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| Mike Schuster JAN 05, 2010 8:00 AM |
At the dawn of a new decade, Hollywood studios are coming to grips with an inevitable conclusion. While the next 10 years will bear witness to some of the most surprising and unexpected innovations this increasingly connected world has ever seen, there are a few irrevocable facts that keep studio execs up at night.
One of them: In a few years time, we'll be regarding DVDs -- both standard and Blu-ray -- as outdated as VHS today.
Currently, physical media still commands the lion's share of business in both the film and music industries, but their numbers are continuing to dwindle, giving way to the ease and speed of direct downloads and peer-to-peer file sharing. And as digital adoption becomes more logical and essential, studios are seeing more customers purchase a cost-effective file -- or download it for free, depending on the method -- rather than shell out for the inflated price slapped on a Blu-ray release.
There have been many attempts, but few successes, to rectify this loss of revenue. However, this week at the Consumer Electronics Show in Las Vegas, a consortium of Hollywood studios and electronics manufacturers are looking to finally catch up with the digital movement and lay out plans to get digital video into people's homes quicker and easier.
Five major Hollywood studios -- Warner Bros. (TWX), NBC Universal (GE), Sony (SNE), Paramount (VIA), and Fox (NWS) -- are meeting with top tech companies Microsoft (MSFT), Cisco (CSCO), Comcast (CMCSA), Intel (INTC), and Best Buy (BBY) to discuss these plans as a part of the organization spearheading this campaign, the Digital Entertainment Content Ecosystem.
And predictably, the group's first steps are in the wrong direction.
With one eye toward profits and a blind one toward feasibility, the group has managed to concoct another restricted service that leaves potential customers with fewer options. And as Napster's pay service -- or any of Blockbuster's (BBI) actions in the last few years -- reminds us, customers will consistently reject a business where their purchases are confined and relegated to an arbitrary set of rules.
It took more than a decade for digital music purchases to reach an acceptable standard, and now we're poised to return to 2000 for the digital video business with all the same setbacks and lengthy years of correction. As it stands, the DECE's projected service will be hindered by no less than 10 different factors, which will keep its appeal far behind simply ripping a Netflix (NFLX) DVD or visiting a BitTorrent tracker site.
1. It’s a proprietary format.
It's astounding and downright preposterous to champion more proprietary formats when there are still popular video players that are specifically programmed not to play certain file types. (See Quicktime and .AVI files.) To adopt another is to cause more confusion and annoying codec downloads at best, total incompatibility at worst. Locking a customer into a specific format with no support elsewhere is ensuring limited adoption. (See Sony and MiniDisc players.) 2. You’ll need new equipment.
A major reason for Blu-ray's stunted growth -- aside from the outrageously priced discs -- is that shoppers are hesitant to buy new Blu-ray equipment. Nowadays, when standard DVD players are found in more than just one room and computer, updating the home to Blu-ray compatibility would set back the average person hundreds, potentially thousands, of dollars. If there's no way of updating standard equipment or integrating it with software to support the new digital downloads, this isn't going to fly.
3. It’s hindered by Digital Rights Management.
More post-purchase restriction. We've already seen Walmart (WMT) and Apple (AAPL) reverse their positions on DRM, stripping it from their online markets. But even that process was fraught with incessant customer verification, repurchased files, and cumbersome steps that far outweighed the benefit. And yet, companies are so worried over the inevitable act of piracy, they're willing to impose regulations on purchases that customers legally made. DRM not only prevents total ownership, it makes a potential customer understandably wary.
4. Video distribution is unspecified.
With the Kindle, you have Amazon (AMZN). With the iPhone, you have iTunes. But given the variety of equipment said to accommodate this flawed service still in the manufacturing stage, it's unlikely that the staggered and decentralized rollout will have a single mode of distribution. With the amount of criticism Google (GOOG) has incurred for spreading its Android OS across dozens of devices, imagine the headaches of five movie studios and countless manufacturers trying to agree on a new unified standard.
5. Will there be supplemental content?
Despite all the advantages, supplemental material bundled with digital downloads pales in comparison to the hours of content included with physical media. Director's commentary and deleted scenes are all but expected when buying a DVD, but -- unless it's ripped at home -- they're a luxury for an .MP4 file. DECE's new project has yet to announce what supplemental content, if any, will be available, but if it's anything like iTunes LP -- with its extra cost and limited selection -- it, too, will have a tough time finding an audience.
6. Accounts checked by "cloud-based authentication".
According to The New York Times, the DECE has hinted at the capability for customers to both buy or rent, stream or download titles from the service. Fantastic. But the press release’s mention of "cloud-based authentication" implies a constant check-in every time a customer wishes to play a file regardless of format. Besides being a nasty inconvenience, that check-in invokes privacy concerns at a time when keeping online behavior secure is, and should be, paramount. Nobody but the viewer should know what, where, or when they're watching. 7. Disney and Apple are missing.
Take a look at the companies involved in the DECE. Notice any omissions? There are two big names not on the list: Disney (DIS) and Apple. The former is in the process of designing a similar project called KeyChest, which may have Apple involved as well. With Disney cornering the kids market -- and notable comic book franchises with its recent Marvel acquisition -- there's a large gap in family-friendly titles within the DECE. And if customers can't use the service with an iPhone or iPod, that's a gigantic user base that'll never be touched.
8. A lack of sharing.
It's safe to assume that a proprietary, DRM-addled service with incessant cloud-based authentication will prevent sharing content -- despite the almost universal failure of every business that has done likewise. In this social networking world we live in, a customer should be free to lend a movie or album over to a friend so they could check it out. And again, controlling what a customer does with a movie after it's been legally purchased is a liability and the antithesis of a shared and open format. Unlike YouTube. Or Hulu. Or a Netflix rental. Or a ripped DVD. Or ... You get the idea.
9. Title availability will be initially limited.
Netflix and iTunes have been in the game for years, so naturally their title selection is ample. Just how many titles will the DECE have on hand when it begins its gradual launch? How long will studios need to go through their back catalogs to digitally reformat their Netflix and iTunes titles so they're compatible with the new service? What about HD formats? Are they available? Will every piece of equipment be able to view titles in 720p and 1080p? Is this the extended version of Lord of the Rings or just the theatrical release? How do I ...
10. Adoption rate will be slow if not minuscule.
Besides the previous nine reasons of why the cards are stacked against this new project, its success ultimately comes down to how quickly customers flock to an unknown, unestablished service. Will existing Netflix subscribers consider a switch, or will they stick with what works? Will the people hesitant to buy a Blu-ray player -- or the ones still confused by the format -- find more comfort in this new service? Is it possible to outshine every single digital video alternative currently available -- choices that allow for greater freedom, more features, and a cheaper price -- and maintain that level of superior experience through each competitor's incremental improvements?
Do they have another 10 years to figure this out?
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