Home Media Magazine - November 11-17, 2007 - (Page 36) NEWS By Erik Gruenwedel RETAIL Blockbuster Inc. needs to get back to brick-and-mortar basics and reinvigorate stores, new CEO Jim Keyes told analysts in New York last week. The No. 1 rental chain is working with Sony to erect point-of-purchase kiosks in select stores that allow consumers to test and purchase the PlayStation 3 system in addition to buy Blu-ray Disc movies. The chain also is testing kiosks that allow users to download movies to portable flash drives and view them in the home or on portable devices. The company is unveiling “Rock the Block,” an in-store strategy to revamp retail locations to include beverage bars, tech centers and kids areas. Blockbuster plans to leverage its brand across multiple distribution channels, Keyes said, while weaning itself from a strategy that primarily focused on Total Access. The CEO said the online rental, in-store return program cost the chain $114 million in gross prof- www.homemediamagazine.com Blockbuster CEO Says In-Store Rental Still ‘Very Viable’ it during the first three quarters of fiscal 2007. “The video store still represents the majority of our business,” Keyes said. “The video rental industry is really not as much in a decline as I had perceived.” Blockbuster has a 33.1% rental market share followed by independent video stores (23.5%), online rental pioneer Netflix (13.1%), videoon-demand (11.9%), Hollywood Video (8.7%), Movie Gallery (6.3%) and rental kiosks at 3.4%, Keyes said. He said data suggests prolonged stability in the DVD rental business. Blockbuster projects overall industry rental revenue will top $8.1 billion in 2007 (compared to $8 billion in 2006), which includes $6.2 billion in-store and $1.3 billion generated online, he said. Blockbuster projects an estimated $4.5 billion in industry gross profit. Blockbuster’s revenue is projected to decline slightly from $5.9 billion in 2004 to $5.5 billion this year, Keyes said. Earnings before interest, taxes, depreciation and amortization (EBITDA) dropped significantly from more than $508 million in 2004 to a projected $205 million in 2007. Keyes said his first question after becoming CEO was, “Where did all the EBITDA go?” He said the company’s shift away from late fees and revenue-sharing deals resulted in Blockbuster acquiring fewer new release titles. “I’m not sure it was the right strategy to begin with,” he said. Keyes said the approach resulted in a dearth of available new releases and a bevy of unhappy customers. “We found that 5% to 7% of customers walked out of the store unhappy,” he said. “Our shelves on Friday, Saturday night too often looked [empty].” Keyes said Total Access was a great initiative, but it exposed and exacerbated Blockbuster’s supply-chain problem. He said the company had been “playing in the wrong game,” investing and growing an online business. The CEO said distribution of movie rentals has shifted from 84.8% in-store in 2004 to 65.6% in-store in 2007. He said Blockbuster is making efforts to better explain to customers its rental deadlines. Some stores even retain late fee signage, he said, showing a slide from such a store. “We eliminated late fees three years ago, and this picture was taken two weeks ago,” he said. He said stores rely too heavily on bundling and discounts that have eroded the average rental price from $3.60 to $2.79. At the same time, average rental duration grew from 3.6 days in 2004 to 5 days this year for new releases. “You can see where some of that EBITDA erosion came from,” Keyes said. He said Blockbuster is working with studios to help accomplish their retail goals while underscoring to studios the need to support rental. “There is still a very viable business model in-store if managed properly,” Keyes said. Panel Mulls Over Digital Delivery Continued from page 15 Blu-ray Takes High-Def Title Lead Continued from page 1 however, as in the first week of November Blu-ray regained its lead in terms of total titles available. According to figures from The DVD Release Report, total Blu-ray titles available at retail passed HD DVD for the first time since the Paramount/DreamWorks decision, 332 to 328, the week ended Oct. 31. Companies that support Blu-ray also have 66 titles in the pipeline, compared to 42 for HD DVD backers. Those numbers include four HD DVD and 11 Blu-ray titles released Nov. 6. Yet compared to the 236 DVD titles added to the market the week ended Oct. 31, the 16 high-def titles released during the same period (12 Blu-ray, four HD DVD) still represent a snail’s pace of high-def software releases. Since the Paramount/DreamWorks HD DVD exclusive decision, Paramount Home Entertainment has released six HD DVD titles through Nov. 6. A Paramount representative did not return a request for comment by press time, however a Paramount representative said at a DVD Forum event in early October that more than 30 HD DVD titles were already being planned for 2008. For the rest of the year, Paramount and DreamWorks have another six HD DVD releases planned. The two companies have one more (Zodiac, Jan. 8) announced Bullwinkle agreed. “If consumers find themselves [with the message], ‘You are not authorized to use this content,’ and they are honest and have purchased that content, we have failed completely,” he said. In the digital world, finding content will be key, said Bradford Auerbach, senior entertainment executive for Hewlett-Packard’s digital entertainment services division. “There’s a lot of content out there that if you’re aware of, you’ll enjoy it,” he said. “Being able to build a metadata cloud for the content that’s out there will be crucial.” “Access drives demand,” said Kevin Schaff, founder and CEO of Thought Motion Equity, which licenses content to numerous buyers. “Take NCAA content,” he said. “There are more than 5,000 titles … there are new distribution avenues based on digital access.” While getting consumers everything they may want is still troublesome, at least quality doesn’t seem to be much of a problem any more. Ron Atkinson, the principal of eDef Media Labs in Burbank, Calif., said with the technology used by his company and others, even the most beat-up of old movies can look new and nearly flaw-free. He showed how a 36-year-old movie with muted colors and poor shadowing could be improved to be sharper, with more color saturation and better-defined borders. Few should notice any digital artifacts either on DVD or in digital downloading or streaming, after the improvements are done, he said. CLASSIFIED SHOWCASE PA C K A G I N G USED TAPES & DVDS thus far for early 2008. Representatives from both sides have stressed how important this fourth quarter is for high-def media. However, Jim Bottoms of the home entertainment research firm Understanding & Solutions said recently that the fourth quarter is no longer the determining period for either format. The Paramount/DreamWorks decision made sure of that, he said. “There is growing concern throughout the industry that both high-definition disc formats could be lost completely in a world of competing delivery options and viewing platforms,” Bottoms said. “As we stand today, industry support for [Blu-ray] across content and hardware remains the strongest grouping, and it is therefore the format with the greatest chance of market success, although its strength is being eroded. Whatever happens, continued competition between the two groups will lead to continuing confusion and uncertainty, and therefore delayed consumer purchase decisions.” Barring any surprise announcements, Blu-ray will have extended its lead in terms of total title count by the end of the year. Not including titles set for release after Dec. 31, the total title count will likely be 406 Blu-ray Discs versus 372 HD DVDs. Time Warner Gets a Boost From DVD Continued from page 10 CLASSIFIED ADVERTISING MAKES DOLLARS AND SENSE! FOR ADDITIONAL INFORMATION CONTACT: Kurt Wohlman (714) 338-6749 kwohlman@questex.com www.homemediamagazine.com out day-to-day.” Martin will assume the titles of EVP and CFO, replacing retiring Wayne Pace. Rob Marcus assumes Martin’s CFO position at Time Warner Cable. Glenn Britt, CEO of Time Warner Cable, said ongoing day-and-date tests with Comcast of new movies on VOD with DVD will continue with no additional rollouts scheduled. He declined to reveal updated results. Bewkes and Parsons are on the same page regarding Time Warner Cable’s strategy to supplant home video rental with video-on-demand releases available on the same day as the DVD. Parsons has publicly chided the home video rental business model, claiming the studios earn less than 20 cents for every rental dollar earned. The former CEO didn’t mince words last summer when he told investors in London it would be “a cold day in hell” before he frequented a video rental store. Time Warner Cable reported operating income of more than $1.4 billion on revenue of $4 billion, compared to more than $1.1 billion and revenue of $3.2 billion during the same period last year. Premium digital video subscribers totaled 7.9 million, which included net additions of 128,000 in the quarter. Time Warner Cable has 13.3 million basic video subscribers and 14.6 million overall. Overall, Time Warner revenue grew 9% to $11.6 billion, from $10.7 billion last year. Home Media Magazine November 11–17, 2007 http://www.homemediamagazine.com http://www.homemediamagazine.com
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.