October 13, 2009 | Conferences
ESCA: Give public a licence to consumer
Packaged goods will continue to dominate the home entertainment industry until digital delivery is mature enough to take over.
In the meantime the two delivery methods must journey together, a panel of retail experts concluded at the Futuresource supply chain conference in London last month.
Tesco’s Category Director for Entertainment Rob Salter said retailers were moving towards selling licenses to consume, rather than a physical product, but to succeed the industry needed to reach the same level of maturity as the banking system.
“The banking world has created a scenario where the tangibility of your money is there,” he reasoned. “You can go to any cash point anywhere in the world, put in your card and get access to money. With films people are going to want to get access to the licences they own. The technology is emerging but it’s not there yet.”
Panellists Andy Adamson, Merchandise and Supply Chain Manager with Borders; Paul Firth, Head of European Buying with LoveFilm; Hans Breukhoven, CEO of Holland’s Free Record Shop, and Tesco’s Salter agreed there was plenty of mileage left in physical product and that DVD in particular still had a key role to play.
“We’re in a fairly mature market and there’s a lot of price deflation going on as well but there’s a lot of life left in the format,” Adamson said. “Blu-ray obviously has quite a lot of potential but I think we actually can grow volumes and revenue in the DVD market for another couple of years, we just need to work a bit smarter on it.”
Salter applauded the likes of Disney for pioneering the sale of multiple formats in one package. “We’re at a key moment in our industry where we have to make a decision about whether we’re selling copies to our customers or whether we’re selling licences,” he said. “We’ve lived in a world where we’ve sold them a VHS, we’ve sold them a DVD, now we’re selling them a Blu-ray.
“But those days are over. What we’re selling customers are licences to consume. That’s the world we’re trying to move people into. I’m very supportive of studios that have already embraced that, for example Disney – and others – who are now selling a Blu-ray packaged with a DVD, packaged with the digital content creating that pricing architecture where customers can come in and buy multiple formats at one price. It means they’ve got the versatility they need.”
Warning of the dangers of confusing shoppers over exactly what they were being sold, Salter advocated a slow, considered approach. “In the digital world we’re saying you can buy this thing and move it around your various devices – we’re moving from the world where you’re selling them the same thing over and over again.
“But we’ve too quickly told people that packaged media is old hat. We need to link physical and digital together and take the customer on a journey from one to the other and not try to leave the physical media behind. People love to buy packaged media and I fear for a world where we’ve taken that away from them too quickly when we’re not ready to give them a mature digital experience.
“We’ve got to take them to a point with physical and digital together where they’re actually prepared to say ‘I’m so confident that I’m prepared to let the physical format go and just live in a digital world’. But they’re going to have to live in a world where they know that they’re content is sitting somewhere and they can get at it.”
Citing statistics that showed 27% of all DVDs sold in America are still in their shrink wrap and that half the people who bought a DVD in Woolworths last Christmas hadn’t bought one since, Salter stressed the importance of physical product in driving impulse buys.
“We’re very much an impulse business – people see it, they buy it,” he said. “I’m not sure how that plays out in a digital world and we need to be very careful how quickly we rush to tell people that DVDs or Blu-rays are not what people should be buying.”
The panel agreed that Blu-ray had so far failed to deliver what everyone had hoped for and Adamson called on the studios to support continued efforts to convince the public of its worth. He also suggested experimenting with day and date cinema and DVD/Blu-ray releases which would allow distributors “to focus all their marketing at one point rather than having it scattered across a one-year roll out plan”.
Salter maintained that the consumer held the answers. “We’ve got to get back to thinking about the customer and where they are in this,” he suggested. “I don’t know why there’s such head scratching about why Blu-ray hasn’t taken off yet. It seems relatively obvious from a consumer standpoint: we’re solving a problem people don’t really have. People are not sitting watching DVD and thinking I’d buy more of this if it were a better experience. DVD is a very good experience. High definition TVs, cheap players – it works. Blu-ray is better but it’s not as if we’re replacing a very inferior product.”
He further argued that a DVD player cost next to nothing and most homes had more than one player. “We know from our research that there are very few programmes that people will sit down and watch together,” he continued. “They’re moving content around their homes and using it at different times. And if you’ve only got one Blu-ray player it means that versatility is closed off to you. Again, I support those studios that are realising that.”
Firth posited that it was impossible to improve supply chain efficiencies and support Blu-ray at the same time by “giving it more space than it perhaps deserves”. He proposed that the industry harnessed savings made in supply chain efficiencies with DVDs to support Blu-ray.
Moderator Kim Bayley, DG of retail body ERA, asked the panel to reflect and the departure of Woolworths and Zavvi from the retail arena. “You could argue that it is a good thing for those of us who are still here and Tesco is obviously looking for some lift from the fact that both those retailers are not around,” said Salter. “But I’m not sure whether it’s good for the entire market that we’ve lost two great retailers and we can see that customers haven’t necessary found a new home yet.
“Some of them have gone on line and some of them have found other retailers, but this is very much an impulse category so obviously removing all that footage from our industry has not necessarily been picked up elsewhere in the market.”
Firth predicted that prices of physical goods would continue to fall but the rate would slow, being fuelled at the moment by volume left in the market by the collapse of Woolworths and Zavvi.
Salter revealed that Tesco was calling on its online offer to maintain range where shelf space was insufficient. “The pressure on space is huge,” he confessed. “Overall space hasn’t declined but we’ve seen a shift from music to film and also into gaming.
“On DVD and music we’ve narrowed our offering and what we’re now trying to do is step up in the online space to make sure we’ve got a much broader offering online. That’s the way we’ll deliver range to customers – we’ll never be able to do it fully in the way we would like in the stores.”
Adamson indicated a change of tack at Borders. “We’ve completely remodelled our offer,” he revealed. “We’ve gone for a much more ‘when it’s gone it’s gone’ proposition with catalogue and we’re not really going to get into the dogfight over price and chart.
“That’s worked really well for us but we’ve found is the industry still has a ‘one size fits all’ approach. There are a lot of campaigns coming on stream all the time but it’s very much the same offer for everyone.”
He said he’d like to see the industry engage a bit more in looking at their own catalogues and present different retailers with different propositions and in that way grow the market. “For me growth is going to come through exploitation of range,” he added.
Packaging also came under scrutiny with Firth pointing out that it had looked pretty much the same for the last 10-20 year. Salter agreed: “Packaging is a key part of what we need to do to re-energise the business. It’s got dull and staid and people have got less excited by it over time as it has matured as a format. When the CD first came out everybody was very excited but it’s 25 years old now. I don’t think we’ve clearly represented value to the customer.”