Paul Uniacke of Blockbuster:

What does Telstra know about movies? .. what does Playstation know about movies? Blockbuster has been in the movie space for over 20 years …

Last week A Current Affair ran it’s once yearly infotainment special on the end of the video store. You can watch it here. Oovie took the spotlight as the latest challenger (pushing dispensing kiosks), with Redroom DVD much of the same. Quickflix get a mention and a raft of download options were given some time (t-box, appletv, fetchtv, sony playstation). A couple of omissions from their lineup - Bigpondmovies and x-box?

Paul Uniacke of FEG (Blockbuster/VideoEzy/EzyDVD) was given the last word. Walking around his showpiece store .. wow, does it look dated! Everyone can pick a service that suits them best, but the one thing that stands out against the modern challengers, is that Blockbuster really hasn’t changed in 20 years. That’s not all bad .. it gives great comfort to people who hate change. We’re conditioned to walking around shelves, and when I step inside an old school store, instinctively I flip into browse mode and begin that familiar old shuffle. Beyond the hype, old school rental still accounts for over 90% of Australia’s rental spend.

As for Paul’s belief that history/legacy gives him the advantage? Hmmm, perhaps not. I think I hear the echo of Nokia before Apple sat up and ruined their party.

Ok .. this is old news now.

Blockbuster filed for Chapter 11 Bankruptcy in the US on 23rd of September. Why? Because Blockbuster owed it’s debtors around 1 billion dollars. Yes that’s 1 billion. With the heyday of the local video store past, the industry rationalising, and a need to invest significantly to become a credible competitor to Netflix (in both mail-order and streaming capacities), Blockbuster found it’s debt too much, too crippling. They would never be able to repay it. If they closed shop - debtors and shareholders would lose everything, and Blockbuster would never have the chance to re-invent itself.

Filing for Chapter 11 Bankruptcy means that, as mediated by the US Bankruptcy court, debtors, shareholders and current management work out a way for all to go forward. With Blockbuster, debtors wrote down $900 million of their debt, basically assumed ownership, and Blockbuster survives to keep trading. They’re closing their non performing stores, will still run their strong stores, and continue with their kiosk/mail-order/streaming multi-channel strategy.

What a second chance! Now with only $100 million of debt, Blockbuster has a chance to re-construct itself. We’ll be watching to see how they go. As for Australia, Blockbuster is owned by the Franchise Entertainment Group, who run it alongside Video Ezy and EzyDVD. Here, we’re a fair way behind the massive rationalisation of local rental that has occurred in the states. The kiosk industry (RedroomDVD, Oovie) and mail order (Bigpondmovies and Quickflix) just haven’t been able to put the squeeze on local rental like their respective originators did in the US. Time will tell how it all plays out.

A brilliant quote from Mike Walsh:

The context? He’s talking about the future of finance. A far cry from local DVD rentals, but I think his observation translates perfectly.

Warner Brothers is experimenting with online distribution with their current release of The Curious Case of Benjamin Button. This is a simultaneous DVD and VOD release which eliminates the normal release windows of DVD first (after cinema), then payTV and VOD last.

The exciting thing about this, is that whilst iTunes and BigpondMovies Download will automatically be included, Warner have decided to include DVD rental groups in the mix … and that means US! Yes, we’ve directly integrated the download choice for Ben Button into our catalogue:

From what I can see, we’re the first local video store to EVER seamlessly offer a download option to their membership (and that’s world wide). The keyword here is seamless .. i.e. at the point they would normally choose to select a movie to watch. Video Ezy can’t do this (and that’s can’t, not don’t), as their members aren’t online when they pick a DVD off a Video Ezy shelf. Even when our members are in-store, they’re online. About half our members do all their choosing from home (and drop in for a quick pickup), so about half our members now have a new choice - at the point they would actually choose - to download to their PC or laptop.

In Australia, the only other local outlets that offer online selection are InstantDVD, RedroomDVD and Glued. None of these guys are doing the Ben Button download. Whilst they all could put a banner ad on their sites, integrating into their vending catalogue is probably too difficult for the moment.

Who else is offering it then? The existing VOD players - iTunes, BigpondMovies Downloads, Foxtel, and then the DVD outlets - Leading Edge Video (who we buy through), Network Video, Quickflix and EzyDVD. Notable in their absence is Civic Video, Blockbuster & Video Ezy .. and that’s about half the local rental market. Interestingly, EzyDVD is owned by the FEG (Franchise Entertainment Group) who also own Video Ezy and Blockbuster, which means FEG have deliberately chosen not to test it with VE and BB. Hmmmm … is this an indication of their online strategy? To all the Video Ezy and Blockbuster Franchisees out there .. are FEG doing all they can for your digital future?

Execution is everything, and this is the achilles heel of the VOD industry to-date. Downloads are painful! For those interested, the process is:

1. Launch the APPLEBOX catalogue (go to applebox.com.au, hit ‘Browse DVDs’).
2. Go to the Benjamin Button movie page (click the Ben Button banner, or search for Benjamin Button, or click the Ben Button cover in the New Releases section).
3. Click the Digital Download option, rather than the DVD or Blu-ray option
4. Pass the system requirements check (Windows XP or Vista, IE 6+ and Windows Media Player 11).
5. Provide an email address, date of birth, accept the terms and conditions, hand over credit card details, accept download of the Ben Button download manager.
6. Find downloaded download manager. Double click and start downloading the 2 gig file. For me this took 70 minutes with an average 570KB/sec download speed (not too bad). Even with a network hiccup, the download manger resumed the download and kept running.
7. Remember where the download manager was downloading the file to .. find and double click.

With a 70 minute download I could have walked the 4km to APPLEBOX and back from my place .. but that aside it worked! I successfully downloaded Ben Button directly out of the APPLEBOX online storefront. I then watched 10 minutes of it on my PC monitor. I finished off by watching via Blu-ray on my 42inch plasma, as even in the name of future-VOD, until I can get 1080p to my TV it’s just an experiment for me.

Some points of view for Warner to think about:

1. Windows DRM is not the answer.
   Stats saying Windows holds 90% market share (lets give the other 10% to Macs) might give comfort that windows DRM is a fair choice for playback control. Don’t believe it! That 90% is heavily skewed by corporate installations. Mac home use is much, much higher. By our stats, around 30% of our movie choices come from Macs .. you’re annoying those users, and pushing them to iTunes. There’s no-doubt a lot of background to this choice, but do you really want to support iTunes dominance in digital distribution?
2. Please improve your platform check.
   Give Mac users a big “We’re sorry but as a Mac user you can’t download Benjamin Button at this website. Please try iTunes so you can watch our wonderful movie”. In Firefox on the Mac I get “To Begin, just click the NEXT button below”, and there’s no next button.
3. I do not want to give you my birth date.
   Ben Button is rated M, if you want to confirm I am over 15, give me a check box to tick.
4. Test your service via your affiliates. Regularly!
   Downloads came online Wednesday. Great, we integrated the URL, tested and went live on Thursday. All works. By Saturday morning the same link was now giving a ‘Directory Listing Denied’ page. Hmmm. Banner ads from Quickflix, Network, EzyDVD and LEV are all hitting the same page. Looks like someone has changed your webserver config settings and removed the default page setup so what previously worked with a “/” end reference, now needs a “/Default.aspx” reference. 3 days later, it still isn’t fixed, and Quickflix, Network, EzyDVD and LEV redirects still fail.

Despite the niggles, I say well done to Warner. I applaud their strategy, which I believe is to acknowledge where the rental public is today and for the immediate future .. and that’s at the local store level. If you can reach out to these renters, via all the groups that service them today, potentially you’ll engage a bigger market than dealing with iTunes, Foxtel and Telstra alone. Whilst you could argue that local rental groups don’t really engage their members in the online space (sans APPLEBOX), 4+ million customers with established rental behaviours is hard to ignore.

DRM, Windows reliance, download managers, bandwidth costs, catalogue selection, Hi-def formats, TV playback & matching the value prop of local rental (eg any 3 for $10) .. all these are part of the challenges for VOD. There’s a lot of good stuff happening in the states with streaming services like hulu and platforms like boxee. It’s an interesting space, but good ‘ol local service is still a draw card. We want to be across it all, and local is where we’ve started.

Civic Video have updated their website, and with it comes new functionality. It’s called ‘My List’. Their explanation:

Yay! Gotta love the rapid evolution of these big chains. Lets see, they want me to log in, compile a list of movies from their online catalogue, print it out (or email it to who?), carry the list with me and then go to my store. And when I see the local now has Barbarella (but it’s out) I go back home, log on, search and find Barbarella isn’t in their system so I can’t add it to my list to remind me for when I rinse, repeat and start again.

Now *if* they could print the list out for me when I went in, or had a terminal in-store so I could check my list .. now we’re cookin! Next step, junk the shelves, get their inventory online and make the whole process seamless.

Phil Sim over at Squash has written a post “Will Video kill the Internet?”. His story is one of going from a 3Gig cap to a 25gig and now to a 60gig cap. His assessment is that “for once, bandwidth advances have not kept pace with content production.”

Yes! This is close to the debate about VOD killing the video store which is one I have regularly. Here are some quick calculations on the bandwidth needed to meet your typical rental demand on a Saturday night.

That’s a lot of capacity! Lets not forget Australia is little .. blow that calculation out on a global scale, add in the capacity demands of Blu-ray style high-def and yep, Video will kill the Internet. Luckily, we’re not going to hit that demand now, the local video store will be with us for a long time to come, and in the meantime, infrastructure upgrades will ensure the threat of internet gridlock will be averted.

(nb. the youtube calc of 25 Petabytes bandwidth per month is now 2 years old .. it’s no doubt higher now)

Following up Whether or Which .. consumer behaviour does change! It takes education, and a product that people want to change for .. but of course it happens. I’ve just checked our waiting orders. We don’t open until 11am, but we’ve already got reservations for 10 discs in the queue. One was made at 10.15 last night (after we closed so the order kicks in for today), and the rest were made from 7am through to 8.30am this morning. These guys have booked their nights viewing before they kicked off the work day. Gotta love that.

Seth Godin is a permanent fixture in my feed reeder. I love his posts .. short and to the point. Always clear and concise. Whether or Which is one of his latest that just hits the spot for us. He reminds us to be clear on whether our pitch is “designed to get someone to buy any product in the category … vs. buying your product instead of the competition … “

Of course we’re pitching for people to buy our product instead of the competition .. to stop going to the local Video Ezy, and start coming to us. It’s actually a tougher gig than I thought. Video Ezy has spent the last 15 years becoming the dominant player in our industry. Over that time, behaviour becomes ingrained, routine established, comfort zones defined. We’ve popped up and are asking people to change.

For those looking for an alternative, and who can already see how broken the traditional video store is, they jump ship immediately and love us. But a lot of VE customers don’t see how broken VE really is, *until* they step into APPLEBOX, and for the first time in 15 years experience something new. They’re the people we need to mobilise, and it takes some careful thought on how to get to them.

Yep, I concur. DVDs will be around for a long time. Movie Marketing & PR interviewed Netflix’s Steve Swasey:

Netflix are smart .. they’ve used the DVD business to underwrite their streaming business, and correctly recognise there will be plenty of good earnings on the back of DVD rental for the coming 10-15 years. They’ve no intention of abandoning that market and neither have we!