Entertainment Industry

Category: DVD

Amazon acquires Lovefilm, the Netflix of Europe

Signaling its looming presence in the subscription movie rental market, Amazon.com has acquired Lovefilm, a company similar to Netflix that operates in Europe.

Amazon, which already owned a stake in the London and Luxembourg-based company, has fully acquired the shares it already did not own. Financial details were not disclosed, though the Financial Times reports that the deal valued Lovefilm at about $317 million.

The acquisition marks a return to the DVD rental business for Amazon, which previously had such an operation in Great Britain and Germany but sold it to Lovefilm in 2008 in return for stock.

Like Netflix, Lovefilm ships DVDs through the mail and streams movies over the Internet to subscribers for a monthly fee. It also ships games, unlike Netflix. The company has 1.6 million members and operates in Britain, Germany, Sweden, Denmark and Norway.

The deal comes as Amazon is preparing to launch an online movie subscription business in the United States that would compete with Netflix's popular streaming service, according to people familiar with the matter. The Seattle-based company could potentially use Lovefilm's technology to help it launch that operation.

Amazon could also use its relationships with Hollywood studios and base of customers to help grow Lovefilm in Europe.

Netflix has quickly become a dominant force in the DVD rental business, with nearly 17 million subscribers as of Sept. 30. Its stock rose more than 200% in 2010, leading potential competitors to jealously eye its success and some in Hollywood to wonder whether Netflix is making too much money from their content.

-- Ben Fritz

Shares of Redbox parent Coinstar hammered on earnings warning

This post has been corrected. See the note at the bottom. Redbox

Video-rental chain Blockbuster Inc. has been running ads criticizing its competitors for making consumers wait 28 days to rent new movies.

In the case of Redbox, it turns out consumers may agree.

Shares in Coinstar Inc., the parent company of $1-per-night DVD rental kiosk company Redbox, plummeted 26% on Friday after it disclosed that results for the fourth quarter ended Dec. 31 would be lower than expected. The reason: The company recently signed deals with several studios agreeing not to rent new movies until they had been on sale for four weeks.

"This was Redbox's first holiday season with 28-day delayed titles, and we underestimated the impact that the delay would have on demand during the fourth quarter," Coinstar Chief Executive Paul Davis said in a statement.

He also said that demand for high-definition Blu-ray discs, which Redbox has been offering for $1.50-per-night, have been lower than expected.

Redbox agreed to 28-day delays with three of Hollywood's biggest studios: Warner Bros., 20th Century Fox and Universal Pictures, all of which hope the so-called "window" will push consumers to purchase movies or pay a premium to rent them earlier from Blockbuster or through online services. That meant Redbox users who wanted DVDs like "Inception," "Despicable Me," and "Knight & Day" would be forced to wait nearly a month in exchange for paying a lower rental fee.

Analysts are divided over whether Redbox's disappointing results represented a temporary bump in the road or longer-term structural issues.

"In our view, Thursday's preannouncement is more a reflection of overly aggressive guidance than underlying weakness," Wedbush Morgan analyst Michael Pachter wrote in a research note.

But Needham analyst Charlie Wolf said Redbox could also be a victim of consumers' rapid shift to the Internet for watching movies.

"Logistical snafus were part of the problem, but this raises the issue of whether there is a faster change in the marketplace than expected from physical rentals to digital distribution," he said.

Redbox competitor Netflix also agreed to 28-day new release delays with four studios, but consumers have always used it less for new releases than Redbox. In addition, Netflix already had a popular online streaming option. Redbox has announced it will partner with another company to offer movies via the Internet, but has yet to detail launch plans.

Coinstar will release its fourth quarter financial results on Feb. 3. Revenue is expected to be about $391 million, compared with a previous company estimate of between $415 million and $440 million.

Davis noted that despite the lower-than-expected growth, Redbox revenue would still be up 38% from the same period in 2009. Discounting the addition of new kiosks, he said sales were up 12.5%.

Coinstar stock was trading at $42.17 on Friday afternoon.

For the record, 7:20 p.m. Jan. 14: An earlier headline said, "Redbox shares hammered after signaling that results to be lower than expected." Redbox is not publicly traded; it was shares of its parent company, Coinstar Inc., that declined.

-- Ben Fritz

Photo: A customer uses a Redbox kiosk. Credit: Elaine Thompson / Associated Press

Home entertainment market shrinking slows as Blu-ray and digital help make up for DVD decline

"Down less" is the new "up" for Hollywood's home entertainment business. Total revenue from DVD, Blu-ray and digital sales and rentals of movies and television shows in the U.S. declined 3% to $18.8 billion in 2010, according to new data from industry trade organization Digital Entertainment Group.

Although the drops, particularly of DVD sales, are worrisome for the entertainment industry, studio executives can at least take some comfort in the fact that the picture isn't worsening as quickly as it did in 2009, when total home entertainment revenue plunged 7.6%.

The overall figures masked a number of disparate trends, however. Sales and rentals of high definition Blu-ray discs were up substantially and digital downloads and streaming were up significantly as well. But, the standard DVD format continued to fall even more substantially, with total revenue down 11% to $14 billion.

In the struggling economy, cash-strapped consumers continued to migrate away from purchasing movies and toward renting them. Rental revenue rose 2% to $7.8 billion, while sales were down 7% to $11 billion.

The total number of home entertainment transactions, including purchases, rentals and downloads, was virtually flat, up just 1% from last year's 3.5 billion. In other words, consumers are watching just as many movies as ever at home--they're just spending less to do it.

"The industry is dealing with both structural and cyclical issues," said Tom Adams, principal analyst at IHS Screen Digest. "This year, as the economy improved, the cyclical factors eased up, which is why the market is fading less quickly. But the structural issue of people buying fewer movies remains."

Total revenue from Blu-ray discs increased 53% to $2.3 billion. In the most promising news for the industry, Blu-ray sales rose an impressive 69% to $1.8 billion. Sales of Blu-ray discs, which usually cost more than $20, are the most profitable home entertainment transaction for the Hollywood studios.

Sales of movies via the Internet increased 17% to $683 million, while Internet and cable video-on-demand grew 21% to $1.8 billion. Studios are attempting to boost the still-small digital sell-through market through a new joint initiative called Ultraviolet, for which launch details were unveiled this week at Las Vegas' Consumer Electronics Show.

DEG did not break out revenue from sales and rentals of standard DVDs, but Adams estimated that sales of DVDs, which fueled a boom in the home entertainment market between 1999 and 2005, fell 16% to $8.3 billion. That's slightly better than the 17% drop in 2009.

The bestselling DVD of the year was James Cameron's blockbuster "Avatar," which sold a total of 15.3 million units in the U.S. and Canada, including 5 million Blu-ray discs. The latter figure is an all-time record.

(This year's decline was smaller than it would have seemed a year ago, as the DEG revised its 2009 sales figures down based on new data from Rentrak. After estimating last year that the home entertainment market was worth $20 billion, DEG now says the total was $19.4 billion, due to $600 million less DVD spending than previously reported.)

 -- Ben Fritz

CES: Ultraviolet intended to spark the sale of films, TV on the Internet

A consortium of Hollywood studios and technology companies will discuss Thursday at the Consumer Electronics Show (CES) in Las Vegas plans to launch an initiative called Ultraviolet that's intended to jumpstart the nascent business of selling films and television shows on the Internet.

After more than four years in the works, Ultraviolet will launch by the middle of this year, with participating retailers and studios allowing consumers to purchase digital copies of movies that can be stored online or transferred between devices without an added cost.

It's the first time that Ultraviolet, backed by every major Hollywood studio except Walt Disney Studios, and a number of consumer electronics companies and retailers that sell entertainment products, with the notable exception of Apple Inc., has detailed plans to put its technology in the hands of consumers.

Read more at the Technology blog: CES: Ultraviolet digital movie downloads to launch in mid-2011

-- Ben Fritz

Weinstein Co. buys 25% stake in Anchor Bay, signs home-entertainment deal

The Weinstein Co. has agreed to acquire 25% of Liberty Media's home-entertainment company, Anchor Bay Entertainment. As part of the pact, Weinstein Co. has inked a five-year distribution deal in which Anchor Bay will release new movies on DVD and digital platforms.

The deal resolves the question of what Liberty would do with Anchor Bay after it earlier this year unsuccessfully tried to sell the division along with Overture Films, its film studio that was shuttered over the summer.

Financial terms of the partnership were not disclosed, but a person familiar with the matter said Weinstein Co. bought the minority stake entirely in cash. It is the first purchase for the independent film studio run by brothers Bob and Harvey Weinstein since it restructured its finances over the summer to wipe out $450 million in debt, and slimmed down its operations.

In 2006, Weinstein Co. acquired a 70% stake in home-entertainment company Genius Products, a deal that went belly-up as the DVD market shrank. By 2009, Genius was bought by a group of investors who saved it from bankruptcy.

In past interviews, Harvey Weinstein has admitted Genius was a bad investment and that he was ill equipped to help run a home-entertainment company. Under the new deal, Anchor Bay President Bill Clark will stay in his post and Weinstein Co. executives will serve in only an advisory role.

Though it talked with numerous major studios about signing a DVD distribution deal, Weinstein Co. decided to go with the smaller Anchor Bay in part because it would be the only major studio provider, making its content a higher priority. The studio's previous home-entertainment deal with Sony Pictures expired in September.

In a statement, the Weinsteins said they will seek to help build Anchor Bay into a destination for a number of independent film studios.

"We hope this strategic partnership is a first step in not only making Anchor Bay a home for our product, but in potentially housing other companies' product as well, giving quality independent films the kind of care needed in today's marketplace."

The deal does not include television rights for Weinstein Co. movies on Liberty's Starz channel. The studio has a distribution agreement with Showtime that runs through 2014.

The first Weinstein movie to be released on DVD and for digital download by Anchor Bay will be its current Oscar contender, "The King's Speech."

The Weinsteins' existing library of 108 films will continue to be distributed on DVD and digital by Vivendi Entertainment and Sony.

-- Ben Fritz

Related:

The Weinsteins are ready for their comeback

Weinsteins partner with new Miramax to produce sequels to films including "Shakespeare in Love"

Weinstein Co. hopes for brighter future after erasing crushing debt

Netflix launches streaming-only movie service, raises prices for DVD plans

Making a big bet on a digital future, Netflix on Monday debuted its long-anticipated Internet streaming-only service while also raising rates for its plans that include DVDs.

The fast-growing movie rental company will allow members to watch video from its library of content that can be streamed online to computers or Internet-connected televisions. Chief Executive Reed Hastings said last month that it was likely the company would launch such a plan this year.

The convenience of the all-digital option comes with a major caveat: Netflix's streaming-content library is much smaller than what is available via the mail because it's governed by a byzantine set of licensing deals. Three of the six major Hollywood studios will not offer movies through Netflix's streaming service until they are done airing on HBO -- typically at least seven years after they are released on DVD.

Nonetheless, demand for Netflix streaming has quickly grown to the point at which it now delivers more movies online than it ships through the mail. The new $7.99 plan appears designed to attract a younger and more frugal audience that watches much of its content via digital media.

At the same time, prices for existing plans will go up at a rate of $1 per month for the number of movies included in the plan. Those who rent one movie at a time, for instance, will see their charge increase to $9.99 from $8.99, while those who rent three movies at a time will get a hike to $19.99 monthly from $16.99. All DVD plans include access to online streaming.

The move could continue a trend for the company of declining monthly revenue from its 16.9 million subscribers. Wedbush Morgan analyst Michael Pachter said in a research note Monday morning that many subscribers to the one-DVD-at-a-time plan already watch most of their content online and likely will switch to the new, lower-cost option.

Netflix is betting its future on digital delivery, however, and the savings it will realize from no longer paying postage. Investors seemed to like the move; the company's stock shot up 7% to $185.63 in midday trading Monday after the announcement.

-- Ben Fritz

Blockbuster to launch first national ad campaign in three years

Blockbuster After years of losses and store closures, Blockbuster Inc. has a message for the country: We’re still here.

The once dominant movie-rental chain, which is undergoing Chapter 11 reorganization, will this week launch its first nationwide advertising campaign since 2007. The goal is not only to advertise what the company sees as its advantages over competitors Netflix and Redbox, but also to let consumers know that despite widely publicized struggles, it's still open.

“One of the biggest challenges for Blockbuster for the past few years has been public perception, and this is intended to remind people that we're still in business and we have a unique offering,” Chief Executive Jim Keyes said.

Blockbuster has fallen behind its competitors in recent years as consumers have flocked to Redbox’s kiosks, which rent movies for $1 a day, and Netflix’s DVD-by-mail subscription plan, as well as a growing number of digital options. Blockbuster now offers its own versions of all those options, but the other companies had a head start.

Dallas-based Blockbuster won approval from a federal bankruptcy judge and the lenders funding its operations to spend $15 million to $20 million on the new ad campaign, which highlights the fact that it offers many new releases 28 days earlier than Netflix and Redbox do. Both of those companies have agreed to impose delays on offering new DVDs from 20th Century Fox, Universal Pictures, Warner Bros. and, in Netflix's case, Sony Pictures because of the studios' concerns that their low rental prices undercut profits. Blockbuster charges higher prices, typically $3 to $5 for an in-store or online rental, generating more money for studios that share in the revenue.

With the new campaign, Blockbuster’s ad spending next month is to be three times as high as it was last December. The final month of the year is traditionally one of the most lucrative for the company, as summer event movies come out on DVD and families watch movies together over the holidays.

For the last several years, Blockbuster has focused its limited advertising on certain markets. But, Keyes said, the company felt it was important to run national ads on the broadcast networks in order to send a message to all consumers as well as to promote its digital and mail offerings, which are available throughout the country.

Since Keyes came on board in 2007, the company has tried to turn around its failing business by closing stores and investing in those digital and mail offerings, as well as partnering with NCR Corp. on rental kiosks. But Blockbuster has continued to lose money. It has been hobbled by nearly $1 billion in debt, and by the middle of summer, it could no longer afford interest payments. The company filed for bankruptcy protection in September.

As part of the reorganization, Blockbuster’s debt is being wiped out, and control of the company will be handed over to its bondholders. The company is expected to close 500 to 800 of its 3,425 U.S. stores. It is aiming to exit bankruptcy by early spring.

-- Ben Fritz

Related:

Blockbuster files for Chapter 11 bankruptcy, sets plan to reorganize

Blockbuster tells Hollywood studios it's preparing for mid-September bankruptcy

Photo: A Blockbuster store in Dallas. Credit: Ron Heflin / Associated Press

Fox to test premium pricing for DVD kiosk rentals starting with 'Knight and Day'

The era of the $1-per-night price for all kiosk DVD rentals may be coming to a fast end.

20th Century Fox has signed a content distribution deal with NCR Corp., which operates DVD kiosks under the well-known Blockbuster brand, that will let it test prices higher than $1 per night for new releases the day they come out on DVD.

In exchange, Fox, which previously didn't have a content deal with NCR, will provide all of its DVDs to be rented, at $1 per night, through Blockbuster kiosks 28 days after they are released.

The deal is similar to one signed between Universal Pictures and NCR last month.

But, although Universal has yet to start testing premium pricing on any of its DVDs in Blockbuster kiosks, the first from Fox has been identified: "Knight & Day," the Tom Cruise-Cameron Diaz action-comedy that will be released Nov. 30. It will likely be followed "The A-Team," which comes out on DVD on Dec. 14.

An NCR spokesman said the company has yet to determine how high a price would be tested for the Fox movies.

Fox and Universal have for the last year been among the trio of major studios, along with Warner Bros., publicly complaining that the $1-per-night price charged by NCR and its larger competitor, Redbox, are undermining more-profitable DVD sales and video-on-demand rentals.

The initial solution they reached with Redbox was the 28-day delay for new releases. The test of higher prices with NCR represents a different strategy to provide consumers with the latest DVDs in kiosks at a profit level studios find agreeable.

It remains to be seen, of course, whether consumers will find the higher prices agreeable as well.

-- Ben Fritz

Related:

Universal to begin test charging more than $1 per night for DVD kiosk rentals

Hollywood studios grappling with when and where to release their movies on DVD, digital

For consumers already confused about when a movie goes on sale on DVD and Blu-ray versus its availability on video on demand, digital download, Netflix and Redbox rental and Netflix online streaming, life could get even more complicated.

On Tuesday at Blu-Con, a conference focused on the Blu-ray market, the presidents of home entertainment from five studios -- 20th Century Fox, Lionsgate, Sony Pictures, Universal Pictures and Warner Bros. -- gathered for a panel to discuss the state of their businesses.The Beverly Hills conference comes as studios are searching for new ways to boost revenue in the face of a slowly shrinking DVD market in which consumers are increasingly opting for inexpensive rentals instead of higher-priced purchases. Blu-ray sales and digital downloads are not growing enough to make up the difference.

The executives said the biggest issue they face is sorting through a proliferating array of distribution platforms and figuring out when and where to release their movies and at what price in order to maximize profits. Such staggered release strategies are known in Hollywood parlance as "windows."

"The most difficult conversations and the biggest meetings I have been involved in at the studio have been on this subject," said Universal's Craig Kornblau.

In a blunt assessment, Kornblau admitted that while consumers are eager to get their hands on movies through every platform as soon as possible, it's not always in the studios' interest. "We want to advantage methods that are more profitable," he told the audience of home entertainment industry professionals. "We don't have an obligation to give consumers what they want when they want it."

Most studios allow consumers to rent movies via the Internet or cable video-on-demand (VOD) the same day DVDs go on sale, though sometimes they push back that date for films they feel have particularly strong sales potential. Universal's animated box-office hit "Despicable Me," for instance, goes on sale Dec. 14, but won't be available on VOD until 23 days later, after Christmas shopping.

Universal is also one of three studios, along with Fox and Warner Bros., that has cut deals with Netflix and Redbox through which those two companies, the nation's biggest DVD renters, can't offer their films until 28 days after the DVD release. (Sony recently instituted a similar delay for some of its movies on Netflix.)

The effectiveness of those 28-day delays caused some disagreement on the panel. The Fox, Universal and Warner executives all said they have seen sales increases of 10% to 15% on their new releases compared with similar past titles. They attributed the better-than-expected performances to the fact that the movies weren't available to rent through Netflix and Redbox.

But Sony's David Bishop, whose studio signed a deal to offer DVDs the same day they go on sale through Redbox's $1 per night rental kiosks, has seen different results. "We have not seen any erosion on our sell-through performance," he claimed.

Warner Bros.' Ron Sanders said his studio's only problem with the 28-day window for Redbox and Netflix is that it's not long enough. "To be honest, I think it's a little short today versus what we probably need," he said. "That will get revisited as those deals expire."

Kornblau, meanwhile, said the studios are likely to play with the availability of movies through Netflix's Internet streaming service, which has grown rapidly in the last year and now accounts for more of the company's viewing hours than DVDs shipped through the mail. "While there are things in the Netflix system that are clearly cannibalistic [to sales], there are things we can change," he noted. "They can pay us more or we can reduce the quality of what we give them."

At the same time, the executives noted that the studios are expected to launch "premium VOD" for certain movies next year in which consumers can rent a movie within a month or two of its theatrical release and before the DVD goes on sale for as much as $20 or $30. That would create an entirely new window for the home entertainment business.

With all the talk of slicing windows in new ways in search of bigger profits, Fox's Mike Dunn admitted there's a potential downside: confusing or frutstrating customers. "If you slice the pie with too many slices, no one is satisfied," he said to laughs and nods from his fellow panelists.

-- Ben Fritz

Redbox planning to expand onto the Web next year

Redbox2 As more consumers leave DVDs behind for digital downloads, the company that brought movie vending machines to grocery stores nationwide is following the audience.

Redbox unveiled Thursday a new digital strategy that by next year will expand the number of movies offered to consumers directly in their homes -- a move the Illinois-based company hopes will set the stage for longer-term growth and soothe investors anxious about its prospects.

The company is in talks with several potential partners for this expansion, which will include a Web-based service that works in conjunction with its $1-per-night movie kiosks, said chief executive Mitch Lowe.

"The disc business is still very strong and will continue to be for quite some time, but we need to get into this space to take advantage of the gradual transition to digital," Lowe said.

The news came on the same day that Redbox's parent company, Coinstar Inc., released its financial results for the third quarter ending Sept. 30.

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