Home Media Magazine - December 2-8, 2007 - (Page 36) NEWS Gallery Seeks to End Wattles’ License Deal By Erik Gruenwedel Bankrupt Movie Gallery Inc. last week filed a motion with the U.S. Bankruptcy Court in Virginia seeking to reject a license agreement with Mark Wattles, founder of Hollywood Entertainment Corp. Wattles, who sold Hollywood Video to Gallery in 2005 for $1.1 billion, www.homemediamagazine.com retained operations of, and right to sell back to Gallery, about 20 Hollywood Video locations under a license agreement. Gallery or Wattles never agreed to a purchase price for the stores, and in March Wattles demanded arbitration to resolve the matter, according to the court filing. Following the bankruptcy filing, Gallery said it no longer wished to remain in a business relationship with Wattles. Separately, the court ruled Gallery could continue business relationships, including payments, with second-tier vendors. The court previously ruled for a similar deal with major content suppliers, including the studios. A Boston Celebration Blockbuster Kiosks Not a Threat to Market Continued from page 1 about getting into it,” said TNR Entertainment CEO and President Tim Belton. “It validates what we’re doing.” Greg Kaplan, CEO of Redbox, which recently placed its 6,000th DVD rental kiosk in the market (giving it more U.S. locations than Blockbuster, according to the company), said he could not comment on Blockbuster joining the kiosk game. “I can tell you that Redbox continues to expand and gain market share as more and more consumers embrace the value and convenience we provide,” he said. Dubbed Blockbuster Express, the kiosks hold 250 movies and are being installed at stores in the Lexington, Ky., area. DVDs rented at the kiosks can be returned at any other Blockbuster kiosk location. The company is testing the kiosks at other fast-food locations, and is looking at potential download-to-burn options. “Blockbuster is transitioning from being a place for DVD rental to being a brand that enables customers to get their media entertainment however they want,” said Blockbuster spokesman Randy Hargrove. Blockbuster CEO James Keyes, in an interview with the Bloomberg news service, said it’s the right time for his company to join the DVD rental kiosk game. “We think vending is probably the fastest-growing segment right now,” he said. “The next, bigger trend is for vending, and we are well-positioned to be able to play.” But DVDPlay’s Berger said Blockbuster could learn from other kiosk operators, should Blockbuster go full steam ahead. “I think the way they’re approaching it shows they have a lot to learn,” he said, noting that Blockbuster’s kiosks hold far fewer DVDs than those operated by the major operators. Blockbuster hinted that space concerns may not be much of a worry in the coming years. “Our strategy calls for us to restore our rental DVD business, both instore and by mail, facilitate an instore transition from rental to retail, and position the company for an eventual transformation from DVD to digital delivery,” Hargrove said. TNR’s Belton said technology, studio support and consumer acceptance are all still in the way of download-to-burn kiosks becoming a major factor. “I certainly don’t think it’s a short-term reality,” he said. DVDPlay’s Berger agreed download-to-burn is a great idea, but not close to being a viable option for any of the DVD kiosk operators. “My belief is that the studios are far away from having thousands of retailers having (the studios’) property on hard drives everywhere,” he said. “It’s not practical yet.” Berger also said he thinks Blockbuster’s choices of where to test the kiosks are odd. “Grocery stores and fast-food restaurants are the places to do it,” he said. “The real measure is how often do people go there. It’s only convenient if people go there several times a week.” But Chris Sternberg, a spokesman for Papa John’s, said his company’s previous success with DVD — most recently with offers revolving around King Kong, Superman Returns and Spider-Man 3 — made the decision to give Blockbuster Express a trial run an easy one. “We just started implementing them, so it’s too early to see the results,” he said, adding that six Lexington stores have the kiosks. “For us, pizza and entertainment go hand in hand, and all our previous [DVD promotions] have been winners. This was a logical extension for us.” TNR’s Belton said he thought Blockbuster “hit the two areas that I think are important,” namely grocery and take-out dining. “Grocery is the cornerstone of our deployment,” he said. As for having a rental giant like Blockbuster joining the kiosk game, none of the competition said they felt threatened. “They won’t push anyone out,” Belton said. ‘Blockbuster is a formidable player in the industry, but kiosks are not going to get them out of the brick-and-mortar model they’re in now.” Redbox’s Kaplan didn’t seem concerned, either. “The Redbox service is unrivaled by any services currently available or on the horizon,” he said. Major League Baseball and Mastercard presented the premiere screening of the 2007 World Series: Rockies vs. Red Sox DVD in Boston Nov. 26. The DVD, distributed by Shout! Factory, streeted Nov. 27. (L-R) Bob Emmer, Shout! Factory COO; Boston Red Sox pitcher Curt Schilling; Elizabeth Scott, VP of programming and business affairs for MLB Productions; Debby Hughes, SVP of sponsorships for MasterCard International; and Red Sox manager Terry Francona pose with the 2004 and 2007 World Series trophies. Photo by: Photo by Brita Meng Outzen Analysts Like Keyes’ Moves Continued from page 1 Investors have steadily increased their concerns about a lack of specifics in Keyes’ plans since he assumed leadership last summer. Last week at the Reuters Media Summit, Keyes attempted to outline a new business plan for 2008 that he believes will restore profitability to the Dallasbased movie rental chain of more than 7,800 stores. Included in that plan, apparently, are movie downloads to mobile phones. The CEO reportedly told investors he had begun watching movies downloaded from Blockbuster’s recently acquired Movielink service on his Blackberry PDA with much success. “The challenge is how do I make this convenient for everybody,” Keyes told Reuters. To Michael Pachter, media analyst with Wedbush Morgan Securities in Los Angeles, Keyes’ approach may be akin to throwing caution to the wind but he said the CEO doesn’t have many options. “Rather than view this as aimless, I think [Keyes] is willing to consider any opportunities that come along,” Pachter said. The analyst believes Blockbuster will continue to stake its future on its stores — not digital downloads — including upping its retail profile. “They’re never going to make any type of money in [movie downloads] and I’m not sure anybody will,” he said. Pachter said Blockbuster would have to assume the attitude of “last retailer standing” by offering increased movie rent- L ATE F L ASH I NETFLIX FINDS ‘HEROES’ Netflix Inc.’s fledgling streaming service received a boost last week when it announced it would begin airing episodes of NBC’s prime-time sci-fi series “Heroes” the day after network TV broadcast. The deal with NBC Universal Domestic Television Distribution, which includes episodes from “30 Rock,” “Friday Night Lights” and “The Office,” among other programming, follows recent agreements between NBC and cable stations G4 and Mojo. The Netflix deal, however, affords the online rental pioneer the rights as exclusive subscription-based VOD provider for NBC programming. —Erik Gruenwedel als and sellthrough in smaller stores. He said initial reports from stores indicate sellthrough had improved dramatically. Pachter said clerks at Blockbusters have told him they are selling “a phenomenal amount” of movie titles, including Shrek the Third, Spider-Man 3 and Transformers. “I don’t think [sellthrough] is a bad strategy,” he said. “I also don’t think Keyes has anything [concrete] to tell you right now and I’m OK with that.” Arvind Bhatia, media analyst with Sterne Agee in Dallas, said Keyes is an improvement from previous management. “I believe in the guy,” he said. “For the first time they have a guy who looks at movie rentals from a retail perspective.” The analyst said Blockbuster has become proactive versus reactive in order to appease Wall Street. He cited the company’s introspection about Total Access, the online rental, in-store return program that jumpstarted Blockbuster’s revival to consumers while hemorrhaging profitability. Bhatia said the program definitely proved that giving away the store could gain subscribers. He said Keyes wants to take that momentum and cater it to retail while streamlining rental costs through kiosks, smaller stores and tiered pricing. “He’s not giving up on DVDs by mail,” Bhatia said. He said the main improvements he’s looking for at the store level are improved inventory and pricing. He said he believes Keyes is looking at the numbers compared to current trends. “Unless he tests kiosks and phones, he won’t know,” Bhatia said. HOME MEDIA MAGAZINE (ISSN 1934-9882) is published 51 times per year (weekly except 3 issues in December) by Questex Media Group, Inc., 306 West Michigan Street, Suite 200, Duluth, MN 55802. Subscription rates: $49.99 for one year in the United States and Possessions; $79.99 for one year in Canada and Mexico; all other countries $99.99 for one year (by surface mail). Add $75 annually for air-expedited service. Single copies (prepaid only): $6.99 in the United States, $8.99 in Canada and Mexico, $13.99 all other countries. 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