DEG Panel: Transactional Business Strong Despite New-Release Slowdown

The home entertainment pie is getting bigger — and not just on the subscription streaming side, according to an Aug. 10 panel presented by DEG: The Digital Entertainment Group.

“The story on SVOD services I think is really well told, and we’ve seen a lot of consumers come over through those subscriber numbers, but I don’t think there’s been much focus on consumers who’ve been coming into the transactional end of the business,” said Jim Wuthrich, president of home entertainment and content licensing at WarnerMedia.

After a year in 2020 that saw a big jump in at home entertainment viewing due to a pandemic, the transactional business — revenue from consumers who rent or buy titles either digitally or physically — has proven resilient, even though it has dropped from the pandemic highs of last year. Transactional spending was down 28.7% to an estimated $3.4 billion, from $4.8 billion in the first six months of 2020.

“I would say overall these numbers to me are remarkable,” said Michael Bonner, president of worldwide home entertainment at Universal Pictures.

Comparing the numbers to pre-pandemic 2019, transactional has grown its appeal, especially with catalog.

“We have evidence that the consumer adoption and engagement during the pandemic is up overall, and those levels are kind of maintaining,” Bonner said.

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“We had this big spike last year where consumers were looking for any content they could transactionally,” Wuthrich added. “This year we’ve come down, but we’re running against that big spike we had last year.

“The one drag that we’ve got for the first half of this year was really around new-release product because we don’t have a lot of new-release product.”

Still, Bonner noted that on a title-by-title basis, the new releases that have come out are performing well.

“If you look at it at on a title level, that product that is flowing in, it’s performing very well relative to historical,” he noted.

Then there’s premium rentals and sales (PVOD, PEST), which the DEG does not track. That segment of the business, which some industry pundits say helped the transactional market grow for the first time in a decade last year, has continued its appeal.

“Our estimate is there’s $1 billion of consumer spend that’s not captured in the numbers that you’re presenting,” Bonner said. “And those numbers are not insignificant. We’ve seen tremendous engagement from consumers on that product that’s made available early in its window. Again, some of that is to be expected — given where the box office has been over the past year — but the numbers, they’re fantastic.”

Wuthrich sees a strong last half of the year, as new releases flow into the transactional pipeline.

“Going into the back half of year, we’re pretty bullish around it,” he said.

“I think in Q3 and Q4, we’re not quite out of the pandemic yet, so I think there’s still going to be heavy engagement in the home, so I think the numbers should be strong again,” Bonner said.

While moves to put titles on streaming services early — and, in the case of Warner, on HBO Max concurrently with theaters — may shrink demand in the transactional realm, there are customers for every segment of the entertainment marketplace, said panelists.

“When it’s widely available on a streaming service, it does take some of the demand, but it also adds in other ways,” Wuthrich said.

“The reality is studios are all kind of making tradeoffs in terms of how to put product through different consumer offerings earlier than ever,” Bonner added. “We’re all trying to figure that out.”

Each segment of the business is finding an audience, panelists said.

“We see spikes in demand across each of those new offerings,” Bonner said. “There are consumers and there’s an audience out there for each of these.”

Even the physical business is holding its own, Wuthrich said.

“We found there are still over 35 million households in the U.S. that are still transacting in physical,” he said, noting that Warner entered into a joint venture, Studio Distribution Services (SDS), with Universal to serve the continuing physical disc consumer.

“One of the reasons that people continue to buy physical media is it’s a habit. Another reason though is quality. You can’t beat the quality to the television of physical media, particularly around 4K with HDR,” Wuthrich noted. He added that physical consumers span all demos, young and old. Close to 60% is in the age range of 25-44, he said.

And retailers have maintained a lot of that shelf space for physical during the pandemic.

“I think longer term, this is a mature category, and you’ll see continued consolidation,” Wuthrich said. “I think of the retailers that have, particularly the large ones that have exited or shrunk the category, we see stabilization in that space. And that’s where it was particularly encouraging, at least some of our retailers held most of the space, even through COVID, even though there wasn’t a lot of new product that was flowing in. And it was because it was something that was desired by their customer. They were looking for distractions and such. So maybe they were only shopping for diapers and popcorn, but they were still going by and picking up physical.”

Wuthrich: Transactional Spending Surged 38% After Stay-at-Home Orders Took Effect

The growth in the home entertainment and games businesses have been “one of the few bright spots” in the COVID-19 pandemic, said Jim Wuthrich, president of Warner Bros. Home Entertainment and Games.

Wuthrich, speaking at the virtually presented DEG Expo April 16, presented numbers “live from my son’s bedroom” to introduce the expo.

“I feel very fortunate to have a job that allows me to work from home, and one that brings a little bit of joy to people sheltering at home during this crisis,” he said.

He presented numbers from Warner research showing the growth in home entertainment spending after stay-at-home orders took effect.

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“Pre leading up to that period, home entertainment spending overall from a transactional standpoint was down about 5% in total consumer spend,” he said. “Since March 14, that mid-March time frame, home entertainment transactional spending is now up 38%.”

Jim Wuthrich, live from his home

The growth took off in triple-digit percentages as the pandemic measures took effect.

“Our digital sellthrough business as an industry — which we call EST here at Warner Bros. — it’s been up over 100% each week since safer at home began.”

Physical, too, has seen a lift, Wuthrich said.

“Physical has continued to be challenged, but it’s interesting that now even in this environment, with stores that are closing and such, physical has shown great resiliency,” he said. “Since post safer at home, the physical business has been trending stronger than what it was doing prior to that.

“We just had a title launch this week, Just Mercy, in physical and we actually did better than what we had been planning. I had to ask the team did we correct it for a post-COVID world and we hadn’t. The fact that people are still in stores shopping for the essentials at Walmart, Target and Best Buy has been helpful in holding up the physical. And of course Amazon and the online retailers have all done well in that space.”

Wuthrich noted that the pandemic has had effect on what titles consumers are watching.

“The top catalog title for the industry year to date is a title that many of you may have watched yourself. It became a bit of a cultural swelling, and that movie is Contagion,” he said. “The movie’s been out for a number of years, but obviously a lot of interest in it. It’s uncanny how it kind of mimics what’s going on in the real world today. That is actually outselling our ‘Harry Potter’ collection, Jumanji, Avengers: Endgame, World War Z. So basically people are binging on franchise and apocalypse movies.”

Wuthrich stressed how important theaters are to the overall business.

“It’s really unfortunate that theaters had to close because of the crisis, and we are looking forward to when we can get the theaters back in business. I just want to comment on that,” he said. “This is all an ecosystem, and it’s a very important ecosystem, having theaters open, driving people into theaters, eventizing films and providing the traditional windows that come from that. So that fact that the theaters are closed is a big hit to our business. We’re looking forward to getting back into business with our exhibition partners.”

Still, home entertainment and games have helped stem the losses in theatrical revenue, he noted.

“Games and home entertainment, increases in those businesses have nearly offset the loss of what we’ve seen in the industry from moviegoing,” Wuthrich said. “So there’s a lot of growth happening in entertainment and games.”

Home Entertainment Execs Predict More Turbulence as the ‘Roaring’ ‘20s Get Underway

Coming off a year of momentous change, home entertainment executives expect more turbulence to hit their business in 2020.

Streaming has clearly become the dominant force, with two more high-profile subscription streaming services scheduled to launch in 2020. Comcast/NBC Universal in April will bow Peacock, with more than 15,000 hours of content and a free, ad-supported service as well. A month later, WarnerMedia will debut HBO Max, with a large library of titles from across the media titan’s family — including a curated list of classic movies.

And then there’s Quibi, a mobile-centric, short-form video platform launching in April, the brainchild of ex-Disney and DreamWorks chief Jeffrey Katzenberg.

But home entertainment executives, whose proverbial bread-and-butter has always been the transactional model — in which consumers pay a set fee to either buy or rent a movie, TV series or other filmed content, either digitally or on disc — insist there’s enough of an audience for both aspects of the home entertainment (or at-home, or direct-to-consumer) business.

“With an abundance of exceptional content combined with a plethora of platforms, we can expect a ‘roaring’ start to the ’20s as consumers are met with a mass of entertainment options,” says Bob Buchi, president of Paramount Home Entertainment. “It is now the challenge of the industry to focus on marketing and distribution to hone the messaging and delivery to meet the varied needs of consumers across linear, on-demand, subscription and transactional.

“While SVOD has captured the attention of consumers and created an ‘always on’ expectation, the transactional business continues to offer very unique and important consumer propositions: the first post-theatrical home viewing opportunity, the greatest breadth of selection, the highest quality viewing options, and custom bonus content to extend the entertainment experience. The data continues to show that SVOD and transactional can co-exist and thrive. More than half of viewers are involved in both activities, and despite the availability of catalog titles on SVOD platforms, we at Paramount saw record sales numbers for our catalog in 2019.”

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Jason Spivak, EVP of distribution at Sony Pictures Home Entertainment, is similarly optimistic. “As the business evolves consumers are becoming increasingly aware and comfortable with the ways that various distribution models fit together,” he says. “While SVOD delivers great value for many use occasions and types of content, the benefits of transactional models — recency, collectability and image quality — also continue to be prominent, especially in regard to new release theatrical content, and premier catalog titles.”

“Obviously we have been paying very close attention to growth and adoption of streaming services, and we are constantly evaluating their impact on our physical and digital business,” adds Jim Wuthrich, president of Warner Bros. Home Entertainment & Games. “With Warner Media’s HBO Max coming in 2020 the industry will continue to grow.  And as the business grows, so does access to an ever-increasing new consumer base who are familiarizing themselves with digital transactions and streaming, so it opens doors for us to bring in new audiences for our products and content.”

Ron Schwartz, president of worldwide home entertainment for Lionsgate, says “the transactional home entertainment space remains a very dynamic and robust business for our many types of content.” He touts the success on both digital and physical platforms of John Wick: Chapter 3 and Angel Has Fallen, calling those two films “great examples of the type of content that home entertainment consumers want to own. Overall, multiple steaming platforms and transactional, physical and digital will all continue to coexist as the marketplace continues to evolve.”

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Digital retailers agree. “In 2020, we think transactional and subscription will both continue to grow because they complement one another,” says Cameron Douglas, head of FandangoNow. “Nowadays, digital entertainment is a mainstream business. Every TV is connected and OTT services have become the norm for audiences looking for content at home. The growth bodes well for the future of our industry.”

Even at Disney, where much of the focus is on the much-hyped Disney+ service, there’s room for transactional, according to David Kite, SVP of marketing for Disney Media Distribution.

“With this year’s acquisition of 20th Century Fox, we remain committed to both digital and physical ownership,” Kite says. “We successfully integrated the Fox team into the expansive Disney home entertainment organization and have implemented a unified strategy that includes a more synergistic approach across key lines of business. We’re looking forward to another exciting year across both physical and digital platforms with a wide-range slate of home entertainment releases.”

In the first quarter of 2020, Kite says, “We will be releasing two very promising titles — the critically acclaimed awards contenders Jojo Rabbit and Ford v Ferrari.  We’re also excited about the rollouts of Frozen IIStar Wars: The Rise of Skywalker, Marvel Studios’ Black Widow, Disney-Pixar’s Onward and the live-action Mulan as our customers continue to build their libraries.”

While disc sales will likely continue to decline in 2020, no one’s giving up on DVD, Blu-ray Disc or, in particular, 4K Ultra HD.

“The 4K UHD physical market will continue to experience growth throughout 2020,” says Eddie Cunningham, president of Universal Pictures Home Entertainment. “We are encouraged by industry forecasts, which anticipate the sales of that format in North America alone will deliver 25% of Blu-ray Disc dollars in 2020.”

“We will continue to release the majority of our new release titles in the highest possible definition and also mine our vast catalog library for worthy and deserving films to be remastered, as we did this year with The Wizard of Oz,” adds Wuthrich. “The desire for classic titles in the ultimate high-definition format is definitely a factor in the continued momentum of 4K UHD.”

Spivak agrees. “As consumer viewing habits evolve, the disc remains a prominent part of the home entertainment market, particularly given the steady growth for 4K Ultra HD,” he says. “With households nationwide regularly upgrading their TVs to 4K UHD there’s every indication that 4K UHD will evolve beyond a niche audience of format enthusiasts. We will continue to put out most of our new releases and select catalog in UHD, while working with retailers to expand placement and experimenting with features that make the product most attractive to consumers.”

Disney’s Kite is similarly optimistic for the disc business. “Physical ownership remains a robust line of business for us, especially among the collectible consumer,” he says. “There continues to be a healthy appetite for the physical format, particularly with premium, and we already have substantial plans in place for 2020.”

Universal’s Cunningham stresses the importance of retail partnerships in maximizing the transactional model’s potential.

“Given that physical and digital transactional consumption rates are remaining steady year over year and that disc purchases are making up more than half of that consumption, there’s no question that movie buyers continue to be vitally important to retail,” he says. “At no other time in our industry has it been more critical to ensure that we work together to retain the loyalty of movie consumers, creating urgency for our products and delivering the utmost value, quality, accessibility and convenience possible.

“It is important for us to continue supporting our retail partners with creative thought leadership and close collaboration to ensure that we collectively continue to capture shopper attention and deliver key, compelling reasons to transact.”

Sony Pictures’ Spivak agrees. “More than ever we must embrace the fact that our retail partnerships are multi-faceted and cross distribution models — from transactional to SVOD and AVOD,” he says. “Ultimately, our mutual objective is maximizing the consumer value proposition and providing the best potential viewer experience.”

Oh, What a Year — With Transformational Changes, Home Entertainment in 2019 Got Smaller — and Bigger

The phrase “transformational change” has been used so much it’s become a cliché — and yet there really is no better way to describe what happened in not just home entertainment, but also the entertainment industry overall, in 2019.

The completion in March of the Walt Disney Co.’s purchase of 20th Century Fox saw the number of major studios drop to five from six. Some of the home entertainment sector’s most familiar faces were suddenly gone, including Mike Dunn, the longtime leader of Fox’s home entertainment unit, and Danny Kaye, the visionary behind Fox Innovation Labs. Later, in the summer, Janice Marinelli, Disney’s home entertainment chief, also exited in a surprise move, given that she had opened an office on the Fox studio lot and was reportedly screening staffers.

In November, two new streaming giants emerged to take on longtime leader Netflix, Apple TV+ and, most significantly, Disney+.

Meanwhile, a new flavor of streaming gathered momentum: free to consumers, paid for by advertisers. Among the heavyweights jumping into what’s known as “AVOD” are ViacomCBS, with its Pluto TV acquisition, and Comcast Corp., which in December was reported to be in advanced talks to acquire Xumo TV, which boasts more than 140 digital channels of programming across 12 genres, including sports, news, kids and family entertainment.

The overall impact of all these developments on home entertainment: It got smaller — and bigger.

Smaller, because the traditional transactional business model that has defined home entertainment since its birth more than 40 years ago has increasingly come under fire, with subscription streaming, in particular, gobbling up more and more consumer attention — and dollars — that previously would have gone toward buying or renting movies, either on disc or through digital retailers.

But also bigger, because streaming, in its various incarnations, is now widely accepted as being part of home entertainment — which is now broadly defined as people watching what they want, on demand. There’s even a new name for all of this — direct-to-consumer — which was first adopted by Disney and is now used interchangeably with “home entertainment.”

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Bob Buchi, president of Paramount Home Entertainment, says 2019 “was the year of transition.”

“From media mergers and changing consumer viewing habits to the explosion of streaming services, the landscape has shifted dramatically,” he says.

The Nov. 1 launch of Apple TV+ marked the tech giant’s entry into the content business, with nine original series. One of them, “The Morning Show,” picked up several Golden Globe nominations from the Hollywood Foreign Press Association (HFPA), a first for a new streaming service.

Less than two weeks later, Disney launched its much-ballyhooed Disney+, with a full menu of in-demand movies and series — including the “Star Wars” spinoff “The Mandalorian.” Disney said more than 10 million people signed up for the service in the first 24 hours. By the end of November, the service had 24 million subscribers, according to estimates from Wall Street firm Cowen & Co. (Netflix as of October had more than 60 million domestic subs.)

“It’s an exciting time and we believe we have a unique and significant role to play,” Ricky Strauss, president of content and marketing for Disney+, told Media Play News on the eve of the service’s launch. “Disney+ will compete based on the unparalleled strength of our brands, the quality of our intellectual property, and expertise in high-quality video streaming.”

And yet industry insiders insist that despite streaming’s growth, there’s room for transactional — largely because new theatrical films, particularly the blockbusters, aren’t available on SVOD services. This distinction has prompted FandangoNow, one of the big digital retailers, to boldly proclaim on its home page, “New releases not on Netflix, Amazon Prime or Hulu subscriptions.”

“Because we’re the first point of entry for fans to see movies in theaters, and first at home, we’ve seen a significant growth among consumers who are excited to own movies as soon as they’re available digitally,” says Cameron Douglas, head of FandangoNow. “Fans looking for high-quality content right out of theaters, including 4K HDR movies, don’t have to wait until they arrive later on subscription services, and innovative deals like rental binge bundles and the availability on new platforms keep them coming back to transactional digital services like our own.”

“New movie releases continue to be sought out by consumers during the first window in the home amidst the frenzied buzz around new streaming services,” adds Michael Bonner, EVP of digital distribution for Universal Pictures Home Entertainment. “While there’s no denying the landscape is becoming more competitive, this business has successfully co-existed with abundant availability of non-transactional content for a long time and we expect it to continue to do so.”

“There is space — and demand — for both transactional content as well as streaming — just as there is consumer interest in both digital and physical,” says Amy Jo Smith, president and CEO of trade association DEG: The Digital Entertainment Group.

Beyond new releases, streamers have a limited selection of older films and TV shows, particularly with their increased focus on original content.

“For many consumers, their streaming options are good enough,” says Mark Fisher, president and CEO of home entertainment trade association the Entertainment Merchants Association (EMA). “But just like the days when the first video rental stores opened and made it easy for the consumer to watch anything they wanted to watch when they wanted to watch it, online VOD retailers offer that same opportunity to the consumer. I know that every time I see a montage of old movie clips, I’m driven to watch titles that aren’t new releases — and these are titles not readily (or easily) found on the streaming services.”

Sales of digital movies, in particular, were a bright spot, with consumer spending up nearly 7% in the first nine months of 2019, according to trade association DEG: The Digital Entertainment Group.

“We’ve continued to see growth in EST (electronic sellthrough) — both in our new releases and in our catalog,” says Jason Spivak, EVP of distribution, for Sony Pictures Home Entertainment. “Certainly the enhanced consumer experience enabled by Movies Anywhere is part of that, as is increasing consumer connectivity in their homes. EST continues to gain prominence in our marketing planning, release data scheduling, and retailer partnerships.”

Ron Schwartz, president of Lionsgate Home Entertainment, says Lionsgate EST revenue grew 30% this year, “four to five times faster than the overall industry. With increased collaboration between studios and retailers, and more offerings such as dynamic bundling, customers are starting to build their lockers up to 10-plus titles. Recent data shows that once a customer gets to between 10 and 12 titles in their locker, their EST purchasing behavior doubles.”

In addition to selling movies, digital retailers also offer them for a la carte streaming, the digital equivalent of a physical movie rental. Redbox remains the only retailer to offer both digital and physical rentals, the former through an e-commerce site and the latter, through a network of more than 40,000 kiosks situated outside (or inside) large retailers like Walmart, convenience and drug stores, and other retailers.

“Redbox owns the transactional space with more transactions across physical and digital formats — for rental and purchase — than any other transactional provider,” says Redbox CEO Galen Smith.

In 2019, he said, Redbox expanded its offering of 4K Ultra HD discs into new markets, and stepped up promotions as well, with its Back to the Movies campaign and a joint Dinner & A Movie offering with meal delivery service DoorDash.

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In addition, Redbox Entertainment, a new content acquisition and production division, has further transformed Redbox into a multi-channel content provider and programmer. Launched in October, the new division is headed by Marc Danon, who spent eights at Lionsgate, most recently as SVP of acquisitions and business development.

Disc sales in 2019 continued to decline in the low double digits, with DEG reporting that in the first nine months of the year, combined 4K Ultra HD, Blu-ray Disc, and DVD revenues were down 18.5% to an estimated $2.3 billion — exactly half what they amounted to five years ago, in 2014.

But studios continued to support the disc. And while a trend among smaller titles is to release them only on DVD and digital, bypassing Blu-ray Disc, major new releases are still getting significant marketing campaigns behind them, particularly for the 4K Ultra HD editions. The UHD disc also made headlines last August when the UHD Alliance, along with leaders in consumer electronics, the Hollywood studios and members of the filmmaking community, announced collaboration on a new viewing mode for watching movies called “Filmmaker Mode,” designed to reproduce the content in the way the creator intended. Filmmaker Mode, bowing next year, will allow viewers to enjoy a more cinematic experience on their UHD TVs when watching movies by disabling all post-processing (e.g. motion smoothing, etc.) so the movie or television show is displayed as it was intended by the filmmaker, preserving the correct aspect ratios, colors and frame rates.

“For the time being, 4K UHD is still the gold standard for at-home content,” says Jim Wuthrich, president of Warner Bros. Home Entertainment & Games. “With hardware costs dropping and television functionality such as Filmmaker Mode being made available next year, there is still a great value proposition in owning content in 4K UHD, both physically and digitally, as is still represents the best home-viewing experience.”

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“As evidenced by the exceptional growth of 4K UHD to date, it is clear that there is a sizable appetite for premium high-definition products, and that format plays a meaningful role in boosting retail traffic,” says Eddie Cunningham, president of Universal Pictures Home Entertainment.

Retail partnerships are key, Cunningham adds. “Given that physical and digital transactional consumption rates are remaining steady year over year and that disc purchases are making up more than half of that consumption, there’s no question that movie buyers continue to be vitally important to retail,” he says. “At no other time in our industry has it been more critical to ensure that we work together to retain the loyalty of movie consumers, creating urgency for our products and delivering the utmost value, quality, accessibility and convenience possible.”

 

DEG Announces Board for 2019-20

DEG: The Digital Entertainment Group on Aug. 9 announced its incoming board of directors at the start of its 23rd year as one of the home entertainment industry’s leading trade associations.

DEG’s voting member companies elected the new board to serve for the 2019-20 fiscal year (Aug. 1 – July 31). New board members include Pedro Gutierrez of Microsoft Corp., Cheryl Goodman of Sony Electronics and Erol Kalafat of Amazon Studios.

Amazon Studios is a new member company represented on the
DEG board for the first time.

The DEG also has added two additional companies to its membership: Row8, a transactional digital movie service that allows viewers to stop a movie they don’t like and choose a new one at no additional charge, and Snap Inc., parent company of social networking app Snapchat.

The Officers of the DEG board were elected to a two-year term in 2018 and will continue to serve through July 2020. Officers include Chair Matt Strauss of Comcast Cable; Vice Chair Sofia Chang of WarnerMedia Distribution (HBO); CFO Bob Buchi of Paramount Home Entertainment; Secretary Jim Wuthrich of Warner Bros. Worldwide Home Entertainment & Games, and Chair Emeritus Mike Dunn, formerly of 20th Century Fox Home Entertainment.

“At a time when our industry is rapidly changing, the board of directors strives to produce deliverables that meet the needs of the industry at this dynamic time, such as DEG’s D2C Alliance, formed at the start of the year,” said Amy Jo Smith, president and CEO of the DEG.

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WarnerMedia Consolidates Home Entertainment Distribution

WarnerMedia on May 8 announced the transfer of HBO Enterprises and HBO Home Entertainment, home to the enormously popular “Game of Thrones” franchise, to Warner Bros.

The distribution of the US Turner Originals also is part of this realignment.

Jeffrey Schlesinger, president of Warner Bros. Worldwide Television Distribution, will take leadership responsibility for activities of HBO Enterprises and the distribution of Turner content produced in the United States, according to a WarnerMedia news release.

HBO Home Entertainment will transfer to Warner Bros. Worldwide Home Entertainment and Games under the leadership of its president, Jim Wuthrich.

“Bringing these businesses all under one roof means we improve cooperation and create scale,” Gerhard Zeiler, chief revenue officer at WarnerMedia, said in the release. “Acting as one will strengthen our position in an increasingly challenging marketplace.”

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Jim Wuthrich

Schlesinger added, “For the first time at our company, the diverse and unparalleled portfolio of genre-defining new and library programming created by HBO, Warner Bros. and Turner will be distributed globally by one group. This structure will enable us to speak with one voice, as we create new and innovative ways to license our top-quality programming to networks, channels and services globally, helping them grow their audiences and subscriber bases.”

Wuthrich, whose full title is president, Warner Bros. Worldwide Home Entertainment and Games, said, “While we have had a strategic alliance with HBO in the past that involved physical product distribution, we are now excited to welcome the digital transactional sales and marketing teams into the Warner Bros. Home Entertainment family. We look forward to sharing their iconic and acclaimed original programming with home entertainment audiences worldwide.”

2019: Home Entertainment to Thrive on Change

If there’s any truth to the adage “change or die,” then the home entertainment business has plenty of life left in it as we begin 2019.

The coming year will bring significant changes, as studios and distributors continue to rejigger business models to reflect changing consumer habits domestically and worldwide.

Walt Disney will finalize its merger with 20th Century Fox, leaving Hollywood with five major studios, not six. AT&T will continue the integration process with the former Time Warner, now known as WarnerMedia.

And if you thought subscription streaming had a banner year in 2018, 2019 will likely see even bigger growth, with the emergence of at least two formidable challengers to longtime market leader Netflix.

Walt Disney will finally launch its much-ballyhooed SVOD service, Disney+, with a focus on the same content that rules at the box office: “Star Wars” and all things Marvel. The first “Star Wars” live-action series, “The Mandalorian,” should arrive later this year, and Disney recently announced a prequel series based on Rogue One character Cassian Andor (played by Diego Luna). Disney also confirmed Disney+ is developing a live-action Marvel series centered around Loki, from the “Avengers” movies.

Not to be outdone, AT&T’s WarnerMedia also plans on launching a direct-to-consumer streaming platform in 2019, with three different services, including a premium one fronted by HBO, home of mega-hit “Game of Thrones.”

The latest numbers from DEG: The Digital Entertainment Group show consumer spending on subscription streaming grew 30% in the first nine months of 2018.  If that growth rate held up through the end of 2018, then consumers will have spent nearly $12.3 million on subscription streaming, or SVOD (subscription video-on-demand).

How high consumer spending on SVOD will grow in 2019 remains anyone’s guess, although observers believe continued double-digit gains in line with prior years is the most likely scenario as consumers continue to “cut the chord” with pay-TV services.

Last August, research firm eMarketer said it expected the number of U.S. cord-cutters — adults who have canceled a pay TV service and continue without it — to climb by 32.8% in 2018 to 33 million. The number of subscription OTT video service viewers, meanwhile, was on track to rise to 170.1 million, or 51.7% of the U.S. population.

The “VOD” that the studios are most intent to grow, transactional VOD, posted a surprising growth spurt in the third quarter of 2018 — 18% for electronic sellthrough, or EST, and 10% for digital rentals.

Michael Pachter, a senior media analyst with Wedbush Securities in Los Angeles, doesn’t see SVOD making much of a dent in TVOD in 2019.

“Transactional VOD should be relatively flat, as Netflix has few — if any — programs that people typically rent,” he said. “They have no new movies — once Disney pulls its films — and few current TV shows, although I suppose some TVOD is for older television series.  My sense is that the bulk of TVOD is new movies, with some catchup TV from current season TV shows, neither of which is carried on Netflix to any great extent.”

Jim Wuthrich, president, Warner Bros. Worldwide Home Entertainment and Games, agrees that the transactional business and streaming can peacefully co-exist.

“Consumers have more choices for content than ever before, and on demand streaming services are increasingly their go-to option,” he said. “On an aggregate basis, the streaming services have helped transactional services become mainstream, encouraging consumers to connect their devices to on-demand video.

“On a title basis, transactional demand drops when it’s on a major SVOD service, but transactional demand returns when the title rolls off the service. Ultimately we are competing for consumer attention and transactional services generally offer first in-home viewing and always on availability – a distinct and unique proposition.”

Looking ahead, Amy Jo Smith, president and CEO of DEG: The Digital Entertainment Group, says 2019 will be the most exciting yet for digital media.

“2018 has been a lot about the notion of how transaction and subscription distribution models can co-exist, and content owners have begun to lay foundations for their direct-to-consumer businesses,” Smith said. “In 2019, we will see the world’s biggest content owners actually beginning to deliver very high-profile entertainment directly to consumers, and as they do that they will gain the most detailed view yet of who their customers are and what their fan base craves.

“As a result, content owners will become smarter about how to reach consumers and the content delivery experience will improve. As direct-to-consumer offerings multiply, consumers will continue to sort out what is meaningful for them. They will prioritize the content they find worthy of collection and also decide what provides value for a monthly subscription.”

Accordingly, studio executives agree that in 2019, their No. 1 priority will be to continue to growth the transactional, or on-demand business — both physical and digital.

“We are taking a deep dive into consumer behavior as we continue to navigate the changing home entertainment landscape,” said Bob Buchi, president, worldwide home media distribution, for Paramount Pictures. “We’ll be sharing the results of quantitative and qualitative studies with our retail partners to work with them on crafting innovative strategies for reaching consumers and driving transactional sales.

“There is untapped potential in light and lapsed consumers who may have slowed their entertainment collecting and ongoing opportunity with heavy users who value high quality offerings. We’re going to work with our retail partners to maximize our learnings and strategically target diverse consumer groups.”

“Our focus remains on delivering a product offering and value proposition that enables the best consumer experience to continue the expansion and adoption of digital sell-through (and VOD for that matter),” said Michael Bonner, EVP of digital distribution at NBC Universal. “Improving these experiences through product enhancements like premium formats or interactive extras along with embracing new services like Movies Anywhere are just a few examples of how we’re investing as an industry.”

Warner’s Wuthrich agrees. “We believe there’ll be continued growth in digital transactions in 2019,” he said. “We have great momentum coming out of 2018 and have a number of programs to remind movie and TV fans that their favorite content is a click away. In addition to using performance marketing to help connect consumers with the content they love we’ll be introducing a fresh approach to advertising.”

Ron Schwartz, president of Lionsgate Worldwide Home Entertainment, said the key points on his agenda for 2019 are “continuing to create progressive windowing and focused strategies for our specialty and multi-platforms releases, and continuing to grow the digital business while maximizing results on the physical side.”

“Lifecycle management is more critical than ever, particularly with franchises,” he said. “For example, we’ll be working with our partners on compelling catalog initiatives such as ‘John Wick’, as well as on the third installment, throughout the distribution windows, providing more access and innovative marketing to keep fans engaged.”

As consumer habits continue to evolve, digital movie sales and rentals — electronic sellthrough (EST) and transactional video-on-demand (TVOD) — will remain a priority, Schwartz said.

“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.”

While studio executives agree their focus on 2019 will be to grow the digital side of the business, they aren’t giving up on the physical disc — particularly with the rapid acceptance of 4K Ultra HD.

“4K will continue to gather momentum as more consumers experience the incredible quality of the content on their 4K televisions,” said Paramount’s Bob Buchi. “Paramount will offer most of our theatrical releases on 4K UHD Blu-ray, as well as carefully chosen titles from our vast library.  The response to our catalog 4K releases has been very promising, so we expect to see increased interest in owning treasured classics in the very best format available.”

“Consumers decide how, when and where they want to experience our content, and the physical disc remains a valuable option for them,” adds Chris Oldre, EVP of pay TV, digital and international distribution at Walt Disney Direct-to-Consumer and International.

“We view the business holistically, with physical and digital ownership as one market. Our continued commitment to including the digital code delivers the added value of streaming, too, and the introduction of Movies Anywhere as a simple, fast method to redeem that code delivers the best of both worlds — physical and digital — in one experience.”

Oldre said he’s particularly excited “about the incredible range of content that will be offered by Disney in 2019, and with our continued commitment to delivering best-in-class experiences, we’re looking forward to another exciting year across both physical and digital platforms.”

“The home entertainment releases of Ralph Breaks the Internet and Mary Poppins Returns will offer the kind of trusted family entertainment that Disney is known for,” he said. “Later in the year we’re introducing a new Marvel character to the home entertainment audience with Captain Marvel, and we will be closing out a truly iconic series with Avengers: Endgame.

“In addition, Disney’s brands and franchises are content that consumers want to own and a significant portion of our revenue comes from our library of classic and timeless titles that continue to entertain generation after generation.”

In the first quarter on 2019, Oldre said, “we’ll be celebrating the eagerly anticipated 30th anniversary of The Little Mermaid.  Those are just a few of the highlights of the year ahead, which will see us continue to roll out releases in 4K UHD, as well as continuing to focus our efforts on growing Movies Anywhere and educating consumers about the ease of building a digital library.”

Independents, meanwhile, are looking for whichever distribution channels and platforms that make the most sense.

“I am really focused on watching three exciting trends that will have enormous impact on the ever-changing entertainment landscape,” said Bill Sondheim, president of the Cinedigm Entertainment Group, who in November 2018 took on additional duties as President of worldwide distribution.

“First is the battle for SVOD dominance that really starts in earnest when Disney launches its direct-to-consumer streaming service to compete head on with Netflix,” said Sondheim, who in his expanded role continues to lead the company’s growing China/North America business pipeline, in addition to managing distribution in the rest of the world.

“This will likely create audience migrations that will have far reaching impact on the mid-tier SVOD players more that the top-tier providers,” Sondheim said. “The second trend to watch is AVOD’s explosive growth, which may be a prime beneficiary of the audience shifts that will occur in the SVOD battles mentioned above. The AVOD segment has long been the held back due to lower quality content or older catalog offerings, but as the cost of SVOD consumption grows, the AVOD alternative is rapidly evolving with higher caliber brands and newer content that will drive audience adoption.

“Finally the arrival of 5G broadband will start to demonstrate the impact of true high speed wireless connections. While it will likely be more than two years before we have a true nationwide network, 5G will start to make an impact in most major cities later this year.”

“Buckle up,” he added. “It is going to be a year of massive growth and further disruptive change.”

Big Data, Content and the Human Touch

The concept of data analytics isn’t new. Businesses have been collecting and interpreting data for years, with the intent of spotting trends and adjusting their business models accordingly.

Back in the early days of home entertainment, when thousands of video stores were renting movies on videocassette to consumers, retailers as well as studio executives were tracking the performance of movies and using a wide array of metrics to help them predict the performance of upcoming releases.

Remember “turns per copy?” That was a term for how many times each copy of a new release rented, on average, in a given week. I seem to recall anything over three was considered good. The rise of the “erotic thriller” – thrillers with an ample helping of illicit romance  and erotica – came about when someone saw a spike in “turns per copy” for several recent softcore direct-to-video movies and all of a sudden the floodgates were opened.

Today, of course, the process would be much refined and improved. Instead of grabbing any hot young starlets and aging B-movie actors we’d carefully analyze not just what people rented, but why. We’d monitor social media and tally Facebook posts, Twitter tweets and Instagram likes. We’d target people directly via email, text or online ads.

There would be less risk, and fewer mistakes. As analytics platform provider Tellius says on its website, “The advent of new and powerful computing platforms, ubiquitous Internet, cloud technologies, along with advanced data analytics algorithms … make the possibilities of what data can do quite staggering.”

In the cover story in the August issue of our monthly magazine — available next week in both print and digital editions — we explore how the home entertainment sector is using Big Data and data analytics to more effectively give consumers the content they really want – and deliver it how, when, and where they want it.

Content is still king — and, as Warner Bros.’ Jim Wuthrich says in the article, “data hasn’t changed the importance of content. But data does help everyone from movie greenlighters to home entertainment marketers make informed decisions. From deciding which content to make, how to price, where and   what to market, data influences everything we do.”

It’s no different on the subscription streaming side of the business, with market leader Netflix using analytics to predict whether an original digital series will be a hit even before it is made.

And yet if there is a caveat, it is to not rely on Big Data for everything. An article in CIO details five instances in which data analytics flopped. “Probably the biggest and the most well-known big data failure was Google Flu Trends,” the article said. This web service was started in 2008 with the aim of predicting flu outbreaks in about 25 countries. The logic was simple – just analyze Google search queries about flu in a particular region. This was compared to a historical baseline of flu activity level in that region, and based on the results, the activity level was reported as low, medium, high or extreme.

At the peak of the 2013 flu season, GFT failed — and how. It was off by a whopping 140% How did this happen? The algorithm was flawed and did not consider several other factors. For example, searching for terms like ‘cold’ and ‘fever’ did not necessarily mean that people were searching for flu-related diseases; they might just be looking at seasonal diseases. In 2009, it also missed out on predicting the outbreak of H1N1 entirely. GFT could not recover from this flu, which ultimately led to its untimely demise in 2013.”

Analytics is bound to give you answers, CIO concluded — but they’re not always the right ones. That’s where the human touch comes in.

Wuthrich says it best: “Data and analytics don’t provide all the answers as there are many things that can’t be measured or interpreted. You still need talented, impassioned people to create, market and  distribute great content.”

AT&T Boss Sends Mixed Messages Following Time Warner Acquisition Close

NEWS ANALYSIS — Following consummation of AT&T’s $85 billion acquisition of Time Warner, AT&T CEO Randall Stephenson sent out a staff memo welcoming Time Warner — which includes Warner Bros., Turner and HBO — to the fold.

“As different as our businesses are, I think you’ll find we have a lot in common,” Stephenson said, adding, “We’re big fans of your talent and creativity. And you have my word that you will continue to have the creative freedom and resources to keep doing what you do best.”

Commonality is always a slippery slope in corporate mergers. Shared interests often translate into operational redundancies that require fiscal cutbacks and eliminated positions.

AT&T projects $1.5 billion in annualized cost “synergies” by end of the third year of the acquisition.

Indeed, in a separate statement, AT&T said Time Warner would be folded into the telecom’s media business segment headed by John Stankey, with a new brand name to be announced.

As previously reported, Time Warner CEO Jeff Bewkes will continue for a limited time as a senior advisor during the transition. All of Bewkes’ direct reports now answer to Stankey, which include Kevin Tsujihara, CEO of Warner Bros., John Martin, CEO of Turner, and Richard Plepler, CEO of HBO.

“We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers,” said Stephenson.

How that “fresh” approach works out for Warner remains to be seen.

Tsujihara, in May, initiated a string of management changes that included the promotion of Jim Wuthrich to president of worldwide home entertainment and games. Wuthrich reports to Ron Sanders, president of worldwide theatrical distribution and home entertainment.

Warner Bros. Home Entertainment reported a near 6% increase in fiscal 2017 revenue to $1.56 billion from physical and digital sales of movies — up from $1.48 billion in 2016. Sales of TV content on disc and digital declined 11% to $418 million from $470 million.

Wuthrich Promoted to President of Worldwide Home Entertainment and Games at Warner

Warner Bros. has promoted Jim Wuthrich to president of worldwide home entertainment and games.

Wuthrich will report to Ron Sanders, president of worldwide theatrical distribution and home entertainment.

David Haddad, who serves as president of Warner Bros. Interactive Entertainment, will now report to Wuthrich.

“Throughout his 20 years with the company, Jim has proven to be strategic, forward-thinking and consistently able to turn ideas into results,” Sanders said in a statement.  “As every aspect of our business continues to change at an unprecedented pace, we’ll look to Jim to both help us navigate these changes and turn them into growth opportunities. This promotion is well-deserved and I look forward to our continued partnership.”

Prior to his promotion, Wuthrich served as president of the Americas and global strategy at Warner Bros. Home Entertainment, responsible for the division’s overall operations in the United States, Canada, and Latin, Central and South America.

Throughout his career with Warner Bros., Wuthrich has been central to the development and growth of the home entertainment business, from the introduction of DVD to the ongoing transition to digital. He was a pioneer in the development of digital ownership formats, forging alliances with Apple, Amazon, Google, Sony, Microsoft and Walmart, and licensing Warner content to numerous global services.

He was inducted into Variety’s Home Entertainment and Digital Hall of Fame last year.

Previously, Wuthrich served as president, international home video and digital distribution, and before that, he was SVP of digital distribution, as well as SVP of electronic sellthrough and interactive marketing at Warner Bros. Home Entertainment Group.  He joined Warner Home Video in 1998.

Prior to his career at Warner Bros., Wuthrich led a tech startup and worked for Hallmark Cards as a strategist.

He is a graduate of the University of Wisconsin-Madison and Harvard University’s Advanced Management Program.