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.

Even though we’re still a small store by conventional standards, we thought we’d stock up on The Dark Knight for the weekend (just gone) .. just in case. We do most of our buying through our buying group, but we stock up from local retailers on the Friday for our lead titles. From the retailers (eg JB, K-Mart), we buy more copies than we need, and can return them (unopened) for next week’s big titles (we can’t do this with our buying group). It’s a sign of the times .. through our group Dark Knight costs $29, and we can pickup copies from K-Mart for $25. New releases have truly become a commodity product that anyone can get from anywhere. Piracy runs rampant on these lead titles as well. It’s the art-house & independent stuff that give us the best margin, and our back-catalogue. More than ever, video stores have to look past the new releases, past the hits to make a decent buck.

But, the hits do burn brightly for a few weeks and The Dark Knight smashed all our records :-). We ended up with 23 copies in our system and all rented on Saturday night. Not bad! Check it out .. it’s a great movie.

Australian IT has just reported that EzyDVD’s download service - EzyDownload has been put on hold until some time in 2009. They couldn’t raise the money to get it up and running. I guess the economic climate is one reason, but .. ahh .. EzyDVD aren’t exactly showing their skills in tech deployments. Their website still looks a generation or two behind the times and they’re out asking for money to plow into a tech-heavy failed venture? Now, Jim Zavos might have got some infrastructure at fire-sale prices, but unless they can bolt a lot of it together themselves, consultants fees to do the job for them is going to blow the budget. Let alone movie licencing and the cold hard reality that people really don’t want to watch movies on their computer.

It’s going to take deep pockets to keep a VOD venture afloat here in Australia. Telstra has them and so has Apple, but that’s the company you’re going to have to keep. There’s still activity happening in the US with Blockbuster having just released their set top box, but that’s the States and I peg us about 3 years behind in adoption of those sorts of models. Interesting times!

We’ve started playing around with online streaming. Check it out - fire up the storefront (applebox.com.au and click Browse DVDs) and on the right hand side you’ll see a group called ‘Some Collections’. Just below our 007 collection (which is doing quite well, thanks to Daniel Craig and the Quantum Of Solace), you’ll see ‘Online Shorts’.

Click the link and it’ll take you to a small selection of stuff from youtube, vimeo and others. Not sure what we’re going to do with this .. other than to show it’s possible. Getting our own movie content into APPLEBOX is time consuming enough .. adding online shorts is just going to add to the load. I think the future of the shorts is to let people add to their own collections .. once we kick off with the personalisation features we’ve got planned (one day!).

Ok .. that’s in the States and not here, but wow! That ain’t a vote of confidence for the good ‘ol large store format. The DVD rental industry has evolved into 3 models .. mail-order, local large format and vending machine. Vending machines in the states are going great guns. Redbox has 8000 (and is prepping for an IPO), DVDPlay has 1400 and The New Release has 2000.

Australia is of course a different story. Our in-store rental market is about $500 million/year, whereas the States is about $7.5 billion. That goes someway to explaining why Quickflix and Bigpondmovies are struggling by comparison to Netflix (which has gone gangbusters), and why Blockbuster can even contemplate rolling out 10,000 kiosks while Instant DVD here (and with some great media coverage from Today Tonight) has managed only 23.

But .. the trend is there, and we’re keeping an eye on it!

Launched today, iTunes now sells and rents movies online! Just 2 months ago I bought an ep of Lost on iTunes for the helluv it.

So ‘There Will Be Blood’ for $25. Is a $5 saving worth it over a $30 DVD? No slick, store it on your hard drive, less than DVD quality? The big news is rentals! You can’t rent TWBB but you can rent 27 Dresses for $5.99 for apparently 2 nights. We’re still doing it for $5.50 .. so that’s pretty competitive! Except you need to buy the apple TV for $329 to watch it from your lounge room, and lets not forget we do it for $2 on tuesday or $3.33 if you rent 3 of our latest releases in our 3 for $10 deal :-). But hey - it’s launched and it’s the first online rental service in Australia I’d give a shot. This is really going to test Ezy DVD’s download service, ezydownload.com.au.

As for the offline rental world .. yep it’s clearly another competitor and another downward pressure that all rental stores will feel. Your old school video store is starting to feel a bit creaky me thinks. Barn-like spaces, movies buried somewhere in 50 metres of shelving, no easy search .. there’s gotta be a better way.

Quickflix’s recent update to the ASX shows their first ever decline in membership. From their July 11 announcement:

2 months ago Quickflix announced they were going lean & mean. Yet without their marketing spend, you can see the impact. There has been 4 consecutive months of decline in their trialists. But more to the point, their paying membership base has seen their first-ever drop:

It’s pretty bold putting out monthly membership numbers .. great while the numbers are good, but not so good when they drop. Perhaps they’ve learnt their lesson as they’ve now reverted to quarterly reports. It’s tough being a public company .. there’s no hiding performance.

They’ve re-skinned their site, and with new marketing efforts no doubt things will pick up. Good luck guys!

Just a reminder that nominations are now open for the Leader Business Awards so….. nominate us now!

If you are wondering which category (we kinda don’t fit into any standard categories being a new model “bricks and clicks” kind of store) then we would love to win the following category:
18. New Business (under 18 months in operation)

Thanks for your support and don’t forget you go in the draw to win $2500 in travel by jumping on line and giving us a plug.

Got waaay too much business doco to churn out at the moment to be watching TV or flaffing about checking out download services. But just picked this up via Macrumours: TV shows are now available on ITunes AU. So I had to give it a go.

I went to download Lost, Season 4 Ep1. $2.99 for the single ep, or $41.86 for the season. This is interesting because:

1. Lost Season 4 isn’t yet available via retail DVD here yet
2. Prices seem reasonable. Lost Season 3 costs $68.77 on iTunes but $90 at ezydvd! The retail DVD comes packed with plenty of special features and extras, but that ain’t worth $20 in my books.

So ep1 (@43 minutes long) weighed in at 500 MB and took about 10 minutes to download. For the complete Season 4 of 14 episodes that’s a mighty 7 gig to download. Try Season 3 at 23 episodes and that’s 11.5 gig. On my home optus cable limit of 12 gig, season 3 of Lost would wipe me out. Downloading at off-peak rates (midnight - midday which gives me 24 gig allowance) is better, but the season download will still grab half.

At this download size the resolution is near-DVD quality. In a purely empirical test the ‘actual’ playback window on a DVD is bigger than the Lost window .. hence Lost runs at a lower resolution. Of course when you put it next to some hi-def content (eg http://www.apple.com/trailers/disney/walle/hd/) you immediately see how aged SD (Standard Definition) really is. HD resolution is stunning. When you upgrade to a flat panel you’d be crazy not to grab a Blu-ray player. HD will blow out that Lost Ep from 500 Mb to 3Gig (1min playback =11Mb to 1min=70Mb at 1080p) and the full season to 70 Gig. Yikes!!

I need Apple TV. My association with TV and movies is chill-time, and I’ve got thousands of dollars tied up in couches, coffee table, TV, DVD player and lighting to create a space that makes watching the box pleasurable. So like FTTN, until the last leg of delivery of video to my lounge room and TV is sorted, downloads just won’t grab for me. Apple TV could change this .. especially when rentals become available.

That last leg of delivery is crucial for the emergence of VOD and the downloads business .. let’s see where it goes ..