Posts tagged ‘DVD’

UV Doesn’t Smell Right

What a day for UltraViolet articles.  I understand that the group is planning a flurry of press releases based on some announcements that it is ready to launch, and the media is beginning to smell something isn’t quite right.  Being I’m still the skeptical Fool, I wanted to do a brief roundup of recent dubious UltraViolet coverage.

We all know what’s going on in the declining entertainment business, and today’s Financial Times does a nice job in telling it straight.  In no uncertain terms, if Hollywood can’t figure out digital and address the decline in home entertainment, Hollywood will stop making movies.  With big film concepts being shelved because they’re too expensive, we’re beginning to see the slowdown in new releases. It terms of digital dreams like UltraViolet saving the day, the FT had this to say:

Yet for all of the enthusiasm, Ultraviolet increasingly looks like a last throw of the dice for an industry desperate to preserve its retail business model. It is clear why Hollywood wants to keep selling movies: the profit margin on a DVD sale is more than 65 per cent – close to double the margin on a rental. Selling an electronic format is even more profitable because there are no manufacturing costs and minimal distribution costs.

But consumer behaviour has changed radically in the five years since DVD sales reached their peak, making it difficult to predict demand for a cloud-based rights locker. After all, consumers hardly lack choice when it comes to streaming movies or online TV programming.

The FT correctly sniffs out that UltraViolet’s positioning of selling $14 digital movies to consumers isn’t quite right.  With more and more options to rent and acquire content, UltraViolet runs the risk of being vDOA – Very Dull on Arrival.

The Hollywood Reporter talks about how retailers are bracing for a holiday season that doesn’t look so bright.  Retailers may afterall turn to digital to help ease their pain.  Hollywood Reporter, however, points out a glaring pimple on the face of the industry’s transition to digital: like it or not, there may be TWO major digital offerings this Holiday.  Disney’s All-Access with its Keychest digital locker competing with UltraViolet will supposedly be available soon (which is a bold statement to say that either will be ready).  By the way, All-Access content won’t work in the UltraViolet digital locker and vice versa.

Execs deny they want to start a format war, but let’s get serious for a moment.  There are two ecosystems that don’t play the other’s content.  No format war? That doesn’t quite smell right to me.

Keep your eyes, ears and nose peeled for more critical news of UltraViolet.  You’ll catch a whiff of something not right as well.


Entertainment Retail is Dying: Follow Up

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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