Posts tagged ‘vudu’

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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Shh..they might say something

To begin, here’s a thought starter:  What do the following companies have in common?

Netflix, AppleTV, GoogleTV, Hulu, TV Everywhere, Boxee, Sezmi, Amazon On Demand, YouTube, Vimeo, Veoh, CinemaNow, Roku, Vudu , Samsung, Yahoo! ConnectedTV, Qriocity, xBox, Playstation, Tivo, Wii, YouView, Vizio

I’m sure you came up with a list of a dozen or so thoughts – here are a few obvious ones: each of these companies are trying to create killer video services; each of these companies realize that the living room is currently the best place to reach video consumers; each are trying to “win the living room.”  But let’s push these to the side for the moment, and consider that the commonality is each of these companies is creating significant noise in the marketplace as they compete for the attention of the consumer.

World class noisemakers

Apple’s efforts at making noise are world class – besides the hoopla that swirls prior to an event, the press revivals are devotee opportunities to rush to the Apple altar to commune in what’s new.  But this cultish following has not come cheaply – rumors are that in the early days of iPod and iTunes Apple spent close to $1 billion in marketing.  There is no question that its devices are cool and sexy and simple, but let’s not underestimate the role that creating noise has played in Apple’s success.

Another example to create noise came when Samsung announced that they will spend $70 million in marketing the Samsung Apps that will bring content services to living rooms around the world.  Another video consortium called YouView in the UK will be spending nearly $50 million market their service.  Microsoft, Google, Sony and many others, have massive noise making engines to compete for consumers’ attention.  Smaller companies like Sezmi are creating partnerships with the likes of Amazon to create even more noise in the market.

Ultraviolet and the problem of making noise

So I was at a holiday party the other day, and I conducted a clandestine focus group of my friends.  I asked any of them if they had heard of UV, and besides getting the expected snickering about the 2006 movie as well as the sun’s harmful rays, none guessed correctly about Ultraviolet.  This is clearly a noise problem.

After being around for over 2 years, UV has not made a chirp in consumer’s minds.  For a group of such big companies who have been working hard, that seems like a problem to me.  How will UV reach out and make some noise?  I personally think it comes down to a whole lot of money to buy the hearts and minds of consumers.  And it remains to be seen if this consortium can pull off reaching into the pockets of its members to pay to make some revolutionary noise.

I surrender to Apple

You have to hand it to Apple for its awesome-ness .  I saw an article this past week that talked about Apple’s 64.5% share in EST/iVOD consumer spending in 2010.  Sure, they are down from 74.4% in 2009, but owning more than two thirds of any market is an impressive feat.

However, we have seen competition intensify with Zune, PlayStation, Amazon and Wal-Mart.  And competition will continue to intensify with industry plays like Ultraviolet , confusing people even further.  So what’s on my mind today is this:  is there room for more competitors and new stuff in video? Or will people settle for (or to some, surrender to) the simplicity and workability of Apple?

Is there room?

My unsolicited opinion is yes, of course there is always room for new stuff.  But any new companies have a sheer cliff to scale.  Not only does the service or product have to be absolutely perfect and better than Apple, but people have to know about it.  And that takes loads of innovation, marketing, product refreshing  and starting all over again.  In this day and age, once a product/service is released, it begins becoming obsolete on day 2.

Who’s it gonna be?

So who’s going to be the courageous new competitor?  One camp out there thinks that – of all things – Wal-Mart and Vudu have a shot.  Well, I think that’s ridiculous.  Wal-Mart just doesn’t innovate or have the right customer base.  They sell cheap crap made in China to make life more affordable – hardly a fit for digital entertainment.

On my optimistic days, I think Ultraviolet has a shot.  They’ve got the right players and the right ideas.  With Microsoft and Sony as members, they represent 17% of the market.  I’m definitely anxious to see them get on with it and launch something, because it could be very cool.

Day 2

But then day 2 arrives.  That’s when the pessimist Fool starts pestering me:  with the consortium-style-United-Nations-procedures way of making decisions, I find it very hard to see UV executing on rapid product enhancements and innovations that are so critical.  There’s just too many companies and people involved.  As a small example, Microsoft’s Zune is out for itself, and Sony is world famous for its ability to not really do anything more once it does something cool (remember the Walkman).

So, in answer to my self-imposed question, given where the market is today, I think people will happily surrender to Apple.   Even though Motorolla’s vision of 1984 may come true, at least my stuff will work, and my Apple shares will be worth something.

A page from WikiLeaks

Leaks can, and do, happen

Based on my new Assange-like desire to set information free, today’s topic will consider some flaws with some leading industry consortia.

UltraViolet, whose unfortunate doppelganger to the skin-stinging UV, “is being designed to create a revolutionary new approach to digital entertainment,” and clearly, to create a viable alternative to Apple.  UV’s goal of interoperability — of content and devices across retailers so that consumers don’t even need to think about what content works with which devices purchased from what retailers — is noble and exactly what consumers need to address our confusion that the industry itself has unfortunately created.  Even my Mom would appreciate their efforts to make things simple.

Alignment where there is none

But achieving interoperability comes down to the huge task of aligning the often competing interests of all the players in the industry.  From what I can tell from a scan of the site and some documents, it is no wonder that UV – which began more than 24 months ago – is still talking about the thousands of technical specifications, rules, requirements, obligations, licenses, and alphabet soup of newly created acronyms.  However, while UV states it is making technical and legal progress toward creating a “revolutionary approach,” I just don’t know.  It seems to me that UV is underestimating the importance of key players.

As we look at the 60+ members of the consortium, there are significant companies from all over the industry – but who’s missing from the roster of those companies that are actively involved?  UV has been so focused on creating the “right” technology and standards that is has overlooked companies that have access and relationships to consumers that are most likely to adopt.   Companies that have existing customer bases that can drive awareness, education and interaction with consumers are not actively engaged, nor do they seem motivated to contribute.

Key non-players

Netflix, while listed as a member, doesn’t really seem overly concerned with UV.  Based on Netflix’s actions of continuing to march ahead in the marketplace with the AppleTV deal and the more than 200 devices they are on (not to mention the stink they are causing with the studios), it doesn’t seem they are playing along.  Have any of you seen public announcements from Netflix that mention UV?

Players with lots of customers walking through their doors are choosing to wait and see how far the UV can get without them are the large retailers like Amazon and Wal-mart.  Both of these retailers have chosen a different route.  Amazon’s 99 cent TV episodes through Amazon On Demand indicate it is getting into the game – and is activating a price strategy to steal share.  But how is Amazon engaging with UV?

Wal-mart’s acquisition of Vudu was interesting (and expensive), but we haven’t really heard that much about it.  Another noticeable absent retailer is Target.  We have to remember that these retailers are key to driving adoption of new products and services.  And the only true retailer that is participating like Best Buy seem to be going down their own path with CinemaNow.  So you have to ask, why aren’t there more retailers involved?

Bueller?

After thinking about this for the past few days, UV needs access to consumers to drive awareness and ultimately adoption.  It must determine how to motivate companies that have real face to face relationships with customers like my Mom so that they can explain what undoubtedly will be, um, totally confusing.

Without the key players there, the danger is summed up in the classroom scene in Ferris Bueller’s Day Off.  I unfortunately see Ben Stein as a metaphor for UV, and UV will be looking for Customers.  Customer’s…Customer’s….Customer’s?

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