DVDs didn't undercut broadcast revenue. Will cheaper iTunes?
Source: Flickr user der_dennis
Suppose you buy a DVD at Wal-mart. You bring it home, pop in the DVD player in your living room, it plays. Then you decide you’d like to finish watching the movie in bed, so you take the DVD and pop it in the DVD player in the bedroom. It plays there, too.
A few weeks later, you’re going on a business trip and you decide you’d like to watch that movie again. So you take the DVD with you, put it in the DVD drive on your laptop and watch it on the plane. Back at home, a week or so later, a friend drops by, sees the DVD on your coffee table and says, “Gee, I’ve been meaning to see that movie.” So you lend your friend your copy, safe in the knowledge that it will play in his DVD player, also.
That scenario, with its overlapping use cases, content portability and social network-ability, comprises what most consumers understand as the home video experience. Though consumers aren’t buying DVDs at the rate they used to, their expectations for what they should be able to do with the movies they purchase have been indelibly set by long experience with the functionality provided by standards-based physical media, starting with VHS cassettes and continuing with DVDs.
Digital technology has now made it possible to deliver movies electronically, without the need of physical media. But so far, none of those platforms have managed to offer consumers the same level of functionality they enjoy with DVDs. The results have been telling.
According to a report released last week by ScreenDigest, consumer spending on movie downloads in 2009, both purchase and rental, amounted to only $291 million. Even after three years of declines, consumers spending on DVDs and Blu-ray discs last year reached nearly $18 billion, according to the Digital Entertainment Group.
The $291 million spent on movie downloads last year was actually 19 percent lower than ScreenDigest’s previous forecast for 2009, a performance so anemic the analysts have now lowered their five-year forecast by 30 percent, to less than $1 billion.
According to the report (subscription required), the blame falls squarely on the limited functionality provided by digital platforms.
The consumer experience in digital — especially [electronic sell-through] — in 2010 is more about restrictions and what consumers ‘can’t’ do than creating a genuine, compelling services environment within which a consumer would be willing to pay $15 to own, rather than $4 to rent…
[I]n the current EST proposition, files purchased from one service provider ecosystem rarely works with the ecosystem or devices of competing platforms… Moreover, the current EST download model also
encumbers the user with having to pay for and manage purchased files, bringing with it a large degree of inconvenience and risk. These two factors will remain significant hurdles to effectively growing the EST business.
If ScreenDigest’s five-year forecast is accurate, and if DVD spending continues to fall at its current rate, the studios are facing a very serious revenue shortfall between now and 2014. If they’re to have any hope of avoiding that shortfall, it’s pretty clear from the data that the studios need to figure out how to offer digital consumers at least the same degree of content portability and device interoperability they’ve come to expect from physical media.
Industry efforts to make competing digital platforms more interoperable, such as the Digital Entertainment Content Ecosystem (DECE) initiative, or Disney’s (DIS) Keychest service, are laudable. But they envision the re-streaming of content from online “lockers” to authorized devices, introducing levels of complexity and uncertainty consumers do not face with physical media.
Like it or not, the functionality and flexibility provided by DVDs is the benchmark against which consumers will measure any new movie delivery system. Regardless of any new convenience or capability electronic delivery offers, if consumers can’t do at least what they can do with a DVD it’s going to be a tough sell.