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David Poland

By David Poland

Home Entertaiment Hysteria (Thanks, Deadline)

I generally stay away from anything David Lieberman repurposes at Deadline, as most of the analysts he cribs from – openly – are talking out of their asses. Why did Nikki Finke hire a guy to regurgitate analysts reports without any insight? Because that is the standard of “journalism” at Deadline.

This is yet another of the diminishments of journalism these days. It’s not just Deadline. The idea of printing analysts as though they have The Answers because they have a job, without any thought, much less reporting, is pathetic, and has led to a class of analysts who are writing hyped-up headlines and throwing out new ideas of what’s next, one more extreme than the other, even if the same person ends up contradicting himself within 2 quarters almost every time. (Yes, I am looking at you, Rich Greenfield).

Not only that, but they all contradict each other daily… so it’s like saying that watching Around The Horn on ESPN is the same as reading the box score. BZZT!

But I digress…

Today, Lieberman ran a particularly stupid regurgitation of Morgan Stanley analyst Benjamin Swinburne’s report pitting Ultraviolet against Netflix… and in typical Deadline hyperbole, chuckled, “Moguls will need a stiff drink nearby…” (can you feel my eyes rolling?)

Thickening the gruel as much as I can, the report claims that Netflix’s cost per view for feature films is just 48 cents per movie and that compared to the cost of buying or even renting, this will drive down DVD sales further.

But it leaves out all of the key points that suggest this is nothing more than a fairly unconsidered notion.

1. Netflix is now, effectively, all but out of the studio feature streaming business.

There is still plenty of indie content and they will continue to add major indies, like The Weinstein Company and Lionsgate (there via EPIX) and DreamWorks Animation, but right now, the only major studio streaming as a matter of course (there are odd windows that still pop up) is Paramount. This is now the norm and there are no expectations that Netflix will be pursuing any addition major studio deals for now.

So… if you are interested in more than 80% of the studio product being released, you will have to look elsewhere. Netflix isn’t competing with Ultraviolet in any real way at this point.

2. As cute as it is to talk about DVDs massive decline as an unstoppable mud slide, which started in 2006 (ah, to remember 2008, when I was the only one writing about it), this analysts numbers seem to have stopped a year or so ago. The current numbers show that DVD seems to have, finally, plateaued and that there is some ongoing growth in Blu-ray. It’s not a huge growth business and as I have written before, I think the studios are already angling to get out of the hard disc business… but 5% growth in Q1 2012 over Q1 2011 is the first time the Home Entertainment divisions have seen actual growth in overall disc sales in the last 6 years.

3. Swinburne wags his finger and points out that studios have to get costs under control in the light of the DVD drop-off.

Wait! Now I get it. Lieberman got a report from 2009 and thought it was new! Makes perfect sense now.

Without sarcasm… we’re already there. This summer has a lot of very expensive films, but the reality that the studios have already made their adjustments and between staffing, real estate, production, and distribution, I don’t think there is a studio that hasn’t already cut back by at least 20% in the last 3 years.

4. As noted before, the studios are going full steam into the streaming business. There are all kinds of obstacles and tech issues involved. But the existence of Ultraviolet is not about increasing DVD sales… it is about setting up the future.

Much like Netflix, the studios will be happy to get out of the hard disc retail business. They lose the cost of production and distribution, as well as a chunk of what the retailer earns in the transaction. Even better if they can be the streaming distributor, therefore cutting down middle-man costs further.

The studios have done many stupid things, in my opinion. They have recklessly damaged their own DVD business and continue to take the theatrical business for granted when, in the next decade, it seems sure to become the primary differentiator in the revenue stream of film divisions, as the whole studio business becomes more the old studio business because of subscription-based post-theatrical.

In other words, individual households’ spends on, say, WB product, will not change very much from year to year, big hits to smaller hits. They will need to establish the brand and maintain interest. If the films all suck or are terribly low-rent, the subscription base will churn. But when a film can generate hundreds of millions in theatrical, that money will be above and beyond… unique dollars that cannot be produced by any other delivery system (unlike DVD vs Blu vs streaming vs cable packaging vs Ultraviolet, etc) and at a higher per person spend than any post-theatrical opportunity affords the studios.

But… speaking to the contempt Lieberman seems to have for the studios… they are not morons. They may be slow. They may be too greedy for their own good. They may forget to see everything they do in both micro and macro. But this guy Swinburne is, aside from the hysterical headline, predicting the past, not the future. That’s why he’s an analyst and not a studio bean counter. The studios can’t afford to think that way.

10 Responses to “Home Entertaiment Hysteria (Thanks, Deadline)”

  1. movielocke says:

    unrelated, but I find it sad and humorous that you can’t see Titanic 3D in IMAX in Los Angeles. The only theatre playing it is the fake_IMAX at Century City.

    I’m not sure my eyes can handle 3D for 3 hours if it’s not the visual field encompassing real IMAX screen.

  2. SamLowry says:

    It’s so nice of the big players to assume that everyone has ultra-high-speed internet, like it’s incredibly cheap or something. NOBODY has to rely on a connection so slow that you have to wait for a YouTube video to load most of the way before you can start playing it.

  3. David Poland says:

    movielocke… see it 2D. Great, clean digital prints. 3D does nothing for it.

    Sam… that is evolving. 2 years ago, when U-Verse installed fiber optic here, I asked for an ethernet extension to be installed by the DVR and PS3. They had no such offering and really didn’t understand why I needed it. These days, that is part of the packages.

  4. JS Partisan says:

    Yes it’s part of the package but it still ignores the TECHNOLOGICAL DIVIDE in this country. The studios are going to have to get out of their bubble, and realize that these plans cannot go forward until shit gets cheaper. Once it’s cheaper then let’s go full boar into the future with streaming. Until then, let’s buy our packaged media that does not need buffering or expensive broadband.

  5. David Poland says:

    Fair enough, JSP… but one cannot argue that streaming and digital rentals is killing home ent and that at the same time, people can’t afford to stream or download individual movies.

    Not your argument – I don’t think – but that is the illogic of the moment.

    That said, the wiring and HDTVing of America has moved faster than any major technology adopting yet. Way faster than cable.

  6. john says:

    I was disappointed to discover that HBO GO doesn’t allow you to hook up an iPad or iPhone to a television. You are stuck watching on your small screens. It’s too bad, as a paying subscriber, I would much rather stream on demand.

  7. Screenking says:

    Netflix, Hulu, Redbox, all forms of VOD (and to some degree, the earlier paradigm shift with music) have all instigated a sea-change in consumer behavior over the last few years. Namely, that when you have “free” or low-cost ways to consume content, ownership has little perceived benefit. I haven’t seen anything resembling a way to put that genie back in the bottle. Ultraviolet is a confusing joke, and it seems like the Studios are making every mistake the music labels made trying to compete with Apple 8 years ago. Steve Jobs was right: no talented tech visionary would ever be caught dead working for a studio. SImply put, that’s why all of these ill-conceived efforts always crash and burn.

    The home entertainment business grew to its peak in the 2000s for a simple reason: if you wanted to watch a film at home, you either bought a DVD at retail or drove to the video store, or if you were lucky, caught it on PPV/Pay TV. Now you can access that same content (and a sizable portion of the back catalog) from two dozen different digital retailers and every MSO. In essence, if the vast majority of what you might want to watch is available instantly, for a few bucks or “free,” why bother with owning it? This decision gets easier when you start to think about how many consumers have shelves crammed with rarely viewed or even unopened DVDs (I heard a stat at a conference that more than 40% of DVDs were never taken out of the wrapper), It’s hard to imagine them adding further to their unwatched collections.

    Here’s an example from my own household: My wife used to be an occasional buyer of Criterion titles – even at bloated retail prices (I recall her spending $44 dollars at Virgin a few years ago for a single DVD). But with the entirety of the collection now available on Hulu, she has no desire to spend any money on discs. Is the quality worse? Sure. Does she miss the bonus materials? Yep. But frankly, all she really wants to do is watch the movie, and will supplement that with a web search for background context. She just doesn’t have time for 3 hours of bonuses, especially in a world filled with innumerable other competitors for her time. My guess is that the vast majority of people who consume content fit this same pattern.

    Regarding Netflix, I don’t buy the argument that “there’s nothing to watch.” The independent viewership/consumption data speaks otherwise. I just checked Instantwatcher, and even post-Starz, there’s over 9,300 films available, with over 60% of them from the last decade. There’s also 3,500+ seasons of TV, which is probably 30-40K hours of programming – over 4.5 YEARs of stuff to watch. Is it all good? Nope. But the point I’m trying to make is that in a world with limited free time, Netflix is a frictionless way for consumers to scratch the content itch for pennies a view, and no needless clutter. Even without fresh studio content, there’s better, more recent movies then you get channel surfing.

    In sum, a vast on demand “free” library of content on Netflix, combined with new TV content on Hulu, and a massive VOD library of everything else to me spells the end of Hollywood’s meal ticket when it comes to Home Entertainment.

  8. palmtree says:

    john, HBO GO just became available for on demand streaming on the XBox. Too bad I’m not a paying subscriber.

  9. storymark says:

    “Regarding Netflix, I don’t buy the argument that “there’s nothing to watch.” The independent viewership/consumption data speaks otherwise. I just checked Instantwatcher, and even post-Starz, there’s over 9,300 films available, with over 60% of them from the last decade. ”


    Sure, they don’t have everything up for streaming (and have never claimed to, no matter how many times some claim that to be) – but they’re a great value for the cost. I have over 100 titles in my instant queue, and add titles faster than I can watch them.

  10. hcat says:

    And a year from now Netflix will have Hugo, Tintin, Ghost Protocal, Artist, week with Marylin, Iron Lady, and HUNGER GAMES. More than enough to market on.

    Unless I am misunderstanding Ultraviolet, it is basically a storage system. You still pay regular retail for the content. I don’t see how that is going to knock out subscription services, or even physical discs. Maybe ten years down the line the majority of people will be comfortable with having their stuff stored somewhere off in the internet (and JS and Sam have a great point about not having the technology to retrieve it back onto your television). While there will be early adaptors to Ultraviolet it is going to be a tough sell to all the luddites, myself included.

    And I wanted to mention this in the piracy thread but it is also relevant here. What is this ‘Can’t afford stuff’ shit? If you have the money to drop on a computer system, tablet or whatever and enough left over to have a data plan that would allow you to watch pirated movies, don’t you have enough to plunk down $15-20 for a new release purchase or a couple bucks for a rental?

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