Movies in Many Formats

When DVDs overtook VHS, consumers didn't have much choice -- it was the only replacement option. Today, the home entertainment category is more consumer driven. Shoppers want their movies when they want them and how they want them. And while Blu-ray adoption is increasing, it's not competing solely with DVDs."It's a multi-format and multi-channel world, and the studios and retailers are approaching it this way," says Marcy Magiera, editor in chief and associate publisher of Video Business. "As DVD falls off, you have Blu-ray, digital downloads, and cable and satellite video on demand. All three formats will continue."Instead of viewing digital downloads as a threat, Magiera says studios and retailers see all the formats as complementary and are looking into ways to maximize total revenues. When a DVD hits retail, the movie also becomes available in other formats. "They are on board that they have to offer multiple ways," she adds. "We're really moving to one home entertainment window."Experts don't foresee physical discs becoming obsolete anytime soon. As retailers explore various delivery options, the physical in-store footprint devoted to movies may decline, but as Magiera says, it doesn't mean profits will.Space in StoresGeneral retail trends of less SKUs, better inventory management and clearer aisles have affected all categories, including home entertainment. And while many of the mass merchants have implemented some level of clean-store policies, Andrew Kairey, president and CEO of Burbank, Calif.-based Origin LLC, says overall the company is still producing quite a bit of displays in all channels, especially for supermarkets and drugstores."On a lot of the big titles, you're still getting half cubes, headers and aisle blades," he adds. "In the video-specific market, there are still standees. Video continues to be a very strong impulse item. Displays play a critical role -- they always have and this trend will continue."Bentonville, Ark.-based Walmart is one of those big-box retailers cleaning up its aisles. Although it was reported in The Wall Street Journal that the retailer was doing away with display cases to promote new releases, Melissa O'Brien, Walmart's senior manager of PR and brand reputation, says that's not accurate."We do feature in stores new release areas for both standard DVD and Blu-ray, prominently. Some movies actually have endcaps that very much feature their release or specific themes, like holiday, Halloween, etc.," she explains. "We also have special displays we often place near front-of-store checkout areas for new releases. And then we also will have special midnight events for releases from time to time, such as with Twilight."However, aisles are being cleared in select Walmarts in response to consumers expressing interest in wider aisles, O'Brien says. The change will move some "value-priced" movie displays out of the middle and into special display areas within the movie department.Perhaps more specifically, a January article in Video Business reported that Walmart plans to install additional permanent fixtures in its home video departments to offset the clearing of aisle displays. Recent stock reports predict that all aisles will be cleared chainwide by April/May. JP Morgan's December '09 report said, "The broader changes of Project Impact appear non-negotiable. Many consumer firms are still planning against a Walmart that no longer exists."KiosksMost Walmart locations also offer Redbox and e-Play kiosks in their vestibules. While sales of DVDs have been down, rentals are up. According to Port Washington, N.Y.-based The NPD Group, video-rental kiosks are expected to make up nearly 30% of the U.S. video-rental market this year and are experiencing more growth than either store rentals or subscription services.Convenience and price seem to be driving the kiosk trend, with Redbox (more than 17,500 locations nationwide at press time) and its $1-a-day rentals leading the way. Gary Cohen, senior vice president of marketing and customer experience for the Oakbrook Terrace, Ill.-based company, says they open "one new kiosk every hour, 24 hours a day and seven days a week, to keep up with consumer demand."Blockbuster has DVD-rental kiosks, too, and Best Buy is testing a kiosk that allows customers to trade-in movies and games in exchange for store credit.Cohen says that while the majority of shoppers still prefer physical media, consumer preference will continue to shape the rental industry. "Redbox is constantly tracking consumer demand for various technologies," he adds. In November, the company launched a free iPhone app that allows users to find the nearest kiosk location, search for a title and reserve a movie at any kiosk nationwide. Consumers can also reserve titles online at www.redbox.com.The rental kiosks -- increasingly found at supermarkets, mass merchants and quick-service restaurants -- are something not all studios support. Magiera says it's about half and half, noting that they would rather sell than rent a movie and see the rentals cutting into sales.Universal, Fox and Warner Bros. (the studios either did not respond to interview requests or declined to comment) refuse to distribute new releases to Redbox, reported Forbes, so Redbox employees purchase those new releases from Target and Walmart to stock the kiosks. A study, "The Economic Implications of Low-Cost DVD Rentals," from the Los Angeles County Economic Development Corporation (LAEDC), says the kiosks are "challenging the traditional distribution and release model of the industry, which is built upon timed, sequential release into differentiated market segments through a variety of channels (box office, sell-through, rental, pay television and cable)." The study says the effect of the kiosks could be "$1 billion in lost revenues to the domestic home video industry in the Southern California region."Digital Downloads & Streaming ContentWhile she does think the $1 rental model will disappear, Magiera doesn't expect kiosks to go away anytime soon. What those kiosks offer in the future may be more than just physical discs.Since last fall, NCR Corp. has been testing digital download Blockbuster Express kiosks at select locations. Supermarket News reported that movies are downloaded to a secure digital (SD) memory card and can be played on TVs, computers and other mobile devices, no matter the brand of the device. The article also reported that as digital downloads become more popular, NCR plans to integrate the technology into its existing Blockbuster Express DVD-rental kiosks, which are digital-download ready. NCR declined to comment.Retailers are finding ways to profit from these new delivery methods. Dallas-based Blockbuster also offers digital downloads through its website and "with the push of a button on a remote control through our partnerships with TiVo and Samsung," says spokesperson Michelle Metzger.As of October, Blockbuster On Demand is available on various models of Samsung HDTVs, Blu-ray players and Blu-ray integrated home theater systems and allows consumers to rent videos on demand or purchase movies. The service provides on-screen search and browsing, ratings, trailers and more directly on the TV. "Our streaming content is very high quality, almost in between a standard definition DVD and a Blu-ray," Metzger says.Blockbuster On Demand is also available on select Motorola phones. "People are increasingly relying on their mobile phones to stay connected to the things they love the most -- including their favorite movies and TV shows," says Kevin Lewis, senior vice president of digital entertainment for Blockbuster. "The integration of our service into Motorola's mobile phones will provide access to thousands of movies."According to CNET News, Best Buy is also rolling out a movie download service to be available on the retailer's Insignia brand of TVs and Blu-ray players. Licensing the software from Sonic Solutions' Roxio CinemaNow service, the content can be played on Macs, PCs and Android platforms including Dell and Hewlett-Packard laptops and LG Blu-ray players. But the article says Best Buy wants the content to be able to be played on more devices, so when consumers rent or buy movies via this service, content can be transferred to any device purchased in the store.With sales of Internet-connected TVs expected to grow, DVD sales slumping (Digital Entertainment Group reports that sales declined 13.5% to $5.4 billion in the first six months of 2009) and increasing consumer adoption of digital video, retailers and studios may have the push they need to figure out the portability issue and their digital entertainment strategies.In October, The New York Times reported that Disney (the company declined an interview request) has developed a digital-ownership tracking system, "so people won't have to buy the same movie or television show multiple times for different devices."The article also reported on the Digital Entertainment Content Ecosystem (DECE) initiative by a consortium of movie studios and companies such as Comcast and Intel to develop a common set of standards and formats."Discs are still and by far the dominant way Americans enjoy home video, but there is an increasing appetite for digital options," says Russ Crupnick, entertainment industry analyst for NPD. "The good news is that the consumers engaging with digital video today also tend to be heavy consumers of DVDs and Blu-ray Disc, but it remains to be seen just how long physical discs and digital formats can coexist."Blu-ray AdoptionCost appeared to be holding back many consumers from switching to Blu-ray (34% of respondents in a Retrevo Pulse Report said $150 was the most they would pay for a Blu-ray device), but with lower prices on discs and players, more consumers are expected to migrate to the format. One of Walmart's Black Friday deals included a $78 Magnavox Blu-ray player, while it was reported that Costco had expanded its titles of Blu-ray movies with prices starting at $9.99. The NPD Group reported in December that sales of Blu-ray players were up 53% vs. 2008.Blockbuster's Metzger says that as prices fall, the company expects more customers to choose Blu-ray movies (available for rent at the same price as a DVD) and plans to increase its offerings based on shopper demand.Those in the industry see a need for more consumer education on the benefits of Blu-ray; and some say it's a race between Blu-ray adoption and streaming."The clock is ticking on Blu-ray adoption," says Andrew Eisner, director of content at Retrevo, Sunnyvale, Calif. "Downloading movies is growing in popularity, but there's still time before Verizon and others have installed fiber, Wimax or whatever high-bit rate technology that will make downloading or streaming high-definition video and audio practical. Right now, Blu-ray is one of the only ways to deliver full-HD, 1080p programming and HD audio to the increasing numbers of HDTVs showing up in living rooms all around the world."Eisner adds that he also sees more Blu-ray players coming to market that support streaming video services like Netflix, Vudu, Amazon Video On Demand and others. He says the ability to offer consumers Blu-ray movies and streaming -- all for less than $200 -- will be an attractive combination for shoppers, especially since streaming does not currently offer full high-definition movies or the additional features available on Blu-ray Discs.When it comes to sales of packaged media (both DVD and Blu-ray), Magiera says most in the industry are predicting a flat, or even slightly down, 2010 with growth returning in 2011 and 2012."The Blu-ray market is primed for takeoff," says Brandon Gabriel, principal at Burbank, Calif.-based Midnight Oil Creative. "The growth patterns have been similar to previous formats and technologies, and by 2011 there should be significant market share."Gabriel adds, "If you look at the marketing efforts at the end of 2009, the focus is clearly to promote the value and benefits of Blu-ray as a necessary upgrade to DVD, in addition to some studios' additional effort to market the digital download that accompanies your disc as part of the purchase. Studios are taking full advantage of the large HDTVs on display at retail, enabling consumers to see the difference in quality for themselves, but also allowing the consumer to take their movie and watch it either on a computer, mobile device or Blu-ray player."Gabriel says the company is creating more displays for Blu-ray. For the recent release of "X-Men Origins: Wolverine," the company produced specific Blu-ray displays rather than a combo Blu-ray and DVD display. He says Best Buy and Target are increasing retail space for Blu-ray, too, abandoning the 70/30 split from before."We expect as consumers embrace the technology, and more titles begin to release, that we will see Blu-ray become even more of a focal point at retail," according to Gabriel.A growing interest in 3-D may also impact future sales. The New York Times reported in December that manufacturers are working on new lines of Blu-ray players and TVs that can display 3-D video. NPD reports that 17% of home-video consumers report they would like to watch such movies in their own homes. "As they encounter new methods of watching movies, and new film technologies," Crupnick says, "home video aficionados will begin to expect the same experience in-home as in the theater, not unlike the evolution of surround sound."

Movies in Many Formats

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