Top 10 Film Industry Stories of 2011: #5
Lockers Go Digital
By David Mumpower
December 28, 2011
BoxOfficeProphets.com
The ubiquity of the digital video recorder has given the user more control of their viewing habits, while iTunes and Amazon have improved rights management for the consumer. 2011 bore witness to the widespread adoption of the cloud and thereby marked the start of an entirely new, previously impossible type of consumer media consumption.
We all know how media purchases have worked in the past. We buy Star Wars on VHS then we buy the new and improved version of Star Wars on VHS. Then, we enter the digital era and that means Star Wars on DVD, so we buy that. Next, there is a re-release where Han shoots last and even though we despise George Lucas for ruining something from our childhood, we buy the DVD of this as well. We simply cannot help ourselves.
Finally, when the 1080P Blu-Ray version of the entire Star Wars saga is released, how can we resist the siren song of Jar-Jar Binks with optimal audio/video quality? We are only human and in the case of Star Wars, we are several hundred dollars poorer because George Lucas takes total advantage of our admiration of his work. And do not even get me started on Peter Jackson and his mega-super-extra-extended versions of The Lord of the Rings. I figured out the other day that it's about 11 1/2 hours to watch the trilogy in its entirety. We live in the Twitter era. Who has the attention span for that? But I digress. The point is that every time a new physical media format is released, the standard consumer behavior is to re-purchase all of the same movies we had before but in the new and improved format. This is the way physical media works and until recently, we as consumers had not realized there was a better way.
One of top Film Industry Stories of 2010 was the unprecedented ascension of Netflix as the service almost overnight became the easiest way to watch a movie. All the user has to do is purchase a Netflix subscription then populate their queue with the films and television programs that pique our interest. Compared to the repurchasing madness, this is a clean and elegant solution for watching movies. Remarkably, this is neither the easiest methodology to consume media nor is it the most satisfying one for the consumer.
Even with a selection of thousands of titles designed to appeal to all potential consumers, Netflix has a limitation. They may only stream the titles for which they are able to acquire rights. And as we have confirmed with the failed Starz Channel negotiations, this is far from a painless process. The licensing negotiations will only grow more acrimonious from here. Netflix paid approximately $180 million for their content in 2010. That number is projected to be $2 billion in 2012. Such is the explosive growth in instant streaming movie delivery. And one corporation asking another corporation to lease their digital licenses is akin to asking someone in the desert to give you their canteen. Netflix has the right idea but neither the means nor the resources to perfect the process.
Enter the cloud. This is a buzzword like “game changer” or “paradigm” that probably annoys you whenever you hear it due to its overuse. There is a reason why the cloud is the internet concept of the moment, though. Your computer comes with a hard drive whose size expands each time you upgrade it. In a world where 40 MB was once considered more storage than anyone would ever need, 4 TB drives are now available at reasonable prices. Still, to put the needs of the power user in perspective, I would need six of those to store all my current HD media. Yes, I am an extreme example due to my vocation, but all consumers have that same issue. The average Blu Ray requires 40 GB of space; ergo, a 4 TB hard drive could hold roughly a hundred movies. No hard drive on the market or on the immediate horizon will fit all of a digital hoarder's future media storage needs.
Compare that to the cloud.
The beauty of the concept is that there is no physical storage required for you, the customer. A content provider populates your entire library on their end. You have been using iTunes and Amazon long enough to understand the underlying mechanics for mp3s. The behavior is identical with regards to movies/television as it is with music. The difference is that due to the cash cow aspect of physical media, the cinematic digital rights owners have been reluctant to alter the nature of their marketplace.
While CD sales have steadily vanished over the past decade, DVD sales had largely remained solid until we reached a point where the back catalog of titles was largely plundered. The plan was to graduate consumers onto a new platform, Blu-Ray (or HD-DVD), just as had been the case with VHS to DVD. Netflix largely destroyed those plans when the upstart company emphatically proved that people prefer instant access to movies and television shows.
Customers simply do not want to take the additional step of either traveling to a store to purchase a disc or ordering it online then awaiting its arrival days later. A key aspect of any business is encouraging customer transactions as much as possible. What Netflix hit upon is that a generation of people trained to expect immediate gratification with musical downloads want their movies this way as well. Now is always better than later.
Simultaneously with Netflix spiking in popularity, Redbox discovered a price point that enticed consumers into renting more often. Primarily due to these two changing market conditions, movie disc sales started to decline at a precarious rate. DVD sales and rentals fell a startling 11.4% in 2010. And is always the case with the corporations calling the shots in Hollywood, declining profit forces adventurous forays into new marketplaces. This is why digital lockers have suddenly become hotbeds of activity for the major movie studios.
2011 marks the debut of Ultraviolet, an industry backed digital rights standard that may become a daily aspect of your life. Alternately, it may become a DIVX-ish punchline over the next year or so. These things are always impossible to predict. The undeniable fact of the moment is that if a consumer purchases an Ultraviolet title (you can find the list of qualifying releases at ultraviolet.flixster.com), they also attain a digital license to said title that never expires. Never.
In other words, if you believe Green Lantern is not just the movie of the moment but in fact the cinematic triumph of our era (you scoff but this wouldn't be the strangest statement I've heard in my time at BOP), you can purchase the disc and thereby gain a code that grants you streaming access to the film for the rest of your life. And the eventual transaction here will be one between content creator and consumer sans the middleman, the retailer selling the physical media. Right now, Ultraviolet is functionally dessert with Blu-Ray the entree. What we have learned with iTunes and Amazon music rights and Netflix movie streaming is that physical copies are an inconvenience as much as a movie management solution. As is the case with food, the entree is what we eat but the dessert is what we want.
The other fundamental change in behavior in 2011 that ties into the cloud as well as the inconvenience of physical media is the sudden ubiquity of televisions, Blu Ray players and other media devices that include apps. Apps are another annoying buzz term in the zeitgeist right now, but their soaring popularity has happened for good reason. Apps are precise pieces of computer code that generally serve a single purpose. In the case of television apps and the like, the purpose is to allow the viewer to stream media content through various major providers. The Netflix app is a button click away from user access to Netflix. The Amazon Video link takes the user to their Amazon Video Library. And so forth. Anyone who buys a television from now on will be provided with immediate button click access to all of their digital lockers. This is the sort of instant gratification people desire.
The digital locker players of the moment are Vudu, Cinemanow, iTunes, Netflix and Amazon, with Flixster also becoming major players due to their direct ties to Ultraviolet. Netflix is the only one of the services that does not currently sell digital rights as well as rent them. Flixster is the reverse, its single purpose thus far being the provision of Ultraviolet content. All of the others rent as well as sell cloud-based content.
This difference is critical in that not every service is allowed to rent every title. There is a proprietary aspect to such transactions. Every title is made available for digital purchase, though. While Netflix is stuck streaming the titles for which they have rental agreements, the other major digital lockers have offer a much deeper selection of content to the user, as long as they are willing to pay for it, of course.
Through digital rights content purchase, a consumer has the ability to craft their own movie/television library stocked with the titles they love. This is no different from a DVD collection or the like, but the distinctive aspect is that no space is required in the living room. And the consumer is only a couple of remote control clicks away from instant access to any title in their collection. There is no need to get up and swap out discs. The storage is all done at an unseen server farm. Through the cloud and digital rights ownership with Ultraviolet (or the like), total media access is always at the customer's fingertips.
The unheralded aspect of existing digital locker services is that they provide options that more popular services such as Netflix and Redbox lack. The aforementioned Vudu is now owned and operated by Wal-Mart. The presumption is that they purchased this company in order to block Amazon from gaining an unbeatable monopoly in the marketplace. Yes, Apple and Netflix have strong market positions right now but everyone in the industry is watching Amazon warily.
In an attempt to gain a competitive advantage over the current king of all digital media, Wal-Mart brokered a deal with Disney and a few other movie distributors. The rights they acquired engulf the hottest style of film right now, 3D programming. One of the dirty secrets of the Blu-Ray industry is that 3D discs are extremely expensive, regularly selling for 50% more than standard Blu-Rays. The average Amazon selling price for a 3D box set right now is around $29. This disc is not available for rental at Redbox or Netflix yet, because neither of these services even rents 3D Blu-Rays as of now. The technology has not attained strong enough market penetration to justify the added expense.
In a masterstroke of niche marketing, Wal-Mart’s Vudu service upped the ante in January of 2011. Vudu enabled the rental and/or purchase of notable 3D titles such as Tron Legacy and Toy Story 3. The particularly noteworthy moment was when The Lion King ended a triumphant theatrical return with a 3D Blu-Ray release. At almost exactly the same time the impeccable 3D Blu-Ray box set entered the marketplace, Vudu sold a license for the 3D version of the film for $21.99. For less money than the physical disc, a consumer could purchase the same viewer experience with this content permanently stored in a digital locker in the cloud.
The Lion King in 3D on Vudu is the way the movie purchase process will work in the future. Through a series of mouse or remote clicks, a consumer can buy a permanent content license that enables the highest quality viewing of a film for a single set price. The era of George Lucas/Peter Jackson upsell resells is reaching its end. Start building your digital media lockers now. 2011 is the year where it has become the savvy consumer behavior.