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:
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:
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.
| · | Your average video store on a Saturday will rent 300 DVDs to be watched overnight. |
| · | Australia has about 1300 video stores that will deliver 390,000 DVDs for overnight viewing. |
| · | Compressed for streaming, 4 gig down to 1gig, 390,000 DVDs = 390,000 Gig streamed over say, 5 hours = 78,000 Gig/hour. |
| · | Youtube pushes out globally about 25 Petabytes per month which is about 35,000 Gig/hour, so Australia’s sat night usage to replace the DVD will be *double* Youtube’s global capacity. |
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: DVDs will be around for a long time. Netflix will use DVD rental—and Netflix [DVD mailing rental] will grow for at least 5 more years. And even after the peak, whenever that is — there’ll still going to be people wanting to watch movies on DVD. DVD is a very, very good format, and it’ll be around for a long time. People will be watching movies on DVD for another 10-15 years—at least—if not more. If you think about it, VHS tapes still are clinging to their last breath of life after 30 years.
MMktPr: So basically, you don’t think DVDs are going to be the VHS of yesteryear?
Netflix: The growth of DVD rental will be for at least another 5 years, ten more years even. We haven’t seen the peak. We have been nowhere near the peak or close to DVD rental growth.
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!
Paul Uniacke at Video Ezy (controlled through the Franchise Entertainment Group) has expanded his empire another step. He’s just bought the embattled EzyDVD, to add to his 2008 purchase of the master franchise rights to Blockbuster. Video Ezy/Blockbuster/EzyDVD .. it’s one mega brand now that covers over 50% of the Australian rental market, and is the leader in online sales.
There’s lots they could do .. the growth potential in the DVD business is establishing good sales through bricks and mortar stores. Even with ezyDVD’s leadership in online sales, it still did 85% of it’s business through their physical outlets. Yep, Gerry Harvey is bang on the money when he says physical shop fronts is where the retail action happens today.
JB seems to have the winning model for bricks and mortar. The key ingredient is .. lots of stock. And that means .. plenty of shelving space. And that’s what Video Ezy .. doesn’t have! It’s the dilemma of the traditional Video store. They can smell the retail opportunity, but their shops are small and they need all the space for rental. Beyond a few tables of movies for opportunistic buying, proper retail is out of their reach.
I’d like Video Ezy to try something new (gasp). Create a bigger store that does JB style retail and Video Ezy style rental. The day trade will be more retail, the night trade more rental. Stock is moved from retail to rental on-demand. The opportunity is to grab back the retail trade from JB and other mass merchants, but .. franchised to the wazoo with regional rights locked off, this is not as easy as you’d think.
Video Ezy is also buying $18 million worth of ezyDVD debt .. would love to know what they paid for that!
Update
$10 million is the magic figure.
Wow .. this is big news. According to this ABC report, the receivers have been called into manage EzyDVD.
EzyDVD are one of our biggest online DVD retailers and have been operating for 9 years (since 1999). As well as their online operation, they have 26 company-owned bricks and mortar outlets, with another 36 franchised.
I guess it shows you how brutal the retail world is when dealing with commodity products like DVDs. There’s just not a lot of margin in it. Being online doesn’t insulate you from operational and distribution costs, rather it just shifts them from a high-street presence to a back-block warehouse. And when you move off the high street, although your online reach is in theory vast, visibility goes down and you’ll be lucky to match the throughput of a well established bricks and mortar footprint. The essence of it, if you believe Gerry Harvey, is that local retail is king. Online retail is a sideshow.
The ABC report a retail downturn has squeezed EzyDVD, which combined with existing debt and recent operating losses has pushed them over the edge. As Tim Pethick pointed out a while back, if you haven’t innovated before the market turns, watch out.
Perhaps EzyDVD’s woes are management based .. I thought their move into VOD (with ezydownload) was ill-conceived and their attempt at bringing retail to local video stores was completely ignored by all rental groups. Costly initiatives, whilst their core retail platform, their website, sat unchanged for way too long and remained completely un-integrated with their 62 bricks and mortar outlets. Perhaps it’s an issue of don’t forget your core focus.
In any case, commiseration to Jim Zavos and the EzyDVD team, it must be horrible to see your baby slip into receivership.
Update
Ouch! Apparently ezyDVD was $18 million in debt.
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