Digital Video Business Models Too Complex, Varied, Conference Told
LOS ANGELES -- There are “plenty of reasons” for the entertainment industry “to celebrate” the emergence of digital, Entertainment Merchants Association President Bo Andersen said Wednesday at the Digital Media Pipeline conference. There’s also “plenty of fertile ground for growth,” and the entertainment industry “depends on it,” he said. But analysts and executives from content companies, disc replicator Cinram and Blockbuster said digital business models for video content are too complex and varied now.
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There are just too many online video stores for downloading movies now, said Neil Davis, head of corporate and digital development at Blockbuster. He questioned whether consumers need to have Fry’s Electronics, for example, as a video store option on every connected device. Like others on the panel, he said too many choices only add to consumer confusion. You “don’t need six different vanillas” -- six different online stores selling basically the same content, said Ted Cohen, managing partner at digital consulting company Tag Strategic. “A couple of flavors” is enough for consumers, who are bombarded with too many options, said NPD analyst Russ Crupnick.
Davis said the industry needs to make digital delivery of content less profitable for “the riffraff” smaller companies, and predicted such companies will eventually be squeezed out of the market. But John Crosier, senior vice president-digital architecture and delivery at Cinram, said riffraff will “become more of a player” if the solution they offer is easy to use. Mitch Mallon, vice president of sales and marketing for digital distribution and TV at Image Entertainment, said the digital content provider that consumers choose to download or stream from is usually tied to what device they have because they've already invested considerable money in that device.
The panelists said it was important for consumers to be able to access their content from any device, and most said the addition of more social functionality will help to grow digital consumption. Mallon said social functionality such as the ability for family members to view digital movies that a consumer has bought would be good for the industry. “Social networking is monstrous” and “we haven’t tapped into it yet,” he said. There are many more people “that we can reach” with content, he said. Mallon called UltraViolet “a step in the right direction.” Alex Fragen, president of domestic TV distribution at Summit Entertainment, said he'd also like to see more social functionality, but warned “you have to be careful” with making consumers’ content easily accessible to others.
Cinram’s Crosier urged content owners to be more consistent with how they make content available digitally to consumers across all platforms, saying they “need to get in a room together and figure it all out.” In a Q&A, Kevin Matheny, senior ebusiness architect at Best Buy, said from the audience that it’s also important for all the content that his company sells to be available to consumers in digital and physical form. Customers often complain about that, he said.
Physical purchases and rentals of movies still accounted for the vast majority of the total U.S. market in the first half, at about 88 percent, said NPD’s Crupnick. That number soared to 96 percent when focusing only on sellthrough, he said. “Fewer than 5 percent” of U.S. households are buying movies digitally, he said. Crupnick said consumers would access more digital content if there were more innovative promotions and bundling. Sixty-nine percent of movie rentals were physical in the first half, he said. DVD and Blu-ray Disc rentals accounted for 55 percent of Netflix rentals, he also said. But he said it will be interesting to see how that changes after the recent price change by the company under which Netflix separated its disc and streaming plans into two separate plans. The No. 1 seller of DVDs and Blu-ray Discs is Walmart, followed by Best Buy, Target and Amazon, with the latter two companies “in the same ballpark” as far as market share, he said.
Only about 8-10 percent of consumers are engaging in file sharing of video, Crupnick said. That’s “not as big a piece of the pie” as we've seen in music, he said. Much of that file sharing is limited to college students, he said.
Panelists also debated the viability of the current business model in which the studios take about a 70 percent share of the money from digital content. “I don’t know if that’s the right mix,” with retailers of the content getting the other 30 percent, said Crosier. But he said the content owners should get the larger share of the revenue. He predicted that deals between the studios and retailers will increasingly change that revenue mix percentage.
Key developments in recent months included Netflix reaching about 25 million subscribers and entering Latin America, and the emergence of the iPad, which is opening up new distribution models, said Bruce Eisen, vice president of content development and digital strategy for the Dish Network.
Digital Media Pipeline Notebook
"Live TV viewing is still king” despite consumers being exposed to more media screens than ever, said Marty Graham, president of home entertainment at Rentrak. The average U.S. household is viewing 343 hours of TV per month -- more than 11 hours a day, he said. Thirty-five percent of U.S. households now have a DVR, he said. Youths are squeezing nearly 11 hours worth of media content into 7.5 hours each day via multi-tasking through the use of multiple devices, he said, citing Kaiser Family Foundation research. More than 2.2 billion DVDs and Blu-ray Discs were rented and sales from the formats accounted for more than $10.5 billion in revenue last year, he also said, citing Rentrak data.