Publishing and Distribution

Transcription

1 Publishing and Distribution Home Entertainment Books Games TV Comics Film 1

2 Agenda 1. Announcements 2. Lecture: Home Entertainment 3. Wrap

3 Class Objectives 1. Describe history and growth of the home video business 2. Analyze maturation of the DVD market and growing complexity of retail marketing 3. Examine inventory management and impact on pricing and profits 4. Introduce video economics and discover why video revenues are uniquely profitable to studios 5. Review profit participation model for DVDs 6. Analyze the digital distribution market 7. Analyze the impact of OTT and IPTV television on the traditional model of television distribution

4 History of Home Entertainment Sony introduced Betamax VCR in November 1975 JVC introduced the VHS VCR in September 1976

5 History of Home Entertainment Originally not positioned as a playback device for movies Visioned as a recorder for TV shows that consumers could watch anytime they wanted Studios saw the VCR as a means of copyright infringement

6 History of Home Entertainment: Sony v. Universal Studios Sony Corp. of America v. Universal City Studios, Inc., (1984), also known as the Betamax Case. The Supreme Court of the United States ruled that the making of individual copies of complete television shows for purposes of time shifting does not constitute copyright infringement, but is Fair Use. The Court also ruled that the manufacturers of home video recording devices, such as Betamax or other VCRs (referred to as VTRs in the case), cannot be liable for infringement. The case was a boon to the home video market as it created a legal safe haven for the technology, which also significantly benefited the entertainment industry through the sale of pre-recorded movies Irony is that Sony lost the VCR battle to the competitor that ended up buying Universal and the VHS format became the hardware of choice.

7 Early Retail Environment In the 1980s, the video business was almost entirely a rental business Mom and Pop stores dominate

8 Rental Business Model Inventory cost based on number of rentals Inventory obsolescence only applies to physical materials No returns business Titles can sit on a shelf as catalogue inventory indefinitely First iteration of the long tail

9 Rental Business Model Acceptable retail strategy was to be out of stock With maturity of business, customer impatience grew Franchises could out price the Mom and Pop stores. -- Rent 10 videos get one rental free -- Video clubs that came with discounts, privileges, and mailings -- Guarantees that new titles would be in stock

10 Sell Through Market The Sell Through Market in home entertainment refers to consumer sales Units sold directly to consumers, rather than to stores that rent them

11 Sell Through Challenges New set of pricing Retail infrastructure for direct to consumer sales had to be built Inventory management Advertising In-store merchandising Physical distribution Manufacturing

12 Key Factors Driving Growth of Sell Through Market 1. Consumers collecting videos 2. Decline in pricing 3. Studio efforts to sell mass volumes of select hit titles 4. Growth of the kids video business

13 Made-for-Video Market Films that are made to debut in the video market (Disney sequels...) Made-for-video is often confused with direct-to-video Numerous niche opportunities

14 Direct-to-Video Market When films do not turn out as planned Saves on marketing and release expenses Important revenue stream Developed as a two-way street - Products are produced for the video market that come out well, and studio elects to release them theatrically (i.e., Slum Dog Millionaire)

15 Expansion of Retail Mass Market Chains Majority of sales at Wal-Mart, Best Buy and Target Advertising budgets for DVD releases multiplied Retailers with large traffic volume often charge placement fees Loss Leader: For a big title, it is not unusual for a retailer to deeply discount the title for a limited period

16 Transition from VHS to DVD to Blu-Ray A much earlier consumer optical disc data storage device, known as LaserDisc, was developed in the United States. The original LaserDisc technology was invented in It first came to market in Atlanta, Georgia in 1978, but used much larger discs than the DVD formats. Due to the high cost of players and discs ($100), consumer adoption of LaserDisc was very low in both North America and Europe, and was not widely used anywhere outside Japan.

17 Transition from VHS to DVD to Blu-Ray DVDs introduced in 1995 Adoption hampered by studios reluctance to market and sell properties on DVD Piracy - Manufacturers launched play only DVD machines as an accommodation to the studios Expenses to encourage consumer adoption Need to manage duplicate inventories (video and DVD) Region Codes: There is nothing to stop a retailer from buying quantities of the DVDs in the US and importing them to a market where the movie was just released in theaters

18 Transition from VHS to DVD to Blu-Ray Several drivers to quick DVD adoption Claim to be indestructible Quantum leap in sound quality Smaller and therefore more portable No need to rewind a tape Cross over between consumer electronics players and computers Not as great a difference for Blu-Ray for most consumers.

19 Physical Disc Economics How DVD/Blu-Ray revenues are calculated depends upon one s participation deal, often calculated on a royalty basis In this example, with a 50/50 split, the producer and distributor will each keep $4.12 as its profit/contribution Retail Cost: $24.99 Dealer Price/ Wholesale Price: $14.99 (at about 60%) Cost of Goods: $3.50 Other Costs: $ % $2.25 Profit Remaining $8.24 (about 55% gross margin)

20 History of Home Entertainment By 1986, combined video rental and sales revenues exceeded the theatrical box office for the first time By 1988, rental revenues alone exceeded the theatrical box office. Video Rental and Sales market peaked in 2005.

21 Peaking of the DVD Curve In 2005 revenues dropped for the first time in 30 years Shelf space crowded with TV releases and made for DVD product Blockbuster vs. Netflix U.S. consumer interest in streaming content has nearly doubled in the past year (from 17 percent in 2012 to 32 percent in 2013), with interest in digital formats outpacing demand for physical media (Deloitte, 2013).

22 Peaking of the DVD Curve Consumption of media is increasing, but U.S. consumers prefer to rent versus purchase movies and television programming by a ratio of 3:1 in 2013, compared to 2:1 in 2012 (Deloitte, 2013). This indicates an economic shift for the content industry. Consumer preference for renting instead of buying is driving content distribution models toward a higher volume, lower revenue rental model (Deloitte, 2013).

23 New Distribution Strategies Multiple Disc Packs and Disc On Demand DVD, Blu-ray, digital copy, and 3D-Blu-ray in single purchase Revenue Sharing Some studios provide Redbox with DVDs for rental the same day the titles go on sale Cloud Storage Consumers purchase the digital rights to content so they can access it from any device (Ultra Violet and Key Chest) Premium On Demand or Home Theater on Demand This window allows films to be available in the home while it is still in the theaters 28-Day Windows New release DVDs and Blu-ray are not offered until 28 days after their official on sale release date.

24 What questions do you have? 24

25 Video Costs: Building & Encoding What material will physically appear on DVD? How will material be compressed to digital form? DVDs now include vast amounts of VAM and navigation Once elements are set (the title, the menus, and the bonus material), then all of the material needs to be encoded (known as authoring and compression ) Significant cost comes when several different foreign language masters must be configured, authored and compressed for International shipment

26 Video Costs: Manufacturing Manufacturing is broken out into pennies Examples of the basic types of elements in the manufacturing process include: Physical disk replication (may vary by the memory size of the DVD) Price of the case Costs to create/print menus, sleeves, and then insert the material into the case Spine labels Security tags (different retailers may require different tags/configurations) Booklet and disc insertion Shrink wrapping and finished product External stickers Bar codes & SKUs Freight costs for delivery (if distribution is bundled with manufacturing costs)

27 On Demand Production DVDBaby Createspace TrepStar ( Other Duplication Services...

28 What questions do you have? 28

29 INTERNET PROTOCOL TELEVISION (IPTV) 29

30 Digital Distribution Market Transactional Video On Demand (T-VOD) Online TV rentals, pay-tv VOD rentals, and pay-perview Subscription VOD (S-VOD) Online video subscription services, premium TV channels, free VOD with a pay-tv service Electronic Sell Through (EST): Purchase of TV and movie content, independent of subsequent content delivery methods

31 Streaming On Demand When Netflix was just a DVD mail business, content providers offered Netflix attractive prices to reach its growing customer base. These great rates enabled Netflix to offer free on-demand viewing over the Internet as a value-added subscription benefit. As movies-on-demand via Internet streaming increasingly replaced DVD rentals, Netflix s negotiating position with content providers diminished. Instead of focusing on films, they are now investing millions of dollars into original TV programming (i.e., Orange is the New Black and House of Cards) Content providers, who hold growing power in the converging stream world, will likely give their best prices to those services with the largest audiences In January 2012, Warner Bros. pushes the window for Netflix to after a 56-day sales window.

32 Over The Top (OTT) Video Internet Protocol Television (IPTV) or over the top (OTT) delivers Internet video to the television. The phrase "over the top" comes from the idea that the IP-provisioned part of the service-offering rides on top of the video cable. OTT is most pronounced in the demo, many of whom only do OTT and have never had cable or satellite subscriptions. IPTV services may be classified into three main groups: Live television, with or without interactivity related to the current TV show; Time-shifted television: catch-up TV (replays a TV show that was broadcast hours or days ago), start-over TV (replays the current TV show from its beginning); Video-on-demand (VOD): browse a catalog of videos, not related to TV programming. 32

33 Streaming On Demand Netflix Hulu Plus HBO Go Google TV Apple TV Roku/Samsung Walmart s Vudu Amazon s Prime BECAUSE MANY OF THESE COMPANIES DO NOT RELY SOLELY ON STREAMING MOVIES, THEY WILL BE ABLE TO OFFER A BETTER SUBSCRIPTION RATE THAN NETFLIX.

34 Over The Top (OTT) Video As new boxes and applications get attached to the TV set, the business models are changing Boxee ( Roku Apple TV Amazon Fire Smart TVs! 34

35 Digital Lockers Ultra Violet itunes (Apple) Digital Copy + (Disney) AMAZON Instant Video

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37 What questions do you have? 37

38 Assignments NEXT LECTURE: Web Series. ASSIGNMENTS: Research an Indie Cover Letter Template Discussion Board 2 READ: VIDEO GAME INDUSTRY readings & videos

39 Wrap Up 1. Described history and growth of the video business 2. Analyzed maturation of the DVD market and growing complexity of retail marketing 3. Examined inventory management and impact on pricing and profits 4. Appraised video economics and discovered why video revenues are uniquely profitable to studios 5. Evaluated the future of DVDs 6. Proposed different pricing models for DVDs

40 References Ulin, J. (2009). The business of media distribution: monetizing film, TV and video content in an online world. Burlington: Focal Press.