Television and DVD

Television exposure has a great impact upon DVD sales, as demonstrated in the example of the partnership between Netflix and the POV series on PBS, which is outlined in the Social Dimension section below. Every distributor thought that television exposure stimulated sales. Sales of television DVDs were an estimated $2.3 billion business last year, approximately 15 percent of total DVD revenue, with very high profit margins as well.

Some distributors, especially those most dependent upon the institutional/educational market, voiced some concerns about television exposure cutting into their sales as audiences and/or potential buyers would have access to programming for nothing. Other distributors saw some kind of television exposure as being akin to the need for some kind of theatrical release. Richard Lorber, of DVD distributor Koch Lorber and formerly of Fox Lorber, holds the view that television exposure is one of the main ways to drive a potential buyer’s attention to DVDs. He has explored using the broadcast slots on niche television channels and their audiences as a way to drive sales of his DVDs.

DVD culture has an impact upon television as well. For example, Henry McGee, president of HBO Home Video, is on the record saying that many DVDs of HBO shows such as Sex and the City, The Sopranos and Six Feet Under are sold to non-HBO subscribers. "Fully 50 percent of Sopranos purchasers do not subscribe to HBO," McGee says. Rather than dissuading people from getting pay cable by offering choice series for sale on DVD, DVD sales lure new viewers to pay channels. Promotional cards tucked into DVDs of The Sopranos worked "very well," McGee says, noting that DVDs "function as a tremendous sampling tool." Other analyses estimate that 20 percent of HBO’s non-subscriber revenue comes from DVD sales, overseas syndication of original HBO series and joint venture pay channels in approximately 50 countries. In contrast, five years ago the ancillary revenue streams contributed only 5 percent.

Left unsaid in this formulation is how the presence of available DVDs affects current subscribers. For example, are audiences buying DVD because they don’t think that the monthly fees are worth it for the limited number of programs that they would actually watch? What does that mean for existing subscribers to HBO and other pay cable channels that are moving fast into DVD sales? A more systematic look at how television and DVD culture might connect at a more synergistic level within independent media culture is needed. For example, independent DBS satellite television channels like Link TV and Free Speech TV are delivered to millions of viewers. Such channels could easily be deployed to help drive DVD sales of independent work if the timing issues are thought through. More work needs to be done to use the power of the one-to-many social space of television with the many-to-many business of DVD, where individuals can watch anything they want anytime they want.

Video-On-Demand, Pay-Per-View and DVR

Many commercial companies are working very hard on new delivery systems like video-on-demand (VOD), pay-per-view (PPV), and digital video recorders (DVRs). VOD and PPV have been around for a while, but are finally reaching a propitious moment for deploying and realizing their potential. In fact, VOD and DVRs are at the heart of the ferocious battle between cable and satellite to gain new customers. VOD is available to more than 12 million digital cable customers, while more than 5 million DVRs have been deployed, mostly to DBS customers as well as customers of TiVo. Cable operators have complicated the issue for themselves-and for potential customers-by hedging their bets and deploying both VOD and DVR boxes.

DVRs have been described as videocassette recorders on steroids. The technology is easy for consumers to understand because it’s not far removed from the VCR. Consumers have 30 years of experience using VCRs, which introduced them to the concept of time-shifting their favorite shows. The navigation for VOD is often very cumbersome and time-consuming. TiVo, the super-digital recorder that automatically finds and records up to 140 hours of programming you want and can pause, rewind and slow-motion live TV, has an interface that is state-of-the-art for ease of use.

Nevertheless, much remains to be done before the new delivery systems really take hold. The first hurdle could be educating consumers. Netflix executives say that just explaining to potential customers how the business works has been a struggle. “Our biggest expenditure is getting people to understand our system of a fixed-fee subscription rental without late charges,” says Ted Sarandos, Netflix’s vice-president for content and acquisition. “The studios underestimate how difficult it is to change consumer behavior.”

Blockbuster has already taken the step of removing late fees as a way to better compete with Netflix, even though their “no late fees” policy has some fine print at odds with their “no late fees” marketing and not long after their announcement they were legally reprimanded for stretching the truth. They face new dilemmas in educating their customers and are also moving toward offering downloading services from Blockbuster.com in a year.

Netflix does plan to introduce a movie download service in 2005, in partnership with TiVo. Reed Hastings, the CEO for Netflix, has been quoted as saying that initially Netflix will see modest interest in Internet downloads, but expects the partnership to grow over time. "We think DVDs will be more dominant in five years than they are today," Hastings said. "The evolution to downloading will be slow. The DVD will last as long as the gas engine." But much will depend upon how Hollywood movie studios react to such a deal. The studios have been having extensive talks with TiVo about a workable content security system, an area that has been a sore point between TiVo and film studios for years.

The other dilemma with new technologies such as VOD and PPV is getting audiences. Many observers have written about the mind shift required for viewers to seek out on-demand channels. In addition, cable systems have plenty of little-watched networks and a growing number of high-definition digital programs that use several times as much data transmission capacity as analog programs.

People like Richard Lorber say that VOD and PPV basically only affect the more commercial tiers and aren’t as much of a threat or an opportunity for the specialty niche or for independent media. He recalled a prior experiment in putting foreign titles on PPV that ended in disaster. For now, “People like having stuff” he noted, adding that “50 percent of the titles may never get watched” — an anomaly of the DVD business that evokes patterns in the book publishing industry where people buy books as much for show as for reading. Gary Handman echoed Lorber’s comments, saying “Even though times are changing, putting an artifact in a machine will be there for the next ten years.” As the example of Netflix facing new and serious competition from VOD and online downloads shows, independent media makers and distributors need to be informed and ready for yet more transitional technologies.

Some distributors have been approached by VOD and PPV companies and have even done a trial project or two. Most of the approaches concern companies asking for VOD or PPV rights along with another contract, in effect dropping new rights into the negotiation in hopes that no one is looking, has no immediate plans to use those rights and/or doesn’t care. For example, First Run/Icarus has had cable channels asking for VOD rights. Women Make Movies is selling some films to the new Logo channel, which is asking for VOD rights. The distributors that have progressed beyond initial explorations in contracts report that there isn’t much to know yet. Seymour Wishman said that they licensed 17 titles to the new Here!TV, a gay-themed PPV service, but it’s too early to tell what the results will be. Emily Russo of Zeitgeist Films said they licensed the Academy Award-winning Nowhere In Africa for PPV. While the film was the biggest box office draw in Zeitgeist’s history, it did merely “okay” in PPV.

Some independent media community organizations are thinking through their own VOD possibilities. Joel Bachar, the Founder and Curator of Microcinema International, a distributor, curator, and exhibitor of independent media, wants to move into this area, as well as customized on-demand DVD. He is working on a plan that would allow for small cinemas anywhere in the country to pick up Microcinema-curated programming by using a password to access the programming prior to projecting it.

Cable Multiple System Operators (or MSOs) like Comcast and Time Warner Cable are proliferating new VOD channels faster than more traditional channels and much is being made of VOD as a major challenge to DVD culture. And major North American telecommunications carriers like Verizon and SBC are also entering the battle for connecting audiences with their new IP-based systems that will offer hundreds of channels to consumers. While arriving to the digital delivery battles a little late in the game, the sheer scale of investments from the telcos makes them a force to be reckoned with and makes this platform yet another opportunity for independent makers to get their work to audiences with alternatives to DVDs.

Nevertheless, the impact seems to be less than what might be imagined, or perhaps it is a challenge that will take much more time to be fully realized as VOD is harder to grasp than DVR models like TiVo. Too, it appears that the more commercial arenas will be affected with more force than the independent media arts field.

Other New Models for DVD

A transitional technology like DVD always spawns a wealth of interesting variations in applications and market niches. New models entering the market usually have a high mortality rate. The two examples noted here, Flexplay/Convex EZ-Ds and DVDs in vending machines, have a long way to go before proven successful.

Flexplay/Convex EZ-Ds. Flexplay made a big splash over the past year with its release of films on its EZ-D discs that are designed to self-erase after 48 hours. Exposure to air makes the discs cloud up just enough after 48 hours to prevent their being read by the laser in the DVD player. As analysts pointed out when Flexplay discs were launched, disposable disks appealed to American consumers accustomed to disposable products. Why should DVDs be any different, even if the original intent of DVDs was to create a durable medium? Environmental activists weren’t pleased. Mark Murray, executive director of Californians Against Waste responded to the launch of Flexplay’s EZ-D’s in a Wired.com news article saying "This is taking the idea of planned obsolescence to a whole, absurd new level. This is one of those disposable products that we don’t really need. This is actually building a limit into the device.”

The concerns of environmentalists paled beside the concerns of movie theater owners. The Atlanta-based Convex Group, the company that recently acquired Flexplay, bought the rights to the film Noel and attempted to offer it simultaneously in theaters and via the EZ-D format. The move generated a lot of press on the novelty of the experiment. However, this experiment broke the usual syntax of theatrical and DVD releases. Convex had a lot of opposition from the major theater chains, none of which wanted to show a movie that would appear on television and be sold on DVD at the same time. The planned theatrical release in more than 100 theaters shrank to 10 given theater owners’ reactions.

The most telling response has been that of major film distribution companies, ranging from general indifference to outright rejection after initial trial runs by companies like Disney. Blockbuster hasn’t embraced disposable DVDs because it says it does not want to confuse its customers. Instead, the company has adopted a Netflix-like subscription approach to video rentals. "We really don’t see the idea going anywhere, ultimately," Blockbuster spokesman Randy Hargrove said of disposable DVDs in an article that also spoke to other options available to Blockbuster. And a central selling point of Flexplay, that buying a pricey (approximately $7.00) EZ-D would help avoid late fees has been undermined by Blockbuster’s recent move to waive late fees.

DVDs in Vending Machines. MoviebankUSA has opened several stores in Manhattan that will house at least 5,000 DVDs, video games and VHS videos. Like video stores in terms of inventories, these stores won’t have human attendants. The pricing is based upon increments of time that Moviebank thinks will be a unique and attractive offering. For example, movies will cost 99 cents for six hours or $2.50 for 24 hours for members. Potential competitors like Blockbuster are watching the Moviebank experiment with interest. Blockbuster’s leadership has been quoted as saying, “We have been experimenting with video vending for the past 10 years… But it’s a tough business model. We are not expanding our video vending. If the dynamics change in video vending and it catches on, a Blockbuster vending machine would have more appeal than a generic version.”