[SLIDE title] Good evening and thank you for the welcome.  It is a great pleasure for me to be here on Hamilton’s Island tonight as part of my visit to Australia.

Until this week, Singapore was as close as I had ever been to Australia.  So, since I have finally made it here, I am going to act like a local and say “geeday”.  

Yes, I am excited to have made it to Australia at last and it is really great to be here down under.  I just love that term, down under.  I come from Los Angeles California and I have to say that when I’m at home it doesn’t feel like up over to me.

With a couple of days of my Australian trip left, [SLIDE hunter] I still have time to meet the Crocodile Hunter, have a Fosters and throw a shrimp on the BBQ because I am down under.   Geeday!

I have been in Hong Kong and Bangkok for a week and flew into Brisbane this morning after a few days in Sydney getting over jet lag and helping set up a branch of the VSDA in Australia.  In a couple of days it is back to the States [SLIDE expo] and straight to Baltimore, Maryland for the home entertainment retail expo.  With all this travelling I almost forget what my home and family looks like.

Before I get to the expo, let me tell you a bit about the Video Software Dealers Association and my role there.

[SLIDE VSDA logo] The first thing that strikes most people is the name of the organisation, the Video Software Dealers Association.  Most people get a bit confused by associating software with video.  Our market research shoes the confusion is whether they are [SLIDE words ]  two different terms as in Video and Software or is it a phrase, [SLIDE phrase]  “video software” and to be honest because of this potential confusion I wasn’t sure it was a good name, but a lot of market research was carried out before the name was settled on.

The name does reflect a single phrase “video software” and we are not talking about games.  The name is a recognition of the convergence of the various technologies that are needed to provide the current home entertainment platform that people have come to enjoy, understand and in general, accept [SLIDE remotes]

You can laugh at that slide but I think it is something we can all relate to.  You have a video player, a CD player, a DVD player, a radio tuner, cassette player, TV, and surround sound.  The problem is that you have separate remote control for each device.

Have you ever considered why that is?  Why you can’t, or should I say, don’t have a single device that can operate everything you own.

I know you can go to your local radio shack store an buy what they laughingly call a “universal remote”, but the only reason they use the word “universal” is because you need to be from another planet to be able to use it.

Add to this the legendary difficulty in setting a video to record a show while you are out and you can understand why consumers are reluctant to embrace the new technologies we are offering them.  A technology that will ultimately bring them into your stores.

But with the integration of multiple products into a single unit things are turning around.  The average consumer can deal with multiple products as long as they are combined into one system.

[SLIDE  advocacy] The VSDA is committed to being the pre-eminent source of industry advocacy, [SLIDE  policy ] policy setting and [SLIDE research] research.  We have long worked with electronics manufacturers through our partnership with the [SLIDE NVSA] Japanese Video Software Association.  One of our goals is to persuade the Sonys and Panasonics of the world that standardisation will help us all, but so far despite them talking to us, we haven’t had a lot of success.  They see having a proprietary system as a matter of pride and independence, rather than seeing it for what it really is, a hurdle to customer satisfaction.

OK, that’s our basis for existence, but what is it that the VSDA actually does?

[SLIDE leadership] VSDA plans to maintain its leadership and expertise in packaged home entertainment and at the same time secure for its members

[SLIDE opportunities] opportunities to deliver quality entertainment to consumers through new delivery systems, including digital delivery.

[SLIDE new technologies] VSDA will seek out, evaluate, and promote new technologies to help its members progress through innovation.

[SLIDE revitalisation] Aiding in the revitalization and modernization of members' businesses is a primary responsibility of the Association. VSDA will provide leadership in the successful evolution of members' businesses.

[SLIDE goals] So, as you can see, the Association has you as its primary focus and we plan to continue our great work by focussing on our organisational goals.

[SLIDE strength] Strengthen and position VSDA for a future expansion of its reach into additional home entertainment retailing sectors.

[SLIDE position] Articulate a public position on major public policies and industry issues that may significantly impact the industry.  We plan to utilize direct, grass roots, coalition and public advocacy resources to ensure our position is adopted.

[SLIDE revenue] Create and generate revenue from relevant, value-added consumer and business research on the home entertainment industry for our members, consumer and trade media, and the financial community.

[SLIDE efficiency] Assist our members to be more efficient and profitable by proactively researching, developing and testing business models, products or services and best practices.

[SLIDE management] Manage the VSDA's financial resources to ensure ongoing viability of the Association.

[SLIDE network] Leverage existing resources by attracting business and support from other organizations with common purposes and challenges.

[SLIDE forum] Continue to protect, promote and provide a forum for all those engaged in the rental and sale of packaged home video entertainment.

That’s what we do in the USA and what we hope to support you guys doing here in Australia.  [SLIDE  VSDA] In fact, you will notice that the country name has been very deliberately left out of the association title.  It isn’t the Video Software Distribution Association of America or something like that.  This is to ensure that as the industry globalises through things such as the recently signed [SLIDE shaking]  Free Trade Agreement, we are seen as a united body.

Our plan is for the international VSDA alliance to be [SLIDE globe]   globally dominant. But how are we going to do that when there are all sorts of bogus associations and organisations trying to muscle in on our turf?

Well, we need to expand the broadness of our depth and we are doing this by running [SLIDE HERE] events such as  the home entertainment retail expo, or HERE as it is generically known.

[SLIDE crowd]I don’t know much about expos in Australia, but retail expos in the USA are pretty big events.   [SLIDE figures]  The good news is that in Baltimore we will have 630 stands booked and are anticipating around 8,000 delegates with up to 60,000 members of the public through the doors over the three days of the event.

As you can imagine it is a lot to deal with and to be honest, I am glad I am away while the rest of the team is finalising the details.

[SLIDE HERE] The Baltimore expo has two streams.  One is the private one for industry delegates where we discuss the things that usually get discussed at conventions.  Golf handicaps and who is sleeping with who. 

The other stream is the public expo where we showcase the latest home entertainment equipment and, of course, see the release of the newest products.

But there is bad news.  Traditionally new products and services such as the [SLIDE tivo] TiVo and Netflix have been seen as threats to the retail movie rental industry.

Is there anyone who is not aware of what either tiVo or Netflix is?  I understand you have Quickflicks here in Australia, well Netflix is the US version of that.

TiVo is very different and has become a runaway success.  It is a device which for only $US12.95 per month – that’s about $19.00 of your funny coloured money.  A Tivo works with any TV setup to automatically find and digitally record up to 140 hours of the programming you want.   It could be every episode of [SLIDE Seinfield] your favourite series, [SLIDE godfather] every Coppola movie, [SLIDE improvement ] home improvement shows, [SLIDE  adult] Adult entertainment, whatever you choose, all unattended.

Added to that, the ability to pause, rewind and slo-mo live TV makes TiVo hard to resist and not all that different from a rented movie.  When you add home media features like digital music, photos and online scheduling you know that it is going to be popular.

While I have been on the road there has been a new complication for you and me.  [SLIDE  marriage] Netflix and TiVo are on the verge of an alliance deal which will see movies supplied by Netflix directly to your TiVo for viewing at your convenience.

If that doesn’t give you the willies, nothing will.  [SLIDE  broken heart] But there is good news.  This idea has already started to unravel somewhat thanks to a bit of stirring from the VSDA.   As I mentioned, part of our mission is to advocate on behalf of the industry, and our members in particular.  So we asked a simple question.  Does netflix have web distribution rights for the movies in their catalogue?  Surprise, surprise, it seems they don’t.  As you would know one of the basic rules in these sort of situations is to only ask a question to which you already know the answer.

Although we may have scuttled this deal in the short term, I am sure I don’t have to explain to you why we should all be worried about such alliances.

[SLIDE graph] The bad news is that in the United States after constant growth since the early 1980s and then a flattening, this year has seen the first reduction in the number of retail video outlets – that’s the blue line.  The industry is in shock after it was revealed that there has been a 3.5% reduction in the number of video outlets in the last 12 months.

[SLIDE  graph] The good news is that the movie rental market actually grew by 5.2% during the same period.

While the reasons for this are not totally clear right now, we have drawn some conclusions that are fairly obvious.

[SLIDE rationalise] Firstly, there has been a rationalisation of the industry.  Once it got to the stage where it seemed there was a store that was renting videos on every corner, many of them have just found it too difficult with low margins and high losses and have therefore either taken the videos off the shelf of their corner supermarket, or if they are dedicated stores, simply closed their doors.

[SLIDE technologies] The second conclusion, which I think is closer to the fact is that with modern technologies and new business models, people are just as interested in watching movies but have found more convenient methods of delivery than actually having to leave their house to find the movie they want. 

[SLIDE argument] Besides, given the alarming statistics that arguments in video stores over what movie to rent are one of the leading causes of marriage breakdown, who can blame people for not wanting to stay home.

[SLIDE netflix]And why wouldn’t people stay at home and order from the convenience of their computer given the offers from online DVD rental firms.

How should you, as retailers on the ground, deal with or react to the growing online video rental industry?  The bad news started with Netflix in the US and has expanded pretty quickly as shrewd players saw a new niche market.  [SLIDE walmart] Walmart is the largest retailer in the world so when they move into a market, you know a couple of things.  1) it is viable, 2) you better be on the ball.  [SLIDE blockbuster] Then along came Blockbuster to add another player to the market.

[SLIDE quickflix ] In Australia you now have Quickflix, [SLIDE total DVD]  Total DVD and [SLIDE rent shark]  rentshark.

Given the way most of these things go in the States and similarly in Australia, we have to wonder [SLIDE question]  who is next.  I have reason to believe that it is going to be one of the movie studios themselves.  [SLIDE  studios ] They can see the writing on the wall for the video shops like the one you operate and are ready to join the market directly.

That is very bad news for us, but there is good news.  Netflix has recently been forced to put its price up.  They say it is due to increased competition, but does that make sense to you?  When there is increased competition you lower your prices, not raise them, so what is really going on here?

A couple of weeks ago, the Chief Executive Officer of Netflix, Reed Hastings said that he sees his online movie rental company doing for the movie business what Starbucks did for the coffee industry.  I am not sure he means turn everyone into a bunch of snappily dressed, slick haired, ego driven wankers.

During the Entertainment Media Expo at the Renaissance Hollywood Hotel he said "We grow the love of movies the way Starbucks has grown the love of coffee,"

[SLIDE   columbia] "Hastings recognized that due dates and late fees had somehow tarnished the video rental business, and he turned the model around," said Benjamin Feingold, president of Columbia TriStar Home Entertainment. "Little Netflix has forced a multibillion-dollar industry to change."

See, I told you there was bad news.  The movie studios are actually lining up with Netflix. 

But what about those people who don’t want to order this way?  The bad news is that there is another new business in the USA and Europe [SLIDE  moviebank] Moviebank USA. 

They have just opened a 500-square-foot store on West Houston Street in Manhattan that houses at over 5,000 DVDs, video games and VHS videos. Its inventory will be about the same as that of a traditional video store, but reflecting the way retailing in general is heading, there will be no human attendants.

[SLIDE I robot ] No, no robots either.  Instead the store will resemble a bank lobby full of ATM style vending machines that renters can use to select a movie or video game. The machines will double as displays for movie trailers or video game promotions. Customers return the movies or games to the same location.

The good news is that despite this being successful in Europe, we don’t think it take off in the USA, as I said, people are going out less and less in these dangerous times.  [SLIDE  potato] Americans are becoming a nation of couch potatoes.

Apart from these threats the bad news is that there are now DVD burners available for under $100 and the ability for people to make their own copies of movies.  As I mentioned I was in Bangkok last week and the good news is that I managed to buy this, [SLIDE  shark] a copy of A Sharks Tale on DVD. 

This movie was only released on September 10^th and on September 12^th I was able to buy a copy for the equivalent of $US2.50…for research purposes only of course.

So, how do you, we, us, deal with these things as rational adults without blundering along like the Motion Picture Association of America where they had a huge public relation disaster after suing grandmothers, fining people’s pets and throw children into prison simply for sharing movies. We need a new tactic that is no so blunt and as your representative organisation, we at the VSDA believe we have it.

Firstly, when people want to buy a DVD burner, they are going to have to have their details placed on a central register at the [SLIDE  BULL] Bureau of Urban Legal Legislation.  After the government does its extensive background checks the person is then issued with [SLIDE  FAKE] a Federal Archivable Knowledge Endorsement. This is the document that enables them to buy digital archiving equipment. 

Once they have this, they can then approach the supplier where they fill out a form BS69, the [SLIDE  CRAP] Citizens Recording Audio Permit  Is anyone with me on this?  If someone has missed it I will go over it again.

The first step is the BULL department, where you are issued with a FAKE license so you can apply for a CRAP permit.

OK, you are probably finding some of this hard to believe.  Well, I just want to tell you Aussies that it is all true except for the part after I said “good evening”