2018: Getting Along in a Multi-Platform World

Back in 1989, a State Department official named Francis Fukuyama wrote a controversial essay on the “end of history,” opining that the collapse of the Soviet Union and Eastern bloc communism, the reform movement in China, and the reunification of Germany signaled a triumph for Western democracy and a very real promise of freedom and liberty for all.

Fukuyama’s vision of a global utopia didn’t last long, but for a brief moment in time cultural and political differences seemed to be set aside in favor of everyone working together to make the world a better place.

Similarly, in 2018 the various factions in home entertainment seemed to set aside their differences and recognize that we’re living in a multi-platform world — and that a peaceful coexistence between disc and digital, subscription and transactional, was, indeed, possible.

“2018 saw the continued integration of technology and content at an even more accelerated pace, and, with that, the opportunity to engage fans with more focused and meaningful experiences that extend the life of our film and television properties,” said Keith Feldman, president of worldwide home entertainment for 20th Century Fox.

Indeed, studios cut back on selling content to Netflix — most notably Disney, which pulled all its movies off the service by the end of the year — in favor of issuing it on their own platforms. They rallied behind Movies Anywhere, a digital movie storage “locker” launched in October 2017, and saw digital movie sales soar, with an 18% gain reported in the third quarter of 2018, according to DEG: The Digital Entertainment Group numbers.

Netflix, meanwhile, vowed to spend $8 billion in 2018 on producing its own shows, with the goal of making its content library 50% original.

Studios that once sued Redbox for renting DVDs and Blu-ray Discs, claiming the kiosk vendor was cannibalizing disc sales, struck distribution deals in which prior holdbacks were either sharply cut back or eliminated. They also rallied behind Redbox On Demand, a digital movie store launched in December 2017.

On the retail front, big-box chains like Best Buy and Walmart put discs back into the spotlight, buoyed by the emergence of 4K Ultra HD Blu-ray.

And digital retailers like FandangoNow and Google Play revved up their promotional muscle and pumped up the message that they had fresh movies for sale or rent. FandangoNow even put up a notice on its home page, touting the fact that it offers “New releases not on Netflix, Hulu or Amazon Prime subscriptions.”

It was all part of a bigger picture, in a year dominated by major media mergers — AT&T buying Time Warner, Disney buying 20th Century Fox — suggesting it was high time to come together and restructure existing business models to reflect changing consumer habits.

Content, as always, was king, but the feuding fiefdoms of the past were at last coming to peace with each other — and with themselves.

Subscription streaming continued to dominate the home entertainment business in 2018. Indeed, in the first nine months of this year, according to DEG: The Digital Entertainment Group, consumer spending on Netflix and other subscription streaming services rose more than 30% to $9.4 billion, nearly $2 billion more than consumers spent on all other forms of home entertainment combined– disc purchases ($2.79 billion) and rentals ($1.37 billion); digital purchases, or electronic sellthrough (EST, $1.8 billion),  and digital rentals, or transactional video-on-demand (TVOD, $1.57 billion).

But where Hollywood once saw a threat, in 2018 the studios saw an opportunity. As consumers, thanks to streaming, became increasingly accustomed to viewing movies and other content electronically, studios focused on moving them toward on-demand digital purchases or rentals — driving home the message that new releases aren’t typically available through subscriptions.

“Our comprehensive and strategic efforts to drive digital ownership and bolster engagement such as leveraging the early window, offering exclusive extras and emphasizing the best viewing experience possible are proving to be very effective as consumers continue to move toward and embrace the digital experience,” said Chris Oldre, EVP of pay TV, digital and international distribution at Walt Disney Direct-to-Consumer and International.

“Movies Anywhere has had a tremendous impact on transforming digital consumption and is a testament to the strength of the studios and digital retailers that have joined forces on an unprecedented scale. This year Disney once again experienced remarkable growth as our digital sales exceeded expectations in conjunction with the studio’s unrivaled box office success. Disney has the top three bestselling digital titles to date with Avengers: Infinity War, Black Panther and Thor: Ragnarok. We’re also incredibly proud of our celebration of Marvel’s 10-year anniversary this year.  We promoted the Marvel Cinematic Universe home entertainment catalog with a special sales promotion across digital, which undoubtedly helped propel Avengers: Infinity War to the No. 1 live-action spot on the all-time digital sales chart in a record-setting period.”

Ron Schwartz, president of Lionsgate Worldwide Home Entertainment, said that as consumer habits evolve, digital movie sales and rentals – electronic sellthrough (EST) and transactional video-on-demand (TVOD) — remain a priority. “We saw a significant increase in industry spending in this area in 2018, up 20%, and we will continue to collaborate with our retail partners on fresh ideas to keep consumer interest alive,” he said. “We see a large and growing market with multi-platform and specialty releases and will continue to build our leadership in this area.”

At the same time, Schwartz notes, “Disc sales remain robust … 4K UHD BD is rapidly gaining in popularity, as spend is on track to double this year versus last. We are committed to serving our audiences across the full spectrum of the digital   and physical business and we will continue to be a first mover in adapting these businesses as they continue to evolve.”

For Bob Buchi, president of worldwide home media distribution at Paramount Pictures, 2018 was the year of 4K.

“More than 42 million homes now have a 4K Ultra HD television and roughly 400 titles are available on 4K Ultra HD Blu-ray Disc and over 600 on Digital 4K,” Buchi said. “The numbers keep growing and for good reason: 4K brings home entertainment to life like never before, delivering content that better represents filmmakers’ original vision.  We’ve seen this play out with the week one 4K sales of Mission: Impossible — Fallout, which delivered our highest number of UHD discs sold, as well as the highest percentage of our physical sales ever.”

Disney’s Oldre agrees. “4K Ultra HD is a robust line of business for us and we’re experiencing healthy growth,” he said. “We continue to receive solid support from our physical retail partners and are confident it’s a market that our customers will continue to embrace given the format’s premier resolution.”

Catalog sales were another bright spot in 2018, Buchi said. “We’ve seen our digital catalog sales growing in markets around the world, including a 35% increase domestically through October, which indicates that more and more consumers have become comfortable with the format and are returning to the concept of building collections.  In addition, physical catalog sales have exceeded our expectations, as we continue to make concerted efforts to celebrate anniversaries of classic titles and strategically promote films from our library.”

Retailers certainly did their part in pushing the transactional business. At Best Buy and Walmart, the emergence of 4K Ultra HD Blu-ray led to bigger disc sections and, in the case of Best Buy, placement back in the center of the store.

Redbox in 2018 relaunched its brand, which included some major ad campaigns and sponsorships, including the Redbox Bowl college football game on New Year’s Eve at Levi’s Stadium in Santa Clara, Calif. The company also revamped its loyalty program; negotiated more favorable distribution deals with studios; and expanded the availability of previously rented movies and video games at kiosks.

The Redbox On Demand digital service, meanwhile, celebrated its first birthday in December with a new app on Vizio SmartCast TVs. The company also expanded its selection to 12,000 titles, from 7,000 at launch. CEO Galen Smith in December told Media Play News that Redbox On Demand has “surpassed major milestones to become a real player in the competitive digital home entertainment space. We’re seeing hundreds of thousands of customers, including bringing back folks we haven’t seen in a while.”

FandangoNow, a business unit of movie-ticket seller Fandango, struck deals with most major studios that allow it to package movie rentals into “binge bundles” that let consumers watch multiple movies at a lower price. The new offering launched on the Labor Day weekend with more than 100 bundles.

FandangoNow also cross-promotes digital movie sales and rentals with ticket sales. In December, just before the holidays, consumers who spent $20 on FandangoNow received $8 toward a movie ticket.

In the end, studio executives agree, it all comes down to keeping consumers engaged — which requires constant work.

“From a functional solution like Movies Anywhere that allows consumers to build and enjoy a streamlined digital library, to premium viewing with 4K HDR, to story extensions through virtual reality and other emerging formats, keeping consumers invested and engaged requires constant experimentation and innovation,” says Fox’s Keith Feldman. “Our ongoing challenge is to exceed consumer expectations today and simultaneously deliver next-generation offerings that will continue that engagement in the future.”

F.Y.E. Parent Back in Nasdaq Compliance

Trans World Entertainment Corp., parent of mall-based home entertainment retailer f.y.e. (For Your Entertainment), said it has been notified by Nasdaq that its stock is again in compliance with the trading board.

At issue was TWMC’s ability to meet Nasdaq’s minimum $1-per-share stock valuation. Failure to do so can resort to delisting, which can negatively impact a company’s ability to generate funding, among other issues.

On Nov. 16, TWMC said it received written notice from Nasdaq stating that the company’s common stock had a closing bid price of at least $1 per share for 10 consecutive business days (from Nov. 2 to 15).

In a statement, the company said it had regained compliance with Nasdaq Listing Rule 5450(a)(1) and “the matter is now closed.”

TWMC shares closed Nov. 20 at $1.02 per share

Disney’s Bob Iger Wants to Expedite Home Video Window

Following strong Q4 home entertainment and theatrical results, Walt Disney CEO Bob Iger said he has no plans to downsize the theatrical window as it relates to Disney movies transferring earlier to the company’s pending over-the-top video service, Disney+.

The same restraint, however, cannot be said about retail channels, including DVD, Blu-ray Disc and electronic sellthrough.

Speaking Nov. 8 on the fiscal call, Iger said that with the studio generating a record $3 billion in operating revenue – up 27% from a record $2.3 billion in the previous-year period – shortening the traditional 90-day window would only dampen revenue (and anger exhibitors).

Indeed, studio revenue reached nearly $10 billion in the fiscal year, up 19% from $8.4 billion last year.

“With us, if it ain’t broke … ,” quipped Iger, in response to an analyst’s question whether OTT video platform Disney+ afforded the studio opportunities to give consumers earlier streaming access to branded movies in the home.

Iger said Disney would continue fight to maintain the traditional theatrical window, which has been under (now measured) attack by Netflix.

“We have a studio that is doing extremely well and a [release window] formula that is serving us really well in terms of its bottom line,” he said.

Interestingly, Iger gave a shout out to home entertainment – his first in years – which he said continued to deliver strong retail results for digital and physical content. In fact, the executive said there is ongoing internal strategy about putting theatrical content into retail channels sooner.

“The home video window continues to be quite important to us,” said Iger. “You’ll likely see us protect that as well, although there’s going to be discussion around whether there’s an opportunity to move product into that window maybe a little sooner.”

Iger quickly clarified Disney was not looking to encroach – at the moment – upon the theatrical window.

Disney is ending a record year in home entertainment with five of the top-six selling DVD/Blu-ray Disc titles, including Black Panther, Star Wars: The Last Jedi, Coco, Thor: Ragnarok, Avengers: Infinity War, and just-released, Solo: A Star Wars Story. The titles — excluding Solo — have generated nearly $400 million in combined revenue since their release.

Trans World Entertainment Amends Credit Facility Regarding F.Y.E. Store Closures

Trans World Entertainment, parent of the f.y.e. (For Your Entertainment) home entertainment retail chain, Nov. 1 announced an amended agreement with Wells Fargo regarding its five-year, $75 million revolving credit facility.

Specifically, TWEC agreed to receive written consent from Wells Fargo prior to closing additional f.y.e. store locations. The company said closures would not exceed 35 locations, or 68 stores in aggregate through the end of the fiscal year (Feb. 2, 2019).

The agreement provides that any store closures from the signing of the amended agreement until the end of the fiscal year shall be made in accordance with liquidators or liquidation consultants “reasonably” acceptable to Wells Fargo.

Mall-based f.y.e. posted an operating loss of $6.6 million in its most-recent fiscal period operating 241 stores. Revenue dropped 15% to $104.6 million from $123.9 million.

MGM Studios Home Entertainment Revenue No ‘Death Wish’

Home entertainment sales of movies and TV shows has come back strong for MGM Studios.

The venerable studio Aug. 14 said second-quarter (ended June 30) global home entertainment revenue for film content topped $37.1 million, an increase of $18.2 million, or 97%, as compared to $18.9 million in revenue for the previous-year period.

Primary (physical and digital) drivers included the domestic home entertainment reboots of Death Wish, starring Bruce Willis, and Tomb Raider, featuring Alicia Vikander, plus ongoing distribution of library content. By comparison, home entertainment revenue for the prior-year quarter included distribution of Spectre, The Hobbit trilogy and other library content.

Home entertainment and other revenue for television content reached $8.5 million, up $3.8 million, or 79%, as compared to $4.7 million last year. The increase was primarily driven by the continued strong home entertainment performance of “The Handmaid’s Tale.”

Through the first six month of the year, worldwide home entertainment revenue for film content reached $56.3 million, an increase of $5.6 million, or 11%, as compared to $50.7 million for the six months ended June 30, 2017.

Home entertainment and other revenue for TV content was $19 million for the six months, an increase of $5.7 million, or 43%, as compared to $13.3 million last year.

Cinedigm Inches Toward First Quarterly Profit

After myriad quarters of fiscal losses, home entertainment distributor and over-the-top video operator Cinedigm reported its first quarterly profit.

The distributor generated first-quarter (ended March 31) income of $46,000 on revenue of $17.6 million. That compared to a loss of $9.6 million and revenue of $19.5 million during the previous-year period.

Cinedigm said its content and entertainment business unit – which includes packaged media – decreased revenue 12% to $31.1 million from $34.2 million in fiscal 2018 during the previous-year period.

The company said the revenue decline was due to lower overall sales volumes for physical product and a change in the mix of content sold.

“Our traditional DVD and Blu-ray Disc business continues to be negatively impacted by changing consumer behaviors and digital market shift to more original productions has lowered demand for third party content,” Cinedigm said in a regulatory filing. “Our product mix has also shifted significantly toward licensed content in the current year.”

The decline in physical product sales was partially offset by a $700,000 increase in sales related to OTT channels (Dove Channel, Docurama and CONtv) and a slight increase in distribution related revenue.

“We plan on [OTT] becoming the biggest revenue contributor for the company, and [it] increased last year by 23% in aggregate, led by a 36% increase in OTT channel,” CFO Jeffrey Edell said on the fiscal call.

Meanwhile, net loss for the fiscal year increased 21.7% to $18.5 million from $15.5 million during the previous-year period. Revenue dropped 25% to $67.6 million from $90.3 million.

 

Will Smith, Director Marc Forster Acquire German Home Entertainment Distributor

Will Smith (Bad Boys, The Pursuit of Happyness, Ali, Men In Black, I am Legend) has joined with director Marc Forster (Monster’s Ball, Quantum of Solace, World War Z, and Walt Disney Pictures’ upcoming Christopher Robin) to acquire Telepool GmbH, a German licensing and distributor.

Telepool was acquired from the company’s former public-broadcasting shareholders Bayerischer Rundfunk, Mitteldeutscher Rundfunk, SWR Media Services GmbH (a subsidiary of Südwestrundfunk) and Telvetia S.A. (a subsidiary of SRF). Financial details of the deal were not disclosed.

As part of the sale, Telepool will become a development, financing and distribution partner for film projects of Will Smith and Marc Forster. The acquisition was made by The Smith Family Circle, Will and Jada Smith’s Family Office, and Elysian Fields, a group of investors associated with Marc Forster.

Telepool’s core business is the acquisition, sale and promotion of theatrical, DVD, TV, VOD and gaming content, as well as merchandising and licensing of publishing for German-speaking territories (GSA). Additionally, the group acts as a world sales company for theatrical and TV content. The Telepool group has offices in Munich, Zürich, Leipzig and Los Angeles.

“Marc and I took a close look at Telepool and discovered a company that has an incredible reputation and a lot of potential,” Smith said in a statement. “We look forward to working together and with the Telepool team to create unique opportunities and content to strategically growing the business.”

As a part of the deal, Smithand his long-time business partner James Lassiter will have the option to develop and distribute film and television projects through Telepool. Lassiter’s Overbrook Entertainment remains its own independent production entity producing and developing film and television content.

Similarly, Forster and Renee Wolfe’s independent production entity 2dux² will also have the option to develop and distribute film and television projects through Telepool while also remaining fully independent.

“As a German-born Swiss national, I was familiar with Telepool long before completing this acquisition with Will and his family,” said Forster. “We believe that Telepool is well positioned for continued success and growth in our rapidly changing media landscape.”

“The new shareholders are very much committed to continuing our business model, added André Druskeit, who assumed the CEO position on June 1. He said all management positions at subsidiary companies would remain unchanged for the time being.

“The setup is great, and we are looking forward to many exciting projects with Will, Marc and all our business partners,” Druskeit said.

 

Trend’s Tricky Retail Slope

NEWS ANALYSIS — GameStop, along with other entertainment retailers, is attempting to sustain its national retail footprint in part by selling popular culture items such as action figures, posters, T-shirts and other collectibles.

It’s a business strategy fraught with risk and reward.

GameStop’s collectibles business increased 24.4% to $142.4 million in its most-recent fiscal period, driven by continued expansion of licensed merchandise offerings and unique product offerings.

Trans World Entertainment Corp.’s f.y.e. chain reported a 3% increase “lifestyle” sales, which partially offset a 17% decline in video, music and video games.  The lifestyle category represented 49.5% of revenue for the quarter, up from 42% a year ago.

“We are focused on efforts to differentiate our entertainment merchandise towards creating a unique specialty retailing experience of choice for families and fans of pop culture,” CEO Mike Feurer said on the company’s May 29 fiscal call.

Feurer said the changing merchandise point-of-view at f.y.e. is based in part on reinforcing the chain’s credibility with customers, while enabling it to better connect “personally with welcomed frequency.”

Maybe, but retail chains Hastings Entertainment and MovieStop tried similar approaches focusing on trend merchandise and failed.

Acquired in 2014 by the company that runs Elvis Presley’s Graceland estate, as well as Prince’s pending Paisely Park in Minneapolis, Hastings and MovieStop turned their focus away from home video to consumables, trend, comics, electronics, hobbies and books. Hastings said it generated $100 million annually in book sales.

“We are hopeful that we are on the right path,” Jim Litwak, president of the combined companies, said at the time.

He wasn’t on the right path. Both chains halted operations in 2016, shuttering a combined 162 stores nationwide.

But Michael Pachter, media analyst with Wedbush Securites in Los Angeles, contends GameStop can succeed with trend.

“The real difference is that the core customer for GameStop is an almost perfect overlap with the core memorabilia collector,” said Pachter. “The foot traffic provides a cross-selling opportunity.”

The analyst cautioned the trend category is significant for GameStop but not a gamechanger. He said collectibles generated 7% of total sales in 2017, with 9% projected for this year.

“That seems sustainable,” Pachter said.

Trans World Entertainment Ups Q1 Loss

Trans World Entertainment Corp. May 29 reported a first-quarter (ended May 5) loss of $8.1 million, which was 56% higher than the $5.2 million loss reported in the previous-year period. Revenue dropped nearly 5% to $96.6 million.

The company cited much of the loss on continued challenges in its f.y.e. (For Your Entertainment) mall-based home entertainment retail chain.

Revenue at one of the country’s last entertainment retail chains dropped nearly 17% to $54 million from $65 million during the previous period.

Comparable f.y.e. store sales declined 8.5%, as a comp increase of 2.8% in lifestyle and electronics categories was offset by a 16.8% decline in video, music and video games.  The lifestyle and electronics categories represented 49.5% of revenue for the first quarter as compared to 42.6% in the same period last year.

The chain recorded an operating loss of $5.4 million, compared to an operating loss of $4.4 million for same period last year.

f.y.e. operated 253 stores – mostly mall-based – in the period compared to 273 stores last year. With malls under siege from e-commerce, f.y.e. faces a duel threat from changing consumer consumption of video entertainment and shopping habits.

“Although in the midst of continued structural and external challenges [at f.y.e.], we are focused on efforts to differentiate our entertainment merchandise towards creating a unique specialty retailing experience of choice for families and fans of popular culture and fun,” CEO Mike Feurer said in a statement.

Indeed, Feurer preferred to highlight the company’s overall fiscal health, in addition to etailz.com, the company’s ecommerce subsidiary selling merchandise on Amazon. Revenue increased 15% to $42.5 million, while operating loss increased to $2.8 million from $821,000 last year.

“As we work through the assortment changes needed to stabilize the f.y.e. business, we have maintained focus on the balance sheet, ending the quarter with $15 million and no debt,” Feurer said.

 

 

 

Lionsgate Fiscal 2018 Home Entertainment Revenue Up $67 Million

Spurred by packaged media and digital revenue from Oscar-winner La La Land, Power Rangers, Tyler Perry’s Boo 2! A Madea Halloween, and Wonder, Lionsgate reported a $67 million increase in home entertainment revenue for the 2018 fiscal year, ended March 31.

Revenue rose 9.5% to $774 million, which included $400 million from DVD and Blu-ray Disc, compared with revenue of $707 million ($404 million) during the previous-year period.

In fiscal 2018, Lionsgate shipped about 65 million DVD/Blu-ray units.

Digital media, which includes electronic sellthrough, transactional VOD and pay-per-view, generated $374 million in the period, compared to $304 million in the prior fiscal year.

Indeed, Lionsgate motion picture segment generated 42.5% of its fiscal year revenue from home entertainment; 25.1% from international; 15.4% from theatrical; 15.3% from TV and 1.7% from other sources.

The studio/distributor said four of its theatrical releases debuted No.1 on weekly DVD/Blu-ray sales charts. La La Land and Power Rangers held the top spot for two consecutive weeks, while Tyler Perry’s Boo 2! A Madea Halloweenand Wonder held onto the No. 1 spot for one week.

Lionsgate had an approximate 11% market share for home entertainment, making it the No. 5 studio in market share overall.

In calendar 2017, Lionsgate said it maintained a box office-to-home entertainment conversion rate of 18% above the industry average, leading all major studios.

Box office-to-home entertainment conversion rate is calculated as the ratio of the total of both DVD revenue and total digital platform revenue for a theatrical release compared to the total North American box-office revenue from a theatrical release.