Netflix vs. YouTube Market Reaction Poll
September 8, 2009
When the concept of DVD-by-mail emerged in 1999 from a small startup called Netflix people completely dismissed it. The common notion was “Why would I ever want to get my DVD’s in the mail when I can just stop at Blockbuster?” Fast-forward to the present and Netflix commands 36% of the DVD rental market. Netlfix founder and CEO Reed Hastings has done an incredible job of identifying a problem, building an enthusiastic customer base and leveraging his solution’s largest competitive advantage, convenience.
The chatter about YouTube entering the space, prompts an intriguing question: how will the market receive YouTube as a competitor? Sceneclips has a poll running through Friday that we started on Twitter to gauge market reaction. We would appreciate your opinion below. Also feel free add comments and send the poll to your friends. 
Digital Economics, Free + Fee = Freemium
August 29, 2009
Brian Newman, former CEO of Tribeca Film Institute, talks about the economics of free + fee in the Internet era. Brian explains the aspects that motivate people to buy and backs up his assertions with examples from different filmmakers.
The topic of digital economics has been famously covered by Chris Anderson, Editor in Chief of Wired Magazine. In the video below, Chris sheds further insight into the ‘freemium’ model.
Redbox, The Growing Problem For Studio Profits
August 19, 2009
DVD vending machine company Redbox is starting to really piss of the studios. Warner Bros has just joined Fox and Universal’s plans to pull new releases from Redbox kiosks for the first month following their movies’ releases. The negative sentiment stems from the studios’ belief that cheap kiosks are partially to blame for the eroding DVD market. DVD sales fell 13.5 percent in the first half of 2009, while DVD rental revenue grew 8 percent. With more viewers opting to rent rather than buy, it is understandable why the studios fear Redbox. Coinstar’s Redbox delivers convenience at a cheaper price than anyone in the market. With 17,900 kiosks in the U.S. and plans for 8,500 more this year, Redbox has become a serious threat to the studios’ DVD sales.
The core problem, as pointed out by Patrick Goldstein in the LA Times, is that Studios are trying to hang on to a dying business model. Redbox’s revenues grew by 110% last quarter while Blockbuster’s second-quarter revenues plummeted by 22%. Goldstein also correctly pointed out that “you can’t fight the power of consumer choice”. Studios must recognize that DVD sales are a diminishing source of revenue and come up with innovative solutions to compliment the experience of their healthy revenue streams.
How Microsoft Can Dominate Home Video
August 6, 2009
Microsoft
Microsoft dominates the personal computer market by controlling the vast majority of home operating systems. One of Microsoft’s recent initiatives has been to leverage its dominance in the PC market to capture the living room. Xbox 360 has been a knockout success in this area. The Xbox brand, which pwns the game console market, is transforming itself from a game console to a media and entertainment device. I believe the future of Xbox spells domination for home video.
…And that is where my Microsoft cheer leading session ends. In the recent years, Microsoft has been slow to the game and has marketed its products with the intelligence of a big dumb animal. Whether they acknowledge it or not, Microsoft’s business strategy has been duplication, not innovation. Going forward, Xbox gives Microsoft the platform to become a truly respected innovator. The next generation Xbox console offers Microsoft the opportunity to take a major share of the home video market. Most people do not want ten different AV components in their home when they can receive all the same content from one. Xbox needs to become a transitional platform that embraces both current and emerging technologies.
Physical Media
I am large proponent of blu-ray. Is blu-ray here a game changer? No, not in the same way that DVD was. However, I question the many that argue streaming is the only way to go. I love streaming media, but the experience is completely different from blu-ray. In order stream a blu-ray quality video, I would need a 45Mbps Internet connection. The domestic infrastructure does not have the bandwidth capacity required to handle streaming blu-ray quality video to scale (scale defined all US homes that currently have a broadband connection), and the problem becomes even greater home video moves from 1080P to 4K. Furthermore, there is no incentive for ISP’s to grow capacity when there is no viable business model to generate a sufficient return. My point being, though companies should never bet against the Internet, physical media is here to stay for the next 5 years.
Where they meet
Microsoft’s strategy should be to acknowledge that no one knows the future of distribution and use that to its advantage. By creating a transitional platform that embraces both physical and streaming media, Xbox will become the hub of home media and entertainment. In the process, Microsoft can gain back some of the respect it has lost and I can relinquish my title of Microsoft, The Big Dumb Animal.
Can TV Survive Long-Term?
July 8, 2009
I believe it can. However, the current TV business model requires progressive change.
PricewaterhouseCoopers recently released their 2009 -2013 Global Entertainment and Media Outlook. The report shows no signs of the shift to digital advertising as slowing, yet PWC estimates that overall ad spending in 2013 will be lower than 2008. How can this possibly happen when the the amount of advertising channels continues to increase at an alarming rate?
Here is why:
- Fragmentation leads to more supply
- More supply and volume results in lower ad-rates
- Up until 2008, the trend was masked by strong markets
The Global Entertainment and Media Outlook report stresses that the shift to digital is not a new trend. It has simply become more apparent during tough economic times. Traditional media suffers from a lack of accountability.
“More than 77% of traditional advertising agencies are increasing the amount of digital in their budgets by 1% to 29%. And over 10% are upping online budgets by 30% or more.” -eMarketer
“The economic crisis will accelerate the shift of focus and importance from traditional media to digital media.” -SoDA
“The combination of accountability, convergence and the infusion of digital media into every facet of life makes the future look bright for marketers making the move to digital.” -Ad Media Partners
As the demand for traditional advertising declines, CPM rates drop and television becomes less profitable. Will the Web save TV? Great insights on the subject from a recent Bloomberg article – Loyal ‘Simpsons’ Fans Fetch Higher Ad Rates on Web. From the article:
“Marketers, who are now considering commitments for the 2009-2010 TV season, are willing to pay more because TV.com and Hulu.com, owned by investors including News Corp., NBC and Walt Disney Co., provide committed viewers who actively seek out shows. There are fewer commercials, and consumers are twice as likely to recall Web ads.”
In-Theater Advertising Growth Decelerating
June 23, 2009
New data from the Cinema Advertising Council shows domestic in-theater ad growth decelerating. In-theater advertising grew 5.8% to $571 million in 2008, down sharply from the 5-year historical average of 24.5%. This is the slowest gain reported since in-theater advertising statistics started being recorded in 2002. So why the drop? Though I do not have the exact figures, I do know that domestic theater growth is no where near 24.5% annually. Historically, in-theater ad spending has grown disproportionately to new theater growth. This can only happen for so long until we reach the equilibrium where in-theater advertising maintains a grow rate closer to that of the theaters’. Though there is no question that in-theater advertising is one of the best ways to raise film awareness (CAC president and chairman David Kupiec says the recall rate is as much as 5 times greater), I believe that in-theater ad growth will continue to decelerate.
Download the Cinema Advertising Council’s 2009 Cinema Advertising Revenue Report
Below are the figures as reported by the Cinema Advertising Council
Jeff Zucker Speaks On The Business
June 18, 2009
NBC Universal CEO Jeff Zucker continues to express an ambiguous outlook regarding NBC Universal’s digital initiative at the All Things Digital conference. It would give me some piece of mind if Mr. Zucker and other network executives just came out and said that they have no idea what Television’s future business model is, nor how to monetize new media on a relevant scale.
Top 3 points that Jeff Zucker made in the All Things Digital interview:
- NBC has no idea what the television business will look like in 5 years.
- NBC moved Jay Leno to prime time because they cannot come up with scripted programming to confidently compete with the three networks ahead of them.
- NBC is spending a ton of time and money on Hulu without any idea of how it will ultimately grow their bottom line.
Digging Deeper Into Theater Attendence
May 20, 2009
Contrary to what you may be hearing, movie theater attendance is not responsible for the box office’s strength. Rather it is increasing ticket prices that account for record box office revenues. Movie theater attendance is often falsely labeled as a reflection of the industry’s health. As the LA Times’ Richard Verrier said in an article last Saturday, “theater admissions have generally remained flat, between 1.2 billion and 1.4 billion admissions annually since 1994.
So what is responsible for the box offices current strength? The answer, ticket prices. Because ticket prices are far cheaper than other forms of entertainment (click chart on left) they have a greater degree of price elasticity. The MPAA pegged the average cost per ticket at $7.18 in 2008, up 19% over the past 5 years. This statistic tells the true story of the box office’s health. Movies are an elective expenditure, and in the midst of an economic recession ticket prices are still going up.
The chart below demonstrates the disparity between theater attendance and ticket sales. The figures foreshadow a bullish future for the box office. As we emerge from the economic recession, more disposable income will likely increase theater attendance while ticket prices continue to escalate.
MPAA’s Dan Glickman On The Film Industry
April 22, 2009
While the television industry continues to suffer from a crumbling business model, more than ever, people are flocking to the movies. Take a look at Fox’s interview with Dan Glickman, Chairman of the MPAA.
2008 film industry statistics as reported by the MPAA
- The Domestic box office continued to grow in 2008, reaching $9.79 billion after a 1.7% gain.
- Worldwide box office reached another all-time high in 2008 at $28.1 billion, an increase of 5.2% over 2007.
- Domestic admissions dropped 2.6% in 2008, to 1.36 billion.
- The total number of films released domestically in 2008 was up 1.8%, to 610 films.
- In 2008, the average movie ticket price in the U.S. rose to $7.18, a 4.4% increase over 2007.
- The number of screens in the U.S. remain constant at just over 40,000 in 2008.
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LA Film Production Nosedives In 2009
April 14, 2009
During the worst economic recession since the great depression, the film industry is absolutely booming. In 2008, box office revenues hit an all time high of $9.6 billion. All signs point to the trend continuing through 2009, with first quarter box office revenues up 12% and theater attendance up 8%. How then is it possible that in Los Angeles, the movie capital of the world, film location work has plunged 56.3% year over year? The answer, money. Feature film productions continue their exodus from Los Angeles in droves seeking greater financial incentives to lower production costs. In the first quarter of 2009, feature film production in Los Angeles registered its lowest level since tracking began in 1993. With the City’s largest export falling off a cliff, coupled with California’s massive budget deficit, film production tax credits are a simple answer to reverse the declining trend. If iPod sales dropped 56.3%, I would bet my life that Apple would come up with a solution… and fast! With entertainment being Los Angeles’ core “product”, we need a solution that puts money in both the filmmakers’ and government’s pocket. Film tax credits are a proven money maker for state and local governments – take a look at the success New York’s film production tax credit.
[Update] Shortly after I published this post, Variety came out with this piece: Hiring freeze spreads, Hollywood odd jobs drying up
