October 2007

Next Generation DVD Format Wars

We are asked questions periodically by clients and prospective clients as though we had a crystal ball.  We don't have one, but we do attempt to work hard at tracking and analyzing the various trends in the entertainment and entertainment technology industries through the research in which we are involved. 

The latest series of questions seems to be dominated by the next generation DVDs, and whether the Sony-led consortium of Blu Ray or the Toshiba-led group of HD DVD will win the so-called “format wars.”

What is occurring impacts people at all points on the industry food chain as vendors, customers and competitors of the organizations at those points seek to determine how the change will impact them and their businesses, if at all. 

From our research it seems it is way too early to make any predictions as to the eventual winner.  I will say one thing for sure: at the moment, this has little to do with image quality and everything to do with finances and the cost of the equipment from a total cost of ownership point of view for the consumer.

Sure there are studios that have decided to support one or both of the two formats with their DVD releases.  However, with the increasing, but still relatively low penetration of HDTVs, most consumers have not yet even begun to consider which next gen player to purchase.  For most, it is not even on their radar.

Furthermore, for many in the marketplace, the cost of the HDTV is enough to preclude additional high end purchases for a period of time, let alone considering the price of the next generation DVD player.  These next generation players range from $299 to more than $1,000. 

It seems that when people get their new TVs home and hooked up, that they are very impressed with the picture quality compared to their old, standard definition TVs, so much so that many do not even buy the HD service from their carriers let alone consider a next gen DVD player.  This is notwithstanding a push from DirecTV to have 100 channels of HD programming by year end, making them a clear leader over the cable providers in this category.

In fact, consumers have discovered that their current DVD players also provide a superior picture on their HD screens, prompting many to say that for the US$39 cost of a new SD player, even as sold in the grocery store, there is little incentive to spend 7 to as much as 25X that amount or more, for the next gen.  And an up convert DVD player is generally less than US $100, also providing a much improved picture over standard definition.

Therefore, before a winner can be declared - if that ever occurs - the pricing of all of the components in the HD chain has to drop considerably, from the cost of new sets to the cost of HD service and, of course to the price for the next generation DVD player.  From my point of view, a price point of under $200 will begin to drive sales and further drops will bring sales spikes.

When a combination of all of those factors occurs, the product and the market will follow. 

Of course, VOD is a potential disruptive force, notwithstanding the need that many have for a packaged product.

 

Trends in the Marketplace

Digital 3D and IMAX 3D – It will not be long before Robert Zemeckis' Beowulf is released.  What is significant about this is not the use of the performance capture technology, although that is important, but Beowulf will be the first movie to be released simultaneously in 2 competing 3D formats, digital 3D and IMAX 3D, as well as in 2D.  While 3D generally has garnered a higher per screen box office average than the same movie playing in 2D, it will be interesting to see how this movie plays in all three formats.  I suspect that there will be locations where the movie will play in 2D and both 3D formats.

While one movie does not constitute a trend, following closely behind Beowulf in February will be the release of Fly Me to the Moon by director Ben Stassen, who is a clear leader in number of 3D movies directed.  Although this movie will be released in 3D only (a start of another trend?), it will have both an IMAX 3D and a digital 3D release.

The economics of digital 3D and IMAX 3D theaters are vastly different, thus making this analysis even more worthy of note.  There will be more digital 3D theaters presenting the movie than IMAX when the movie is released. 

We'll report back as to our assessment of the trend.

Scented ads – How many of you saw the ad in the LA Times on Sunday September 9, 2007 for the Fox-Walden film Mr. Magorium's Wonder Emporium which when scratched released the scent of a frosted cake?  The ad was not inexpensive, $110,000 according to the Times, so it remains to be seen how often advertisers will deploy such a technique.  Movies are certainly a viable application for scented ads, and I suspect scented ads would also work for new car marketing. 

Appointment TV is dead – Well, we are not quite sure how deep that concept penetrates the market as a whole, but with the new TV season upon us, we do note that DVR penetration has increased from around 9% at this time last year to about 20% today and growing.  And over the years, the TiVo has become a verb, regardless of the brand of DVR used.

Payroll checks – We have been moving more and more toward becoming a paperless society.  I noted in a recent trade journal that 70% of Americans now use direct deposit systems offered by their employers.  In fact, according to American Payroll.org, a proposed Kansas law could lead to the elimination of paper paychecks in that state. 

High end theaters – Muvico recently opened a high end, luxury theater in the Chicago area.  Muvico has long been one of the leaders in bringing superior entertainment venues to their customers and according to press reports, this new location is spectacular.  In addition to all of the creature comforts, this theater is the first to deploy Sony's 4K projection throughout the facility. 

As for The Shindler Perspective

We continue our consulting work in areas ranging from brick and mortar projects to sophisticated digital tools and technologies.  The work includes marketing and communications, financial analysis and projections, market assessments of new products and services and consulting to management on general business issues.  Below are some of the programs in which we have also been involved.

IPTV - IPTV has already been deployed in many parts of the world, especially where the countries are not encumbered by legacy systems.  I am going to moderate a panel discussion on this topic at the Asia Pacific Entertainment and Media (APEM) Summit on October 17, 2007.  Readers of our consulting newsletter receive a $99 flat conference rate when using the code of APMp1Y7rBD at registration. 

Axium seminar - We attended the recent Axium Extreme Tax Incentives Symposium entitled “Bringing the Pictures Back Home.”  The event was well done as is SOP for events hosted by Axium.  While we all know that production incentives play a major role in determining where a movie is shot, when a choice is available, the intricacies of how to evaluate the many criteria for rebates, incentives and even the sales/transfer of tax credits is mind boggling. 

This day long seminar not only made the picture clearer, but highlighted the extreme competition among states and various countries in securing productions for their region.  Given our Massachusetts roots, we were pleased to see the stature the state has received in a very short time since introducing an upgraded incentive program.  Click here for your free copy of the latest Axium Incentives Guide.  For a print version, send an email to incentives@axium.com, with PRINT as the subject, and the mailing address in the body.

Digital Hollywood –I am moderating a panel on Tuesday, October 30 at the forthcoming Digital Hollywood Fall to be held for the first time at The Grand Ballroom at Hollywood and Highland and the adjacent Renaissance Hollywood Hotel.  Our topic, The Arrival of 3D - Digital 3D Platform for Feature Films and Television, a topic that was very well received at the spring Digital Hollywood. 

Monitoring technology – It is never easy keeping up with the rapid changes in technology in the entertainment industry.  To keep our finger on the pulse, though, we recently attended the Hollywood Post Alliance (HPA) technology presentations for their forthcoming awards program.  And recently the Digital Cinema Society held two events showcasing some exciting state of the art technology, an open house demonstrating some 3D post-production tools at Pace and a Red Camera presentation held at Cal State Northridge. 

Visual Effects Society Awards – The 6h Annual VES Awards Program is now accepting entries.  Visit the Awards site for the rules & procedures and complete information. 

Lastly, PriceWaterhouseCoopers Entertainment & Media Practice recently held Global Outlook 2011: Enhancing Value and Capitalizing on New Opportunities to highlight the release of its annual survey.  Harvey Weinstein, Co-Chairman of The Weinstein Company, and Bruce Hack, CEO of Vivendi Games were the keynotes.  It was good to hear their takes on the future of content and content delivery.

 

If you have not been to iShindler.com, our web site lately, Roberta and I invite you to visit. We are always pleased to hear from our friends and clients.  We look forward to hearing from you.

Sincerely,

Marty Shindler

MBS/m