TED’s RAMBLINGS



2011 has ended and we can now look forward to 2012 - or at least some of us in the business can. Netflix, Redbox and anyone else that survives on cheap content in order to generate revenues might find 2012 to be a difficult year. This is what my crystal ball is flashing at me as I ask it to best describe what to expect in 2012. It says “value” will be key to the video industry and everyone in it. As I drifted off into my trance caused by the crystal ball, I had my visions that explained why 2012 will be the year of value while giving me the ability to make my annual predictions for the New Year (that has always been as accurate as just about anyone else). As I have stated every year, “All predictions are a guess. You are the best predictor of the future in your market. No one knows it better than you.”



We have three main focus points where “value” will be a priority in 2012. The first and most important for 2012 is value concerning content to include movies, the most important to video retailers.



Over the past few years we have all seen and experienced a devaluing of content, especially with movies. Netflix and kiosk operators such as Redbox have been leaders in this devaluing of content, but they are not alone. We find lots of others, some old and some new, some very large and start-up companies offering cheap entertainment via streaming over the internet. This includes the likes of Amazon, Facebook, YouTube and others that have millions of consumers involved with them. They have the ability to gain and track consumer information that has never been as easy as it is today or as precise, to the point that many feel there is no privacy left in their lives. For many of the content providers, to include studios, it has been a real battle to keep value in the content they produce. It has been all but overpowering them as the speed of how quickly this has occurred and the advancements in technology, new delivery systems and hardware to include Smart TVs, Pads, etc., that has taken off and been accepted by consumers. One of the driving forces behind so much of this, especially consumer acceptance, has been access to cheap forms of entertainment that includes both old and new movies. The best example is of course the major studios that have seen many of the “windows of opportunities” (theaters, video sell-thru, cable and satellite) shaking to the point of causing real problems in cash flow and profits for them as well as those who make up each window of opportunity.



In 2011 content providers (including studios) really began to fight back and to once again not only stop the devaluing but add value back into what has already been devalued. We can expect this to continue into and throughout 2012. This is why we see Netflix struggling as the cost of content is increasing dramatically. Redbox also will feel the effects of increased cost. Online streaming businesses that look for cheap content to fuel their growth or business ventures into the world of entertainment will also find it much more costly to be involved.



Coming in at #2 is “added value” for consumers. If anyone thinks that just eliminating or forcing these cheap forms of delivery (of entertainment) to increase their prices to consumers will put value back into the business is dreaming. What will make the difference is adding value to what and how it is offered. What consumers want is high quality entertainment at a great price, and have it available when and where they want to get it.



In 2011 there was a lot of noise being made by the high profile businesses concerning new offerings for streaming movies, cheap delivery, flat sell-thru numbers, etc. But only toward the end of the year did we start seeing press about how well Blu-ray was performing and increasing its numbers in sell-thru and yes, rental. The numbers were surprisingly strong and outdid most everyone’s projections. There has been a high-definition revolution occurring over the past few years in American homes. Watching a well made movie on a good HD-TV in the Blu-ray format truly is as good as it gets. Now add to this the price reductions we have seen at mass merchants on Blu-ray DVDs as well as on Blu-ray players and we see it has been noticed by consumers. Another, in my opinion, important introduction we have seen take-off in 2011 was the combo packs of Blu-ray and DVDs at aggressive pricing. This was a great idea and it fit well with what consumers want, which is high quality at a great price, and lets them watch the movie when and where they want to include the minivan or SUVs that only play DVDs. Next up, “Ultraviolet” giving access to your movie purchases in the cloud as well. That could be even more added value and offer consumers the ability to watch their movies on more devices such as Pads, Smart phones (in the future) and online. Blu-ray 3D holds some potential as does 4K, which we might start hearing more about in 2012. When films are produced in this format it takes viewing a movie to a whole new experience.



We can expect to see real efforts by content providers including studios to add value to their content, which includes moves especially in how their product is offered and where and by whom they choose to offer it to.



Finally I can assure you my crystal ball says video retailers should expect value and the awareness of value will play a major role in 2012 for video retailers. Rest assured home entertainment, especially watching movies, still excites consumers. This in itself is valuable to them. Other forms of entertainment to include spending time online also holds value for consumers and is competition for the video business. Competing for consumers free time is as strong as it has ever been. Because of this it is important to do everything possible to keep consumers aware of what we offer and that video retailers are still alive and well. This was important in 2011 and will be just as important, if not more so in 2012. The best example of this can be seen with mass merchants who in 2011 made major merchandising changes to draw more attention to DVDs and Blu-ray. In 2011 Target began putting new releases on their checkout lanes endcaps. Walmart unlocked their cabinets and put Blu-rays out, Best Buy moved movies in with home theater hardware. This was done by mass merchants to draw attention to what still holds value for consumers and that is movies and home entertainment. Did I mention how well Blu-ray did for mass merchants in the 4th quarter? Video retailers need to do everything possible to make consumers aware of the fact that we offer huge choices in movies and that we do still exist. The louder we can make this statement, the more advantageous it will be as consumers start seeing less value in cheap delivery systems such as Netflix and kiosk operators as well as other forms of cheap delivery.



Added value will be just as important to video retailers as it is to content providers who are battling to halt the devaluing of what they offer, especially movies. Video retailers also will find being creative in adding value will pay dividends.



The pipeline of movies coming in 2012 looks really good and hopefully will be spread out more evenly then in the past couple of years. The economy is improving slowly and  any improvement is important to the entire industry because it was the biggest issue everyone in the business has been dealing with over the past couple of years.



For so many video retailers it has been extremely important to find new ways to generate cash flow. Diversifying or adding new product lines, or finding new ways to enhance the ones that already are being offered such as buy-sell-trade with video games will be just as important as we have seen in the past. 2012 will be the year of “value.” It will be a bit unsettled and it will have craziness added in, but the numbers should be up over 2011. Of the past few years however, 2012 will be the more unpredictable of them all.