I read an article out on the AP over the weekend that reflected some thoughts I've been having about the Blu-ray medium. It just doesn't feel like people are that crazy for the format just yet, and it looks like my perception may be right.
The AP piece talks about how the price of the players seems to be too high for consumers. With some going for $399, the value issue is understandable in the context of an economic slowdown. Another good point was brought up: since consumers have been busy upgrading to large-screen TVs, there's just not enough left in some household budgets for adoption of the relatively new technology.
Wal-Mart (NYSE: WMT), however, was mentioned as a retailer that is planning to become competitive in terms of price on Blu-ray units. Nevertheless, pundits believe it might be a few years before Blu-ray becomes saturated in homes across America.
As an investor who holds media companies in his portfolio -- Disney (NYSE: DIS), Marvel (NYSE: MVL) and, through General Electric (NYSE: GE), I have exposure to NBC Universal -- I am hoping that the new format becomes ubiquitous as swiftly as possible. Compared to DVD's initial adoption, there is some statistical evidence that the curve is actually proceeding at a faster pace.
Lions Gate (NYSE: LGF), the feisty little studio that is responsible for torture-porn franchises Saw and Hostel, has hooked up with Apple (NASDAQ: AAPL) to see if consumers care about owning digital copies of the movies they buy on DVD and Blu-ray format.
According to the following press release, Lionsgate will include an iTunes digital version of select projects on certain home-video releases. The digital copy will allow users to transfer a movie to an iTunes account, so it could then be viewable on multiple devices like PCs or Macs, iPods, Apple TV and iPhones. First up for the iTunes digital treatment will be Sylvester Stallone's Rambo -- yes, the old soldier is still around -- to be released to home video in May.
As the studio makes clear in its press release, this is all about experimentation with the promotion of new distribution models. Lionsgate wants to efficiently, and effectively, create new opportunities for its library. It's not alone -- Disney (NYSE: DIS), Viacom (NYSE: VIA), Time Warner (NYSE: TWX), Sony (NYSE: SNE) and General Electric's (NYSE: GE) NBC Universal asset are all on a never-ending study of how best to leverage the digital era to make money from content portfolios. Lionsgate wants DVD buyers to realize that they can use iTunes to buy movies from its catalog. It's a bit weird to me, though, since one would figure that a person who buys a DVD will probably just access that particular content from the DVD itself. I understand the value of transferability, of course, but if Lionsgate -- or any content provider, for that matter -- simply ensures that each digital product sold online contains unique, compelling extras that cannot be found in any other format, then a digital library will be that much easier to monetize.
At any rate, it will be interesting to see how Apple and Lionsgate do with this scheme. Apple and its iTunes brand are certainly powerful drivers of digital distribution, so maybe users will perceive a value from the digital copies.
Disclosure: Steven Mallas owns shares of Disney and General Electric; positions can change at any time.
The Associated Press interviewed James Keyes, who became CEO of beleaguered rental chain Blockbuster Inc. (NYSE: BBI) in July. Not surprisingly, Keyes is optimistic about the future. The company is investing aggressively to move into the digital age and become relevant, and Mr. Keyes predicts that someday, customers will head to Blockbuster to download movies onto their cell phones, or burn them onto CDs.
But there's just one problem: what exactly is Blockbuster's competitive advantage? The large stores that the company has are more of a headache than anything else. If they really were a valuable means of moving the company into the new era, competitors like Netflix (NASDAQ NFLX) would be gunning to establish a brick and mortar presence, but they're not. Blockbuster is trying to spin its retail presence into an asset. But the $4 billion that the company lost from 2002 to 2005 exposes the stores for what they really are: a liability.
And what of Blockbuster's technological investments? They're great, but any other company can invest in new technology; and a lot of companies with much stronger balance sheets are. I'm reminded of Warren Buffett's decision to close the Berkshire Hathaway mills in 1958. The mills were antiquated and unable to compete on costs with lower-cost producers overseas. Buffett was shown plans to modernize the mills through aggressive investment, but ultimately passed. He explained the decision by saying that anyone else could modernize too, and that the cost savings would filter down to the consumer, not revive the New England textile industry. Of course, Buffett was right, and a lot of less prescient operators who did move to modernize lost their shirts.
Are DVDs on their way out as a way to distribute films, specials, TV shows and other video content? Although the early-adopter crowd says yes, I have my doubts. The value added into DVDs these days far outweighs the relative complexity many consumers must confront to get downloadable video content onto their living room televisions.
Alternate audio tracks, digital surround and a plethora of extra features movie producers add to most DVDs are prized by almost every DVD fan I know. On the other hand, downloading a movie for free can be a bit of a process for the technically challenged as well as being a pain to get on that television. There are products like the Apple, Inc. (NASDAQ: AAPL) Apple TV that takes care of this, but at a high cost. DVD players? $30 at a local retailer and you are ready to go.
The price of DVDs has continued to come down slowly but surely, which has to cause concern for movie studios who fear margins are being eroded at the same time movie downloads threaten to lower the revenue bar even further. In an age where DVD releases are meant to make up theater revenue letdowns, the dropping of DVD prices could be seen as a threat. But movie downloads? It's hard to find one solution offered by any company that even comes close to threatening the physical DVD as distribution medium for video content.
Being in the DVD rental business seems to get worse by the day. Netflix (NASDAQ: NFLX) lowered the fee for its rent-through-the-mail service by $1 to match the new, lower price that Blockbuster (NYSE: BBI) is offering.
In a separate announcement, Blockbuster said it would close another 282 stores as renting DVDs through retail outlets becomes a less attractive business.
Netflix shares are near a 52-week low. off over 25% over the last year. Blockbuster's are down 15%. Perhaps that would send a message to the management at the companies.
Neither company has launched anything close to the Amazon (NASDAQ: AMZN) initiative to offer movies over the internet. Tivo (NASDAQ: TIVO) is a partner in that venture. Even Wal-Mart (NYSE: WMT) has launched a video download service.
Netflix and Blockbuster have simply stayed with their business models too long. They are not going to work in the digital age. They already show signs of not working.
Shareholders should hope that they get the message soon.
While the battle to buy Blu-Ray or HD DVD disks have baffled Americans for the past year, Blockbuster has made the decision to stick with Blu-Ray after consumers were choosing the technology more than 70 percent of the time.
The decision may have been made for Blockbuster already, since all major studios except Universal Studios, which is owned by General Electric Co (NYSE:GE), release films in Blu-Ray. That means no Miami Vice, Evan Almighty, Knocked Up or The Bourne Supremacy for Blu-Ray.
Boo-hoo.
But don't worry, The Walt Disney Co (NYSE: DIS) will release its films exclusively in Blu-Ray. Warner Brothers, a unit of Time Warner Inc (NYSE: TWX) and Paramount Pictures, owned by Viacom Inc (NYSE: VIA) will make films in both formats.
Regardless of which company uses Blu-Ray or HD DVD format, both are incompatible on standard DVD players, although standard DVD's will be able to play on a HD DVD or Blu-Ray player. You'll have to pay up to watch too, both formatted DVD players aren't cheap.
Amazing. Amazon.com Inc (NASDAQ: AMZN), that big online retailer, sees the flix for the net. The shares keep rising for the online DVD rental company-up about 15%, highest since January-- even if their discs do come a little scratched. More than that though is while new subscribers are coming on; it's not exactly going gangbusters. Still, 6.8M is a whole lot of subscribers. Will Amazon, or someone else, overpay?
Which came first: The ongoing takeover rumors or the higher stock price? Or was it that Dell Inc (NASDAQ: DELL) is said to be after Rackable, a provider of servers and storage products for high density data center deployments. Rack it up.
Word is that this real estate investment trust will look for a sale, combo or merger. They said the venerable firm of Friedman, Billings, Ramsey & Co. will help them "explore strategic alternatives." Then the stock went up.
Dennis Gomes, whose name surfaced in March, is a one time gaming exec and regulator. He's signed a confidentiality agreement to have a look see at the firm's Atlantic City casinos. Separately, Las Vegas' Boyd Gaming Corporation (NYSE: BYD) has also been mentioned as a possible contender.
The CEO of this Kansas-based transportation service provider has been quoted as saying that a takeover is possible. An LBO is likely. This week the shares have actively been trading up.
The rage in consumer electronics these days -- past the flat-panel TV -- is the next-generation DVD player. Of course, there are two incompatible formats vying for the customer's attention (and wallet or purse). Those two formats, Blu-Ray and HD-DVD, have been seen mostly at premium prices thus far, with players recently selling for as high as $999 and $599. In fact, some folks reported buying Sony's PlayStation 3 gaming console specifically to use the Blu-Ray next-generation DVD player inside. The PS3 was actually the cheapest way to get a Blu-Ray player.
Enter Wal-Mart (NYSE: WMT). The retailer that loves to set the bar low enough on prices to squeeze out as many competitors as possible is reportedly going to introduce a $299 HD-DVD player after sending quite a pinch of its money to a Chinese supplier to get to that price point at retail. The deal for two million HD-DVD players with China's Great Wall Corporation will bring the next-generation DVD player down to the level where it may start selling. Right now, most consumers are content with regular DVD and see no reason to lay down a grand for what can be perceived as a minor step forward in picture quality (it really isn't, but that's the perception).
In a retailer where you can find disposable $29 DVD players now, will Wal-Mart lead the charge to commoditize the HD-DVD format this early in its lifetime? Surely -- it does this all the time with certain products in the consumer electronics category, bringing other retailers with it in the process. Circuit City (NYSE: CC) and Best Buy (NYSE: BBY), for example, have to match the pricing on those flat-panel TVs Wal-Mart sells or possibly lose sales. That's the Wal-Mart effect at work. These new HD-DVD players are expected sometime in late 2007 or early 2008. Other consumer electronics retailers, watch out.
Tuesday's Wall Street Journal features an interesting interview with Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings. Mr. Hastings was amazingly candid in discussing the impending obsolescence of the company's business model:
We're sure that we're going to be buying cars in 25 years, whereas renting DVDs through the mail in 25 years? For sure that's not going to exist. That's what creates the overhang -- there's a known obsolescence. Now we can argue about whether that's 10 years or 25 years [away]. Some people probably think it's five. I think they're wrong. It's probably more like 20...If one thinks of Netflix as a DVD rental business, one is right to be scared. If one thinks of Netflix as an online movie service with multiple different delivery models, then one's a lot less scared. We're only now starting to deliver the proof points behind that second vision.
He discussed ways that the company is preparing -- investing $40 million in online delivery of movies. Hasting's realization and desire to adapt to changes in the industry may save it from the fate of titans of the brick-and-mortar rental industry like Hollywood Video, who have seen their businesses lose most of their value in recent years.
If I were a NetFlix investor, this interview would make me even more bullish on the stock.
One of the best things about living in a fast changing technology world is that we are constantly given smaller, stronger, and typically better ways to enjoy our music and videos. The downside is that often the new technology makes part of our media library go extinct.
For many of us, the shelves upon shelves of VHS tapes we accumulated in the 80's are now sitting in a closet somewhere collecting dust and just waiting to get thrown away. A new device from Sony (NYSE: SNE) is hoping to change that and bring these ancient relics back to life.
Sony presents the DVDirect VRD-MC3 which could save the lives of millions of VHS recordings. This new device promises to make transferring VHS recordings to DVD a fast and simple solution for millions of people that just can't seem to bring themselves to throw away their vast VHS collection.
The best thing about this device is that it operates as a stand alone product and there is no need to use a computer to convert your VHS tapes. This is a big plus for all the people out there (myself included) who would be lost trying to figure out how to connect my old VCR to my laptop and transfer and edit my tapes to DVD format.
The product also works to create DVD's from newer digital cameras as well as files stored on your computer.
And at a little over $200 it is an affordable solution to saving all those decaying VHS tapes you have stashed away!
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
The Financial Times reported today that major film studios are lending their support to a format known as DVD Download, which will permit stores to burn thousands of different movies onto DVDs for sale to customers. The move will allow stores to offer a far broader selection of movies, making them more competitive with online sellers. Time Warner Inc. (NYSE:TWX) will be launching a download and burn service this year, and is currently preparing its catalog of more than 6,000 movies for the system.
While this may help to level the playing field, I still think it fails to address many of the reasons why people buy DVDs online, download them, or use a service such as Netflix to rent movies by mail. Buying online tends to be cheaper and more convenient. This move reminds me a little of Transworld Entertainment's (parent company of various mall-based music stores) decision to offer in-store downloading and CD-burning to their customers. This way, people can download songs and make mix-CDs, much like they were already doing at home. It's admirable that traditional retailers are attempting to adapt to new trends but there's just one problem: why would someone go to a store to pay more money for something they could do at home?
Ultimately, I think there's a high probability that the DVD Download program will not make the large impact that the studios and stores are hoping it will. But I could be wrong.
So, your New Year's resolution is to get acquainted with the beautiful new girl in the cubicle next to you. In two weeks all you have found out about her is that she is a huge movie buff.
Rather than work up the nerve to ask her out for coffee, you decide this is a good time to polish up on your cinematic knowledge. After all, the last movie you saw in the theaters was Terminator 3: Judgment Day.
But now the real question: What is the best method for getting up to speed?
There are three movie renting options available to just about everyone, along with a few fledgling services that may or may not hit it big (i.e. digital downloading).
The following are the key differentiating points that I think anyone researching a new movie plan should consider:
The industry giant, Blockbuster was established long before DVDs came about and it has a large library of mainstream titles and many locations worldwide.
The newest big releases are given special "Guaranteed in Stock" attention, meaning there will be plenty of copies of the latest and greatest. Conversely, this means the sacrifice of shelf space for classic films so there is enough room for 100 copies of The Devil Wears Prada.
With 8,500 brick-and-mortar locations, you can get an account at home and be fairly certain you will be able to find a Blockbuster when you have to take that out-of-town trip to the in-laws.
The company paid homage to Netflix by mimicking its online rental delivery service. The service, Blockbuster Total Access, which I reviewed on Dec. 29, is very similar, with the addition of being able to rent movies for free in-store with a Total Access account.
Unfortunately, the stores have a "big-box" feel to them. The corporate initiatives are plainly written across the young, pimple-faced employees -- such as when they run through a script of things they must suggest when you are checking out; "Are you sure you don't want to buy candy and popcorn with your movie? Or a previously viewed movie for only $12.99?"
Lions Gate Entertainment Corp (NYSE: LGF), which has been a bright light in the otherwise dim movie industry recently, has found success making low budget movies aimed at the 20-30 year-old audience. Here is a list of some of their more notable recent releases, sorted by their estimated budgets. None of the movies has a rating milder than PG-13.
Hostel ($4.5M est. budget / $47.3M gross)
Diary of a Mad Black Woman ($5.5M est. budget / $50.3M gross)
Crash ($6.5M est. budget / $54.5M gross, won Best Picture Oscar)
Crank ($12M est. budget / $27.8M gross)
Employee of the Month ($12M est. budget / $28.4M gross)
Saw III ($12M est. budget / $80.1M gross)
Hotel Rwanda ($17.5M est. budget / $23.4M gross, nominated for 3 Oscars)
From the above list, you can see Lions Gate's winning formula. All their successes have budgets under $20 million dollars, and most fit into three categories: Movies that push the limits of violence and gore (Hostel, Crank, Saw); low-brow adult-themed comedies (Diary of a Mad Black Woman, Employee of the Month); and edgy dramatic works that gain critical appreciation (Crash, Hotel Rwanda).
Now, here is the problem -- neither the movie the just released, Happily N'Ever After, nor the movie that is making noise today with its addition of Paula Abdul to its cast, Bratz, fits this formula.
After blogging about the launch of Blockbuster Inc.'s (NYSE: BBI) Total Access program in November, I was contacted and asked if I would like to try the program in exchange for writing a review about it. I was given a free one-year subscription of the service in exchange for promising to review the service honestly. Now that I have given full disclosure, here are a number of my thoughts on the Blockbuster Total Access program:
The program is an obvious improvement. The online service operates exactly the same way as it previously did, but now a rental can be returned directly to the store for a new movie. I found this came in convenient more than once - when I was in the mood to watch a specific movie that was not in my queue or when I had not realized a movie I wanted to see had just come out on DVD. Since the service costs the same as Netflix, Inc (NASDAQ: NFLX), the added functionality is essentially a free upgrade.
I found the online movie store well stocked and the movies arrived quickly. My queue, which has around 30 movies in it, says that all of them are available immediately, and I have never had to wait more than two days to receive the next movie in my queue.
The only drawback I noticed was from the information I was given when starting the program - the movie database at Blockbuster is slightly smaller than at Netflix (60,000+ to 65,000+). That being said, I did not have any trouble finding any movies, even older movies (Dirty Harry), foreign movies (Ran), animated movies (Appleseed) or indie movies (Paradise Now).
The VHS tape had a pretty spectacular run -- over 20 years in the mainstream consumer electronics arena. With the advent of popular and cheap DVD players in the late 1990s, VHS started losing its appeal for most consumers. With $150 DVD recorders now in the mainstream, there is very little reason to own a VCR these days. But with the advent of digital files that just fly from Internet servers to iPods and other devices, are DVDs destined to live a shorter life than the VHS tape?
Although recent standards like HD-DVD and Blu-Ray will only find a niche audience most likely (DVDs look so good to the rest of us, you know), it's hard to imagine that a physical medium like the DVD will go away. DVD players are everywhere, and even recent moves from companies like Apple -- and even the agreement Apple has with Wal-Mart that will let Wal-Mart shoppers buy "digital movie tickets" that can be redeemed for online movie purchases and downloads -- won't cause DVD sales to just plummet overnight.
I agree with this article that states the need for a physical medium will almost always exist. The experience a DVD provides is first rate these days (except that too much non-control is given to the customer, argh), and duplicating that on a streaming platform of download does not exist. Sure, there will be large niche audiences that want to embrace non-DVD entertainment -- but for the rest of us who share DVDs, don't have a huge movie library on demand from our cable, Internet or satellite provider or course, the DVD and the DVD rental store still fit the bill quite nicely -- and will for quite a while.
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The rage in consumer electronics these days -- past the flat-panel TV -- is the next-generation DVD player. Of course, there are two incompatible formats vying for the customer's attention (and wallet or purse). Those two formats, Blu-Ray and HD-DVD, have been seen mostly at premium prices thus far, with players recently selling for as high as $999 and $599. In fact, some folks reported buying Sony's PlayStation 3 gaming console specifically to use the Blu-Ray next-generation DVD player inside. The PS3 was actually the cheapest way to get a Blu-Ray player.
One of the best things about living in a fast changing technology world is that we are constantly given smaller, stronger, and typically better ways to enjoy our music and videos. The downside is that often the new technology makes part of our media library go extinct. 
So, your New Year's resolution is to get acquainted with the beautiful new girl in the cubicle next to you. In two weeks all you have found out about her is that she is a huge movie buff. 
The VHS tape had a pretty spectacular run -- over 20 years in the mainstream consumer electronics arena. With the advent of popular and cheap DVD players in the late 1990s, VHS started losing its appeal for most consumers. With $150 DVD recorders now in the mainstream, there is very little reason to own a VCR these days. But with the advent of digital files that just fly from Internet servers to iPods and other devices, are DVDs destined to live a shorter life than the VHS tape?
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