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The Entertainment Merchants Association |
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"An Inconvenient Truth" Bo Andersen VSDA's Home Entertainment 2006 This year and this convention, our 25th celebration of the home video industry, give us an opportunity to look forward and to look back.First, looking back. In 1981, VSDA was formed, and we held our first convention the following year. In 1981, Ronald Reagan was sworn in as President. Natalie Portman was born, and "Ordinary People" won the Best Picture Oscar. Pacman mania swept the country and technical standards for an optical disc for music were agreed upon worldwide. American consumers were bringing their filmed entertainment home -- spending about 465 million dollars, renting often and buying occasionally. By 1981, VHS had made inroads and, because consumers loved watching their movies at home, the video industry thrived. I thrived so well year-after-year that growth seemed like a birthright for studios and retailers. Retail even survived a business school anomaly: years and years of "managing customer disappointment." Eventually, that model was turned on its head with virtually unlimited copy depth and with what I have called, perhaps too often, "the Gift of DVD." Let's talk about the Gift of DVD. In my view, at the launch of DVD, consumers were not unhappy with their VHS copies. They were not unhappy with the fidelity of the sound or the picture quality -- and yet home video had become "ordinary," not "cool." The industry needed a boost. DVD quality was a step-up, but I suspect that its key feature was its packaging. I'm not speaking of box art or clamshell cases, I'm speaking of the features of that shiny disc that "packaged" that great entertainment. Consumers clearly wanted this glitzy and surprisingly durable disc of plastic. And they wanted it in their home libraries – remarkably, even if they never watched the movie. Our soon-to-be-released survey of 1,000 adults by Harris Interactive shows that 32% of respondents admitted to "occasionally or frequently" renting a movie and not watching it, and 26% said they occasionally or frequently buy a DVD and never watch it. Video on Demand may never offer much in by way of sales of "never-to-be watched movies." But we should remember that DVD enjoyed much of its "hockey stick" growth even without a recordable media. It must have been that "package." For me, the lesson here is that consumers will pay a premium for a superior product packaged in a way that satisfies them in portability, extra features, quality, and caché. And retailers took the combined caché of DVD and the world's finest filmed entertainment and built this industry into a $24.9 billion business. That's more than 50 times larger than we were just 25 years ago. And yet hardly anyone is thrilled. Because last year, for the first time since the launch of DVD, combined rental and sell-through revenues declined from the previous year. Even though the decrease in total consumer spending was less than 3%, some concern is justified. But the truth is that the fundamentals of our industry are very strong. When you ask consumers where they prefer to watch movies, 73% say "at home." And buys of movies on video-on-demand remain at about 1/50th the size of packaged home video. In 2005, theatrical box office revenue suffered a 6% decline on what many people say was a subpar slate of releases -- and for the sixth straight year album sales of CDs were down. In my view, in a year when theatrical box office was down 6% and music sales were down 7%, a flat video market is impressive. This year, we are seeing the beginnings of a rebound in both rental and sell-through sectors. That's giving rise to the notion that 2005 was an aberration. But let's turn to an authoritative source for year-to-date numbers. I have invited Steve Nickerson, Senior Vice President, Warner Home Entertainment Group to spice this up. Steve will present the year to date performance of our industry on behalf of the Digital Entertainment Group. Here's Steve Nickerson. **NICKERSON PRESENTATION** Thank you, Steve, and thanks DEG, a very effective group. Now let us look forward. Our industry has boldly, some will say brashly, entered the era of high definition. HD-DVD and Blu-ray have both officially launched and for retailers, this is perhaps "An Inconvenient Truth" - with apologies to Paramount and Vice President Gore. Inconvenient, in that retailers must now become experts in both formats. It's retailers who will be called upon to assist consumers who want DVD hardware and software that fits their high-definition flat screen and their heightened expectations. Can there be any serious question that they will want and expect their movies in high definition? The depth and precision of retailers' briefings to customers on high definition DVDs are absolutely critical to the launch. We are very pleased that supporters of Blu-ray and the HD DVD Promotion Group are at the show to demonstrate their amazing developments. I ask – implore – every one here to invest the time to learn all you can about their respective technologies. I am convinced that consumers can accept the complications of multiple formats, but only if they fully understand these complications at the point of purchase. True consumer disappointment - bred by misunderstanding or misinformation - is infectious. A retailer who detects a consumer mistake-in-the-making and politely helps the consumer avoid the mistake has earned the trust of the customer, perhaps for a lifetime. So what can retailers "sell" about high definition DVDs? First, we must never fail to sell the enhanced experience. The consumer already wants the content - we can make sure that they also want the enhanced experience. The message can be simple - "You will enjoy this so much more in high definition" or "Wait 'till you see how the interactive menus work on this high-def disc." Second, we must accentuate the positive and eliminate the negative: There's no reason to talk to consumers about format wars - there is every reason to make sure that the consumer gets the right disc for his player. Finally, our industry needs to sell the "package" - the high definition DVD itself - It must be sold as chic and modern and cutting edge. I have spoken here every year about the primacy of our concern about piracy and the importance of calling it what it is: theft. The primary challenge in responding to the theft of our industry's treasures is shaping moral thinking in America about the theft of intellectual property, the theft of the creative and economic lifeblood of our industry. Last year, we launched an annual contest for filmmakers to create public service messages that speak out against motion picture theft in ways that will resonate with young people and with the public at large. We call the contest Project: FAIR for "Filmmakers Against Illegal Replication." The fight against video piracy is a deadly serious matter, but that doesn't mean that our efforts to educate the public about the problem must be heavy-handed. That's reflected in this year's winner. This year's winner adroitly utilizes wit to convey the message that it is simply wrong to engage in video piracy. The piece is called "Good Stealing and Bad Stealing" and was created by Dane Boedigheimer. Here it is: **"GOOD STEALING AND BAD STEALING" PLAYS** That message and others will run in more than 5,000 stores this year. But our main purpose is to stimulate others in our industry to produce more of these messages and to include them on the opening of DVDs and to run them in theaters – and they need play time on MTV and VH1. We are fortunate to have Dan Glickman, the Chairman and CEO of the Motion Picture Association of America, with us today to keynote our convention. Dan will also present the winner of MPAA's filmmaker's contest, and I know he will have more to say about the dominant issue of piracy. I am sure that are some in the audience, perhaps many, who believe they have no role to play in digital delivery or that it is solely a competing technology. We urge a broader view. Entertainment retailers must be agnostic about the medium of delivery. We can grow our businesses by providing the public with entertainment in a variety of ways. We are not DVD retailers. We are retailers of the world's finest entertainment. We are entertainment merchants. This morning, we will have a panel discussion on preparing for a future that includes digital delivery. In some respects this is the most controversial panel we have presented. Digital delivery is a wake-up call for home video. If you don't leave here thinking every day about developing your role in digital delivery, then we have missed our objective. I think most of all of you are aware of EMA's leading role in opposing government restrictions on violent video games. Together with ESA we have filed eight federal lawsuits against censorship laws in eight different states. We have won permanent or preliminary relief barring enforcement of these laws in every one of these cases. This is a core responsibility of the association, and we will remain fully engaged in this battle until the threat of onerous law is eliminated. We will continue to be confronted with video game censorship laws until politicians and voters are convinced that retailers in fact won't sell or rent Mature-rated video games or R-rated movies to youths under age 17, without parental consent. I'd like to say there never has been a more important time for renewing your Pledge to Parents and your commitment to enforcing game and movie ratings than today. Our merger with the video game retailers of IEMA has strengthened your association. But more fundamentally, it flowed from the momentum of intensive convergence at retail. No longer are video and video game retailers different companies with separate product lines. Increasingly, retailers of DVDs are also retailers of computer and video games, and the converse is also true. Consumers are beginning to look at video games and DVDs as very similar entertainment choices. Frankly, I see a day in which the dividing line between video games and interactive movies is virtually academic. While the VSDA name has changed, the association's historic mission to promote, protect, and provide a forum for the home entertainment industry remains absolutely unchanged. EMA will carry on with that mission. Today, this means addressing four challenges:
There is no "Easy" button for these. This will take what it has always taken, an industry that bands together in common interest and in hard work. Thank you.
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