Netflix lowered prices it was after they understood the elasticity of the demand curve. By taking their time to react to competitive threats, Netflix was able to make more intelligent decisions in combating Blockbuster. While Iâ€™m sure that Blockbuster shareholders would welcome an imediate price increase, I have to admire the fact that Keyes isn’t willing to dive in head first on this one.
As far as the late fees goes, this is clearly a problem. By allowing customers to keep rentals, itâ€™s prevented other people from having access to the inventory. I think itâ€™s fair for Blockbuster to consider this move, but after such a massive no late fee campaign, there could be a strong backlash. One of the problems that I think most people had with Blockbusterâ€™s late charges was the punitive nature of the fees. Instead of having to pay for one more day, you often had to pay for another three day rental.
During the analyst presentation, Keyes expressed admiration for Redboxâ€™s pricing model and pointed out that a $1 a day wasnâ€™t really cheaper then Blockbuster. If Blockbuster had $3 rentals for three days and then a $1 per day afterwards, consumers might accept the return of late fees. Still, after such a massive promotion (and lawsuit settlements), it would be gutsy to try and re-introduce them.
There is no way to know for sure, if any of these initiatives can save Blockbuster, but I do believe that Keyes is making the right moves towards securing the long term future of the company. While I may have written off the video store, I’m not ready to call the end of retail and I’m impressed by Keyes focus on improving revenue per square footage, instead of being distracted by the internet. It’s the right move for Blockbuster to make and one that marks the divergence of the Netflix vs. Blockbuster paradigm. With rental revenues set to eventually expire, Blockbuster is smart in positioning themselves to take on other retailers, where they have an advantage. By making these changes, it shifts the battle to Blockbuster vs. Circuit City, Best Buy and Game Stop and this is a business model that should make more sense to Blockbuster’s investors.]]>
With these choices also comes restrictions. If I buy a song on iTunes, I can’t play it on my Windows “Smart” phone. If I want streaming movies on Netflix, I have to use Microsoft’s browser. While a lot of these obstacles are easy to overcome, this lack of connectivity does frustrate consumers and slows mainstream adoption.
In thinking about my own digital entertainment setup, I’ve set two primary goals for my media library. I want to my video files in DivX or XviD, so that I can use DivX certified devices and I want my media to be in .wmv, so that I can also stream my content to my Xbox or play it on my cellphone.
Currently, I’ve got three or four different digital file types on my computer, but most of the content is in the Mpeg format. I’ve used digital conversion tools in the past, but I’ve never tried to convert all of my media at once, so I wanted to try some of the different conversion software packages, in order to see which ones might be
the best at least halfway decent.
When I first went to look for solutions, the sheer number of choices was pretty intimidating. In total, I tried out 7 different pieces of software, but two of them wouldn’t even install. At the end of the day, I was hoping to be able to recommend a solution to my readers, but none of them offered me exactly what I was looking for.
DivX Converter 6.5
Since the immediate goal of my exercise was to get my Mpeg files transferred over to DivX, I figured I would start with the company’s own software before trying anything else. In order to get the converter software, I had to download and install the program from DivX’s website. The install ran pretty clean and other than an optional Google toolbar plugin, there isn’t much in the way of ads. DivX gives you full access to the software for 15 days and after that you have to pony up $19.99, if you want to keep using it.
Of all the conversion software that I tested, DivX was definitely the easiest. Once I installed the program, all I had to do was drag and drop my files and then hit convert. The software was very intuitive. Running on just a half a gig of ram, a 200MB conversion took about 25 minutes to complete. Not as fast as I would have liked, but DivX does offer you a way to queue up your files, so that your computer can do the heavy lifting when you’re not using it.
Had DivX’s software been a little bit more robust, I would have spent the money to go pro, but unfortunately the software has one major weakness. While DivX is more than happy to help their customers convert just about any format into the DivX format, they aren’t as eager to help you get it into .wmv or other third party codecs. I can’t really blame DivX for creating a one way conversion tool, but since it still didn’t help me get my movies to my Xbox, I kept looking.
Windows Media Encoder 9
Because DivX’s converter wouldn’t allow me to convert my files into .wmv, my next stop was to check out Microsoft’s solution for converting into Window’s format. One of the nice things about their encoder software was that it was the only one that was actually free* (Windows software and additional plugins may be required)
The download for the software didn’t contain any ads, but Softie does make you download some bullshit “authentication” plugin before you can actually use the product. The software is designed to help cut down on piracy, but the real end result is that customers are inconvenienced unnecessarily. After trying to verify my own copy of Windows, I continued to get error messages, but was finally able to get my secret code by running their plugin as a standalone app.
One of the things that I really liked about the Windows encoder was that it gave you the option to customize the end product based upon how you intended to use the media. I could encode directly to .wmv, but they also gave me the option of making a smaller file for my cellphone or a larger HDTV file for the living room. Since my goal is to get the videos to my living room using WiFi, I selected the SD version and started the conversion.
One of the things that I noticed when I started to use the program is that once you start the encoding process, it’s a resource hog. This could just be because my PC is already a dinosaur, but from the minute I hit convert, my computer was pretty much worthless. This isn’t a big deal if you are converting files overnight, but if you’re trying to multi-task, it can be frustrating to deal with lagging speeds, while you are waiting for your file to complete.
The software was relatively easy to use, but when it came to it’s UI design, you could just tell that it was created by Microsoft. The whole thing is built to be useful not look good. For my needs, the UI isn’t all that important, but if Microsoft really wants to make this easy for consumers, they should rethink the layout of their software.
Another drawback to the WMEncoder was that just like DivX’s software, Microsoft is a one way street when it comes to the conversions. If all you care about is Windows, this works, but ideally I was hoping to find something that supported multiple file types. I was also a little annoyed to discover that while Microsoft will let you convert almost any codec into .wmv for free, if you actually want to transcode Mpeg files, they make you buy a $15 plugin.
Since DivX and Window’s own solutions were less than robust in letting me work with different codecs, I decided to check out a couple of other third party solutions. The first on my list was Cinema Forge. Their software has received good reviews on Download.com and since they allow you to encode up to 10 minutes of video before having to pay the $24.95 to upgrade, it is easy to test the software out.
Cinema Forge supports a number of different files structures and allows you to convert to MP4 (iPod), Flash, .Wmv, Mpeg, .AVI, Real Video and Quicktime. I didn’t have any problems converting into the .Wmv format, but I did find that when I tried to convert my Mpegs into their .AVI wrapper, that it was stripping out the audio and jarbling it on me. I’m not sure, if there was a setting that I had wrong, but after my third corrupted file, I gave up on the software and moved onto other solutions. I also noticed that my .wmv files wouldn’t allow me to fast forward or rewind the content. I’m not sure if this was because I was using the trial version, but I know that I’m not looking for a conversion solution, that locks down my content.
When I started this project I wasn’t really looking for a media player, but when I saw that the Jet Audio media player also supported file conversions, I remembered the old adage that there may be more than one way to skin a cat. Of all the software conversion tools that I tried, Jet Audio was by far the best. I don’t know that I’d actually spend money on the software, but if I had to pick one, they seemed to offer the most choices and functionality.
One downside for the Apple fans is that their software doesn’t support Quicktime conversions, but since it lets me convert to .wmv, XviD and DivX, I was willing to check it out. In addition, they also throw CD ripping and burning functionality into the software. The trial version only lets you convert 30 seconds worth of a clip, but it was enough for me to at least test out the quality and I didn’t run into any problems.
Two things that I didn’t particularly like about the software were that they included ads for their own PMP devices inside the program and that the software felt really cluttered. While it was an undeniably powerful piece of code, its UI design is more than a little chaotic. In addition to the conversion and burning tools, they also throw in an entire media player. It’s hard to ding them for offering too much, but there is something to be said for simplicity.
Movavi actually had two different software tools that I tested. They have an online version and a downloadable solution. The online version is really good, if you only need to convert small files. There were no programs to download, no accounts to sign up for and no aggressive ads popping up on my browser.
All I really needed to do was go to their website, upload the file I wanted converted, (or give them the web address of where the file is located) and then sit back and wait for an email telling me that it’s ready to be downloaded. It was quick, easy and painless and would have been my final stop, had there not been the 100 MB restrictions on the online version.
Even without the restrictions though, I’m not surer that you’d want to upload files much bigger than 100 MB. I uploaded a 64MB over a fiber connection and it still took 7 minutes to upload, 5 minutes to process, and about 10 seconds to download. This really isn’t a deal breaker for me, but it’s less than ideal, if you are looking to convert full movies. The online version also does not let you convert into .wmv.
Once I downloaded the software version of Movavi, it did add a bit to the functionality. The issue of uploading and downloading your files goes away, as does the 100 MB restriction. The full software also adds support for .wmv conversions including WMV HD. The pro version costs $29.99, but since the free version allows you to convert 30% to a file, I was hoping to test out the quality anyway. Unfortunately, I tried to convert several different file formats over, but no matter what I tried, I couldn’t get Movavi’s software to recognize my media.
Ideally, I was hoping to find an open source free solution, but couldn’t find anything that looked safe enough to download. If someone knows of a good conversion solution, feel free to leave me a comment and I’ll check it out.
From a strategy perspective, things were much more interesting. Lots of exciting news to digest. On the call, DivX addressed their opportunity to gain market share in their core licensing business, the future of DivX connected and how other emerging technologies could fit into that, and perhaps most importantly, the reasoning behind their plans to separate Stage6 from the larger company.
Of all the strategies discussed, there was one that surprised me the most though, DivX has made the decision to try and bury their hatchet with Hollywood, in an attempt to get DivX DRM blessed by the studios. I’m less than optimistic on management’s chances, but if they could pull it off, it would make DivX Connected a pretty compelling solution.
Trapped Between DVD and VOD
The DVD player market continues to account for the majority of DivX’s core licensing revenue. At the end of March, DivX had 32% global penetration of the DVD player market. This was up from 21% from a year earlier. During this quarter, $14.2 million of their revenue represented royalties from their OEM partners. Sony actually accounted for over 10% of their licensing revenue and I still can’t find Sony DivX DVD players in the US.
At this point, DivX has achieved 90% penetration levels in France, Spain and Russia. In the US, the percentage of DVD players that included DivX doubled over a year ago and is now at 28%. In Japan, they still only have an 11% penetration level, but this is up from 5% a year ago. Over the last year, they’ve been able to successfully renew their contracts with their top OEMs and have been able to maintain pricing levels.
By growing their market share for the DVD player market, it has allowed DivX to continue to post impressive year over year growth, even though it’s clear that the DVD has peaked. Right now is an awkward time for DivX because there are so many uncertainties as to how the VOD market will end up shaking out. There are many pundits who are worried that DivX won’t be able to replace their DVD revenue as it tapers off.
To me, this seems a little foolish and is a bit like being afraid of the boogie man. The DVD market will not disappear overnight, it will live longer than the VCR survived. As people migrate to digital TV, DivX is in an excellent position to benefit from that. If their OEM partners see that there is no more demand for DVD players, it will make DivX certification an even greater necessity for them.
The transition to VOD will eventually happen on a mass scale, but it will still take years before the next generation of TV gadgets hits the mainstream.
When Greenhall was asked about how long he thought it would be, before the public started to move from DVD players to connected devices, he told analysts that because DivX’s ecosystem was so dependent on their OEM partners, that it was hard to forecast the transition, but that when it happens, the revenue will come quickly because their partners produce goods for the mass markets.
Emerging Technologies Will Open New Doors
Part of what makes DivX such a question mark, is the sheer size of their addressable market. They’ve established a nice business in the DVD market, but now want to expand DivX to a whole host of devices. During the earnings presentation, Hell listed the following technologies as a few of the markets that are on their hit list; Mobile devices, set top boxes, digital still cameras, game consoles, portable media players and digital televisions.
Of these potential markets, the cell phones have the most potential. Over this quarter, Samsung announced their second DivX enabled phone and will be selling the phone in the Chinese market. Since their first Samsung phone announcement, DivX has seen a lot of interest in working with other cell phone manufacturers.
Their OEM partners are excited about the technology and are coming to them for access. There will be more models announced in the future and while they didn’t give a time line, management seemed optimistic that the announcements would come soon.
On the set top front, during the quarter Divx announed that both St Microelectronics and NXP were both developing chips for a DivX set top box solution.
The box will allow you to plug in an external hard and play DivX files directly on your TV. This helps to solve the problem of getting DivX content to the living room, but still doesn’t help to add to the DivX content eco-sphere. You can’t take the TV off the box, but at least you can bring DivX to it. Hell also said that there was one more set top chip deal that hasn’t been announced.
Hell also included DivX HD as part of the emerging category. HDTV has been one of the hottest growth areas in consumer electronics. Users are starting to revolt. People love the DivX HD teasers on the stage6 website and from (cough) “others sources” on the innerwebs, but they can’t get it to the TV without some kind of a media center.
DivX wants to license their HD technology on top of HD-DVD and Blu-Ray players, but I think that they’d have a much better shot at convincing their OEM partners to sell a low priced DVD player with “DivX HD.” included. With as much as the studios are charging for the next gen players, a box with DivX HD certification and a dirt cheap price point, would appeal to consumers who know better than to try and pick a side in a Hollywood format war.
DivX Connected: Bringing Partners Into The DivX Community
DivX has talked quite a bit about their Connected initiative, but they’ve always left things a little sketchy on the details. Is it a box, is it not a box? Who could really tell, but after launching a prototype of their connected solution for beta testing, the company is now starting to open up on the details. DivX Connected can be a lot of things, but they see it being a similar experience to Apple TV, except minus the high cost and the restrictions on content.
The whole concept is really a lot larger than the prototype box. It’s about bringing a diverse set of partners together, in order to create a seamless experience for consumers. Hell describe their efforts on the program during the call. “We are engaged in a large cross section of partners to implement DivX connected on existing devices. From connected DVD players and digital televisions, essentially any devices that has connectivity and DivX playback ability.”
This philosophy of openness extends even beyond the hardware devices and includes the companies that are trying to sell internet video, as well as the content producers themselves.
“going forward we will focus on a broad range of content solutions through a powered by DivX model, working with a variety of partners to deliver content. In this model Stage6 becomes one of many partners using our technology. To make this happen we are doing two things, First we are increasing our focus on premium content and re-engaging in discussions with major content providers who want to take advantage of our significant footprint. Secondly, we’re building out our existing video on demand product platform so that we can offer out of the box scalable solutions to any distributor of digital content from online retailers to network operators.”
This is a big shift for DivX and one that could have important ramifications. From early on, DivX has bumped heads with the studio fat cats. In the past, DivX has relied on their users to distribute their codec through the P2P networks, but now that the studios are beginning to warm to internet delivery, DivX is seizing on this opportunity, in an attempt to beef up the content that they can offer their own consumers.
Right now, businesses don’t pick their codecs based on quality, they use the ones that the studios tell them they are allowed to use. People like to complain about internet video services not supporting Apple, but that is because Apple refuses to license their codec to anyone. DivX wants to go the other route to try and work with everyone, but until DivX DRM can get Hollywood’s blessing, they’ll be frozen out of the mainstream market.
I’m skeptical that the studios will be particularly eager to work with DivX, but if they could pull it off, it would open plenty of doors for them and would certainly be a game changer for the company. On the call, Hell said that they are trying to go after this opportunity in two ways.
“First we’re going to be focusing on the studios themselves and other providers of premium content to get adoption and format approval from them. In addition, we’ll also be working with other content distributors, folks like Amazon, Netflix, Movielink, etc. so that we can enable their platforms and again we’re moving into a role here where we don’t want to be a storefront, in terms of the DivX Corp business. We’re looking to power other people’s platform.”
It’d be easy for DivX to try and sell content themselves (in fact that’s part of what Stage6 is about), but this is a low margin business and DivX is better off letting others fight over the content. By charging for access, it leaves room for much healthier profit margins. It also gives them a greater exposure to consumers, than anything that they could accomplish independently.
Right now, Apple wants to lock everyone else out of the market, but this is why AppleTV is such a weak platform. Not only do you pay for it, but then you have to buy only their content. DivX wants to see a world where they can bring Blockbuster and Netflix together and let consumers decide which service they want to use. By maintaining their commitment to keeping their platform open, it improves their competitive position over Apple and Microsoft, but none of that matters, until Hollywood agrees to let companies distribute video content in DivX’s format.
A Start-Up Trapped Beneath The Microscope Of Public Scrutiny
Since the launch of Stage6, it’s been an unbelievable hit. The growth has shown no signs of slowing. Since it’s launch, it’s help to push 35 million DivX web player downloads, but hasn’t generated much in the way of direct revenues. For now Greenhall wants to build up the community, before trying to figure out how to make money off of it.
“Like many sites in a similar stage of their life cycle, we’re not actively trying to monetize this user base, yet. We believe that building a community first will enable us to explore a number of different revenue models in the future, but building the community absolutely comes first.”
Since the the site’s launch, the community has responded enthusiastically to the video sharing portal and what started out as a reasonable $1 million marketing expense during the 1st quarter, has now swelled to a $2.4 million bill for this quarter (of which 70% is bandwidth.) Next quarter DivX estimates that they’ll need to spend $4.5 million and another $5.4 million in the fourth quarter. Stage 6 has about 20 -30 DivX employees that work on the site.
With the traffic and the costs starting to add up, it’s no wonder that the company wants to raise outside funds and operate Stage6 as a separate entity. During the call, their CFO, Dan Halvorson gave the reasoning behind the plan,
“Most businesses, at the same point in their life cycle as Stage6, simply wouldn’t be public or part of a public entity. They need to make investments that don’t have immediate tangible ROI or have too strong an impact on a company’s balance sheet to justify. We believe strongly that Stage6 has built a foundation that not merely be sustained, but rather amplified. As such, our board and management, thought it would be best to value our alternatives and one viable option is that Stage6 would be separated out and run as a private company.”
DivX said tat they’d like to finish the break up as close to the end of the year as possible. I’m not sure if this is for tax reasons or strategic purposes, but in the meantime, they are estimating that they’ll need to put another $10 million into the site. Greenhall wasn’t sure, on how they’d end up valuing Stage6, but was open to possibilities and wanted to do what’s best for DivX shareholders.
They may look for a private equity deal or an institutional investment, but they want to keep their options open. After announcing their intent to separate the the two companies, they’ve already received inquiries from financial and “strategic partners” on making an investment.
Overall, DivX didn’t blow anyone’s socks off this quarter, but they did continue to show that their business is healthy and that their business model is valid. They also continued to demonstrate their commitment toward investing in their growth. The extra R&D may end up bothering some shareholders in the short run, but once they break the two companies apart, they’ll have two businesses exposed to the white hot internet video sector, instead of a house divided.
Disclosure: I own stock in Netflix]]>
1.) The Life Aquatic with Steve Zissou
2.) Death Becomes Her
3.) Death to Smoochy
5.) Harry Potter and the Chamber of Secrets
7.) Mystery Men
8.) Dude, Where’s My Car?
9.) Empire of the Sun
10.) Cabin Boy
Last week, Blockbuster made a pretty big splash after they announced that they were going to support Blu-Ray exclusively at their retail stores. The move prompted a lot of people to ask if this was a sign that HD-DVD was dead in the water. After all, Blockbuster has a significant retail presence and their support for one format could be interpreted as a sign that consumers are demanding Blu-Ray over HD-DVD.
On the surface, this explanation seems to make sense. Blockbuster even went so far as to tell people that 70% of their test stores were choosing Blu-ray content. Sooner or later Blockbuster was going to have to choose a format and by doing it publicly, they were able to control how that information got out. Irrespective of their motivation, the move was smart on many levels and helped Sony to shift momentum back to Blu-ray, in the never ending format wars.
It could be that this is all there is to this story, that Blockbuster choose their customer’s preferences over corporate interests, but as a conspiracy theorist, I can’t help, but feel that there is more going on, back at Blockbuster HQ.
It’s entirely possible that Blockbuster’s love affair with Blu-Ray was an isolated business decision, but I suspect that Uncle Sony may have brought a shotgun to the wedding, in order to make sure that Blu-ray stayed relevant.
Over the last year, the DVD kiosk market has started to get hot. Consumers may have been skeptical at first, but once they get a taste, they have to come back. By the end of the year, there very well could be close to 10,000 kiosks in North America.
Even though the current kiosks have proven to be popular, Blockbuster and Movie Gallery have largely sat out of the DVD kiosk expansion. It could be that they don’t have the capital to pursue the technology or it may be that they really don’t see a future in kiosk rentals, but I believe, that they’ve been holding out for something even better, burn on demand DVD.
As the DVD kiosk market develops, I think we’ll see two different business models unfold. There will still be the current kiosk that offers a couple dozen choices and an inventory of 500 – 1000 discs and there will be the burn on demand machines that will carry 2,000 – 3,000 different movies that you can burn at the retail level. The current kiosks will be popular because they take a relatively low investment and the owners can control the costs of the content because of the fair use doctrine. If you play your cards right, you can make the kiosk pay for itself in the first year you own it. These are especially well suited for adding DVD rentals to a high traffic locations that normally couldn’t support a video store.
Unfortunately though, for a lot of retailers, the limited capacity of today’s kiosks prevents them from using the technology in more powerful ways. If you can’t replace your entire inventory with a limited number of discs, than it’s hard to convince the video stores and big box retailers to adopt the technology. While today’s technology will play a vital role in the future of the DVD rental market, it will be burn on demand that has the potential to save the video stores from extinction.
To a certain extent, Blockbuster will be interested in using the burn on demand kiosks in order to minimize real estate and cut down on employee costs, but the real benefit of the kiosks will be the new franchising opportunities that will open up to them. As the video store industry has gone into consolidation mode, Blockbuster’s franchisees have had a very difficult time adjusting to the new rental environment. Disagreements over the online program and the end of late fees, has even caused one of their first franchise owners to sue Blockbuster for breach of contract. As the market has collapsed, attracting new capital has been difficult and Blockbuster has struggled in replacing this lost revenue.
One of the problems with the stand alone burn on demand kiosks, is that these will not be cheap. It will take a healthy chunk of capital in order for Blockbuster or Movie Gallery to take advantage of this expanding market. With the introduction of the technology though, Blockbuster can leverage their brand by offering franchisee investors an opportunity to help create a new automated video store network.
This would help to raise outside capital that isn’t dilutive to Blockbuster shareholders, doesn’t increase debt, and would give smaller investors, a direct opportunity to invest in the growth of this emerging market.
When it comes to Blockbuster’s retail stores, I believe that they’ll look less like a kiosk and more like a Kinko’s. Blockbuster would be well served in studying the success that Paul Orfalea has had in building his company. The same concepts that he applied, will be key components for maximizing the success in using the technology. Burn on demand at the store level will need to work like a machine, in order for Blockbuster to provide the optimal retail experience, while minimizing their costs at the same time.
Little things like allowing customers to select a film online and have it available for pick up will matter a lot. They may even be able to charge higher prices by guaranteeing that you can always get the movie that you want. With a server and a couple of fast burners, Blockbuster could reduce the size of their real estate and improve customer selection at the same time.
For Blockbuster the stakes are huge.
Unfortunately though, the stakes for Sony are even bigger and while the technology to deploy burn on demand has been here for a very long time, like anything involving Hollywood, it’s been tied down over disagreements tied to the licensing of formats. Last December, things looked promising, that we might be witnessing the birth of this technology.
Time Warner CEO Dick Parsons said that 2007 would see the introduction of burn on demand technology for their retail partners, the DVD forum even “approved” a standard for the DRM, and in anticipation of the launch, Sonic solutions went as far as to announce that they were launching a commercial and retail solution using the technology. Despite all of these signs of this technological evolution, somehow the licensing discussions got hijacked by the DVD-CCA, and everything started to break down.
While Blockbuster hasn’t publicly discussed their burn on demand ambitions, there have been hints that they’ve had their eyes set on this target. Earlier this month, Lionsgate’s CEO Jon Feltheimer said that the company had digital distribution agreements in place with Best Buy and Blockbuster. Many in the press, assumed that he was referring to a movie download service, but no one stopped to consider whether or not “digital distribution” could occur at the retail level. Later, Feltheimer backed away from the comments, which could be interpreted as a sign of on going discussions.
Many retail and technology companies had hoped that Hollywood could come to a decision, but over the last six months, it’s been nothing but a series of delays. When the group met last April, they still couldn’t resolve their impasse and the decision was put off for another two months, while the studios considered their alternatives.
While there is no way for me to know what goes on behind the closed door DVD-CCA sessions, what I do know from my sources in the kiosk industry, is that the disagreement over the licensing has largely been between the studios, not the consumer electronic companies involved. At one point, Sony was even looking into building their own DVD kiosks, that would burn Sony films exclusively.
This would obviously be a less than ideal solution for consumers and retailers, but it suggests that whatever the core issues are, Sony is concerned enough about them, that they are willing to ostracize their customers, in order to maintain their hold on the DVD market.
What makes me suspect that Sony may have brought a shotgun to Blockbuster’s wedding, is the timing of the announcement of their engagement. It was a week and a half before today’s meeting, where the DVD-CCA, (cough: Sony) will decide whether or not consumers should be able to buy a burn on demand DVD or whether it poses too much of a piracy problem
Coincidently enough, two days before the meeting, Rimage, also issued a press release where they mentioned their love of “Blu-ray” six different times. Rimage also recently announced a $6.5 million order from an unnamed “national retailer”. Rimage helps to make DVD publishing systems, Sonic makes the DRM.
Now, this is just speculation on my part, but considering that Sony owns half of the patents in the DVD-CCA licensing pool, I’m going to assume that they’ve got some control over what happens with the DVD-CCA. If the DVD-CCA can’t agree on a decision, than it might delay Sony’s digital plans, but it would certainly mean a lot more to a company like say ohhhh I don’t know, Blockbuster? It’s easy to dismiss, Blockbuster’s acceptance of Blu-ray as a day to day business decision, but in the larger context of their digital strategy, I think the move very likely could have been made, to shore up Sony’s support for the burn on demand technology.
While the DVD-CCA did meet today, I haven’t been able to find out the decision. They don’t like a lot of public attention and haven’t posted anything publicly. They did post their support for a law making all DVD copying illegal though. It’s hard to argue with them, I can only imagine how terrible it would be if consumers were allowed to make fair use copies of their content.
It could be that I’m reading entirely too much into this, but after watching Sony destroy their own PS3 with a forced Blu-ray “upgrade”, I wouldn’t put it past the company to try and use their muscle on the DVD-CCA board, in order to squeeze a retail partner like Blockbuster. You can call it payola or you can call it smart business, but it’s hard for me to blame Blockbuster, even if their “support” for Blu-ray may have involved a little tit for tat.
If it unlocks the key to burn on demand, then Blu-ray is a small price to pay, for a real shot at long term survival. Until, the studios can figure out a different economic equation, the video stores won’t survive the commoditization of media.
Update – It looks like it’s official, or at least sort of. I’m not sure if Blockbuster’s support was what it took, but the DVD-CCA finally authorized burn on demand for consumers and retailers. The paperwork won’t be signed until next week, but the move opens the door for a brand new market to unfold. It will take time for the rollout of actual products, but I expect that it won’t take long before we start seeing plenty of retailers adopting the technology. It’s way to early to tell how this market will shake out, but I expect to see lots of competition.]]>
Last night, I had an opportunity to attend NewTeeVee’s 2nd Pier Screening. I wasn’t sure what to expect from the event, but was really impressed with how things turned out. They hosted the event at pier 38 in San Francisco. This is a great venue. If felt like I was at a Drive-In theater that was built right over the water. There was something unique about being able to mingle at a party while watching the sun go down. Later on it got cooler, but they had heat lamps that people could cuddle under Once it got dark, they started the program and I was able to hear some interesting insights into the video world, from some of the people who’ve been involved in digital video from very early on.
During the event, NewTeeVee screened a number of parody videos and gave out awards for the most interesting ones. The winner was the hilarious “Real World Ikea“. It’s a story of what happens when five strangers stop acting polite and start getting real. They really probably should have told Ikea, but it wouldn’t have been nearly as funny if they knew that they were moving in.
During the event I was able to talk to a lot of the different players that are helping to bring video to the net. There were content owners there, technology people, bloggers, even private capital players doing a little bit of reconnaissance The whole event turned out really well.
I was especially impressed with MetaCafe’s sponsorship of the event. It might just be the free beer talking here, but I thought Real World Ikea’s top prize was better than some cheesy gift certificate. MetaCafe is going to give them premium positioning on their home page for a whole week. For a content owner, this type of exposure can really open up a lot of doors. Alexaholic currently ranks MetaCafe as the 150th site(*) on the internet. On top of the exposure, MetaCafe pays content owners to put your videos on their site. This means that the more views Real World Ikea can get, the more money the producers will make.
With a week of premium placement, the Ikea video should end up making Sean Sahlin enough that he can put a deposit on his own place for his Real World experiments. He could even try and get Ikea to donate some furniture for all the positive exposure that they’ve gotten from the video.
Even though a lot of people were there to network and meet the people behind internet video, what I enjoyed most about the party was the carefree atmosphere that it had. It was really a celebration of the explosion in internet video. As this industry continues to unfold, there will be people who make it and people who don’t, but no matter what ends up happening, it’s going to be a huge win for consumers. NewTeeVee is hosting another party in July, if you live in the Bay Area, I recommend attending. Not only can you learn a lot about this industry, but you can have a great time, while you’re doing it.]]>
Of course that was before TiVo. Once I got a taste of time shifting, I realized that my television season never had to end. Over the years, Iâ€™ve missed a lot of good TV, but between the TV syndication agreements and TiVo’s ability to automatically record every episode, the summer has turned out to be a perfect time to catch up on shows that I’ve missed. Whether itâ€™s been going back and watching every single Twilight Zone or catching the X-Files a decade after it aired, TiVoâ€™s season pass functionality has supercharged my reruns in a way, that was never possible before.
Some shows are better suited for summer TiVoing, but when it comes to episodic content, there is a downside to TiVo reruns. The shows aren’t always in the order that they originally aired and it’s almost always impossible to catch the first episodes. This isnâ€™t a big deal for sitcoms and some reality shows, but when it comes to episodic content, it leaves you confused over the storyline and can spoil earlier episodes, you havenâ€™t seen yet.
That is where my Netflix account kicks in. If I know that I really want to see a series that tells a story, Iâ€™ll use Netflix to make sure that I get to see it in order. If Iâ€™m not sure if a show will be interesting or not, I’ll record a couple of episodes on TiVo and test drive it before committing to watching the entire series. This has improved my overall television experience because there is always at least some fresh content that I can watch.
Over the last few years, the studios have also started releasing more and more new series each summer. It’s a chance for them to try out more experimental shows or concepts. A lot of these new shows are things that I probably wouldnâ€™t check out during the normal TV season, but with a little extra downtime, Iâ€™m willing to experiment with new programs, even if there is a good chance they wonâ€™t be back again next summer.
So far there have only been a couple of the summer premiers, that have become favorites, but if I can find two or three decent shows to start following, it would be enough to keep me busy. Here are some of the new shows, that I plan on checking out over the next couple of months.
The Loop â€“ This show was one of the bright spots from last summerâ€™s TV schedule, even if it didnâ€™t get any hype. I saw a couple of episodes last year and think that the show is comic genius. Way better than Stacked, even if it doesn’t have Pamela Anderson in it. Iâ€™m not sure if it will survive, but I plan on enjoying it, for as long as it lasts.
Pirate Masters â€“ I almost missed the series premier, but luckily I saw a blog post in time to record it. Iâ€™ve been avoiding the early reviews because of spoilers, but I pretty much love anything that Mark Burnett is connected to. I don’t think it will be as good as Survivor, but I do need a good replacement for Trump.
The Last Comic Standing â€“ This isnâ€™t a new series, but they are starting a new season. I started watching early on last year and immediately got hooked. The reality TV parts can be a little lame, but combining American Idol with comedians is a successful equation. I’m still surprised that Comedy Central hasn’t started their own show yet.
The Closer â€“ TNT starts airing the second season of The Closer in a few weeks and Iâ€™m looking forward to the new shows. Iâ€™m still not 100% caught up in the series yet, but I like what Iâ€™ve seen and think that this will be one that I look forward to each week. It has some rough edges at times, but is still worth watching.
The Dead Zone â€“ This is on my sometimes list. I like recording the Dead Zone because this is a show that you can watch out of order. Itâ€™s not good enough for me to want to see every episode, but I like having a few episodes here and there, in case Iâ€™m in the mood for a creepy supernatural thriller.
Standoff â€“ This is a returning show from Fox. Right now itâ€™s on life support, but the premise looks interesting. Normally, this is the sort of show that Iâ€™d try to go back and catch on Netflix, if it caught on, but since the showâ€™s ratings are on the bubble, Fox has made the first season available for streaming online. My plan is to start recording season 2, while Iâ€™m getting caught up on the first 10 episodes from last season.
The 4400 â€“ I really want to TiVo the new season of 4400, but have heard so many good things about this show, that Iâ€™ve promoted it to my Netflix queue. With the new season coming out, I may still get a season pass, but I want to watch it from the beginning, so that I know what is going on.
American Inventor â€“ Iâ€™m not a big fan of American Idol, but have always had a lot of respect for the entrepreneurial spirit. I missed the show last year, but am anxious to check it out for the first time this summer. I may cancel my season pass early on, but I want to at least see how good their ideas are.
Painkiller Jane â€“ Iâ€™ve always been a sucker for female spy type shows, so I was especially interested when I saw that the Sci-Fi channel was coming out with an addition to the genre. The showâ€™s premise is basically La Femme Nikita meets Claire from Heroes. I watched the pilot and I wanted to like it, but the acting and writing was too b-level for me to enjoy it. I’m going to stick in there for a few more episodes, but so far I’m skeptical.
Americaâ€™s Got Talent â€“ This show looks like a train wreck, but I still canâ€™t look away. Between itâ€™s Gong show roots and David Hasselhoff as one of the hosts, this is either going to be absolutely terrible or a runaway sleeper hit. Either way, I probably won’t be able to stop watching, no matter how bad it gets.
Burn Notice â€“ Last year, Heroes was the show that I anticipated the most, but this year itâ€™s Burn Notice. The series has been described as a cross between the A-Team and Alias and will star Bruce Campbell, who happens to be one of my favorite actors. If you did not see him in Jack of All Trades or the Evil Dead movies, you should check them out. Everything he does has a very unique style. He is the best b-movie actor in Hollywood.
I’m usually willing to give most shows at least one chance. To help make sure that I record new shows, I rely on two tools to keep me up to date. First, I’ve set up a Wishlist for the word “pilot” and have restricted it to 2007. I get a lot of false positives, when airline pilots are mentioned in the description, but it catches a lot of shows that I never would have known about.
If TiVo were to manually strip out the false positives and create a Guru Guide feed, only for brand new shows, I think that they could solve this Wishlist bug. In theory I like the concept of the Guru Guide, but in actuality, I haven’t found a lot of new shows, from the suggestions. If there was a feed for only new shows, people would subscribe to it. Rather than just focusing on celebrities and partners, TiVo should build Guru Guides that hold more mainstream appeal. Right now you can set up a Wishlist for comedy movies, but if TiVo’s Guru Guide could show me the top ten Comedies, based on what the TiVo’s audience has rated them, it would be a much more powerful option and a more mainstream alternative than some of the more advanced Wishlist features.
The second way that I find new shows is to read a lot of television blogs and keep my eyes peeled for new things coming out. When I find something that looks interesting, I immediately log into TiVo’s website and schedule it with a few mouse clicks. This is good for event shows and out of the ordinary things, that I might not normally catch. One downside to relying on TiVo’s website, is that you can only schedule shows, if it has guide data already associated with it. Because shows like Burn Notice don’t start for a few more weeks, I have to remember to check back or I could possibly miss the show.
One way that TiVo could get past this obstacle would be to let me set Wishlists directly from the website or maybe some kind of a reminder system where they could send me an email to remind me to go back and schedule it. They could also expand their data on the website, so that users could see tentative guide data later in the month and get notified only if there is a conflict.
Neither tool is perfect, but both do a pretty good job of making sure that new content shows up on my radar. There is more good TV out there, than I have time to watch, but there something special about getting in at the beginning of a series. Between the new summer series and having access to “re-runs” that I’ve never seen, there is still plenty of new content out there, even if the smash hits won’t be airing again, until the fall.]]>
This is why I was surprised at how eerily familiar things seemed, when I was reading Paleo-Future’s review of the The Omni Future Almanac. The book was written in 1982 by Robert Weil and offers his vision into what the television industry would be like, in the 21st century.
We’re only a few years into the 21st century of course, but considering that it’s been 25 years since the book was published, I couldn’t help, but be impressed with how many of the predictions he got right (except for the whole people loving westerns thing, he was way off base on that one.) In looking over the list of predictions, here are a few, that I think we’ll continue to see throughout the rest of this century.
“*Instant classics will be created by increased Hollywood hype and intensive advertising. Aggressive marketing techniques will also be used in the promotion of pay television and home video media.”
It’s no longer about the quality of the content, it’s about the marketing. A third of most film’s budgets goes towards commercials, billboards and hyping the films on the net. As we see the barriers of film distirbution break down, marketing will play an even more critical role.
“*Trends at the theater concession stand may come and go, but popcorn will remain America’s favorite movie-going snack.”
Even with the spike in corn prices popcorn is still ridiculously cheap for movie theaters. The gross margins that they earn will ensure that popcorn stays a part of the movie theater experience for as long as people keep seeing films.
“*Movie studios will continue to become electronic entertainment conglomerates. With their vast financial resources, these will be the only organizations capable of funding the giant spectaculars of the future. The trend is already exemplified by Universal, Paramount, MGM and Warner. Smaller experimental movies, on the other hand, will flourish with the availability of video to independent producers.”
The Omni future almanac could not have nailed this one more perfectly. Media companies will always have an insatiable thirst for consolidation. It’s part of their DNA. It’s hard to see how this one plays out when you look at the explosion of consumer generated media, but there is little doubt in my mind that the conglomerates will figure out a way to buy into it, if they can’t build it themselves.
I guess the more things change, the more they stay the same. No matter what effect technology has on the film industry, people will always love movies and there will always be people willing to make them. How we make them, how we distribute them and how we sell them may end up changing a lot, but at the end of the day, there will always be an audience, regardless of how the economics work out.]]>