Friday’s post laid out some grim evidence about the state of entertainment retail.  It seems that Nipper, the loyal old dog that got so famous for listening to His Late Master’s Voice through the gramophone, has gotten fat.  If it’s not the economy or other lame excuses, then what’s going on?

Sales of discs are NOT being replaced by digital

As physical sales began declining, many in the business began to assume (and hope) that the declines would be offset by digital sales.  However, the transition to digital from physical is nothing short of a catastrophe.  Total revenue from the sales and rental of content (physical and digital) has been declining over the last several years, and nothing seems to be working to reverse this trend.   The industry is in free fall.

We got here because content owners chose to hang on to the old model and get fat and lazy rather than nurture the development of an inevitable new digital model.  That attentive and amazed terrier somehow turned into a territorial pit bull that didn’t want to switch to a more lean and nutritious bowl of food in the name of health.   Here’s what happened.

Content protection

Content owners began emphasizing how to protect their content as it changed from digital on a disc to digital in the computer.  The music business stood by in paralyzed disbelief as fans turned to crime and stole entire music collections.  In the movie world, studio execs focused on preventing illegal file sharing and created complicated content protection that had the unintended consequence of making it nearly impossible for customers to enjoy content across a variety of devices.

What was great about the DVD – the convenience of using it in any DVD player – was completely undone in the digital world.  What a pain it would be if you had to buy three different DVDs to play in your computer, on your phone, or on your TV!  With the difficulty of watching movies across devices, consumers have checked out and don’t really care about digital.  The irony of all this content protection is that it hasn’t done a thing to stop illegal file share.   Not to mention the content owners have allowed a near Apple-monopoly.

Backwards economics

The next big issue concerns the economics that motivate retailers to sell products to its consumers.   In the DVD world, studios pay to manufacture a DVD – the plastic disc, the case, the paper on which the artwork is printed – and then ship off the package to the retailer.  The retailer pays a wholesale price to the studio and then in turn sells the DVD to its customer with hopefully a bit of extra margin to make some money.  Easy, right?  In the digital world, something happened that I really don’t understand.

Digital files have manufacturing and distribution costs associated with them.  But for some reason, content owners began pushing these costs onto retailers.  As a result, retail margins to sell digital goods took a hit.  When retailer margins take a hit for no good reason, retailers lose interest in selling a product.  Consequently, retailers haven’t readily adopted digital.  There is simply no motivation to help a customer transition to digital.

So, here we are.  The industry suffers as DVDs and Blu-rays sales continue to decline and customers opt for a cheap and easy subscription or rental offer (think Netflix, Amazon, Vudu).  The last standing retailers don’t know what to do with the dying entertainment category.  As smaller retailers go out of business, the big ones are looking at other more profitable things to sell their customers and fill the space in their stores.

The prognosis for the now fat and lazy Nipper is not looking good.  He needs to get up, move around, and start thinking of doing something different.  Otherwise, he’ll become another obesity statistic.

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Comments on: "Entertainment Retail is Dying: Follow Up" (4)

  1. Media owners are generally not stupid or lazy. What they have been tied to is complex sets of rights and established ways of doing business that mean that they cannot exploit rights they may not have or react in certain ways that are fast enough to maintain being a business and responding to the needs of the market.

    Also being encumbered by the nicety of having to pay to create product, pay for talent , the product itself and make money to pay their staff, shareholders etc, they unlike the file sharers, actually have to charge people for what they do. Consumers in turn, have choices (many many more choices now) as to how they spend their limited time and money.

    Technology happens around all of us. It changes how content is produced, how it is accessed, distributed and sold and enjoyed. Existing players at all levels have to adapt to those changes or go out of business.

    Nipper came along where radio was just starting and the only way to enjoy listening to recorded music was on wax cylinders. Things have gotten a lot more complex since then.

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  2. Michael Mejay said:

    “The king is dead, long live the king”

    I don’t think anyone has yet articulated the new media landscape that is going to emerge over the next decade and beyond. For a taste look at the political upheavals unfettered access has had on some of the more venous kelptocrats and their entourages’ in the middle east.

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  3. Verizon Digital Media Services is a first-of-its-kind solution that will associated with formatting managing and delivering digital media to virtually any device or platform on a large scale. As a result content owners and digital retailers will be able to more effectively produce manage and distribute premium programming to consumers when how and where they want to view it.

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  4. caleb cummings said:

    this is purely speculation. digital fool has no idea how this business works. digital sales are tripple what they were 5 years ago. people now recognize that intelectual property is different than physical and the industry is figuring itself out. apple has, if anything, curbed illegal trading.
    the onus is on the businesses to figure out how to make money. not the customer or potential market. we can decry the state of things, or we can, like many entrepeneurs before us, press on towards the prize.

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