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Summary:

Hollywood, in past few months has become increasingly enthusiastic about new technologies – especially those pertaining to online video. This change of attitude is reflected in gushing statements from movie studio executives about Vudu. It is not just Vudu – BitTorrent, Guba or add video startup […]

Hollywood, in past few months has become increasingly enthusiastic about new technologies – especially those pertaining to online video. This change of attitude is reflected in gushing statements from movie studio executives about Vudu.

It is not just Vudu – BitTorrent, Guba or add video startup name here – Hollywood studios seem to be happy to sign a deal with anyone who is willing to make the trek to Los Angeles. The question is WHY?

The answer is actually pretty simple: stalled DVD sales.

Variety reports “Homevid sales dropped 7.8% to $3.5 billion while rental was off 1% at $2.1 billion.”

You could explain that sharp decline due to a release schedule full of utterly forgettable fare, and the summer blockbusters could eventually revive the DVD sales, but don’t hold your breath.For starters, when too many hit movies are coming out on DVD, the consumers get picky. More, sometimes is just, more.

Richard Greenfield of Pali Research in a note titled, 2007 Appears Even More Ominous For Film Studios said: we are increasingly confident that 2007 will be first year that consumer spending on DVD declines domestically. He predicts that in 2007, DVD sales will be $23.4 billion, down 1% from $23.6 billion 2006.

As the DVD sales shortfall looms large, Greenfield pointed out that the next generation formats (take your pick – Blu-ray or HD-DVD) are not going to play a meaningful role in studio revenues.

So for Hollywood the interim bet is that the new download services will make up for some of that revenue short fall, and since there is no expenses they have to undertake, the digital downloads can add to their bottom line. The margins are pretty high on these digital downloads. Margins is why, Hollywood seems to be quite enthusiastic about the day-of-DVD-release availability of films on cable video on demand.

In the long term, this could be a problem for the studios. Imagine if you could rent a movie, decide you don’t like it that much, and decide to forego the DVD purchase. Now that would be an oh-shit moment!

The music industry went through a similar shift when digital downloads introduced the single-buying mindset to consumers, who started to forego CD albums. Something tells me, I won’t be making the Oceans 12 mistake again!

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  1. Hi Om,

    I couldn’t agree more! Look at all the buzz around Joost. The big boys in broadcasting are more and more embracing the concept that online content serving is not evil! It is high time that these firms actually look to monetize their digital assets (shows, advertising, archived content) and create a sustainable revenue stream.

    In the spirit of disclosure, I do work for an exhibition featured on this topic (Henry Stewart New York) so if you or any of your readers would like to learn more about the technology backends that drive online content serving and the companies that are doing it, they may be interested in our exhibition/conference (www.damusers.com).

    Cheers,
    Parry

  2. Hi Om,

    There are more reasons for Hollywood to get into a long term relation with Tech Companies. There are so many fragmented ways that consumers are downloading and watching media now, if Hollywood or Music labels dont adopt and move to these platforms, they are going to loose big time. So far they have been following the customer, they really need to stay ahead of them and guide them to a platform.

    This will only be possible through metrics across various platforms. Check out this article.

    http://www.usatoday.com/money/advertising/2007-03-25-upfront-confusion_N.htm

    Cheers –
    Dan,

  3. it’s all about increasing your revenue streams – it would be hard to predict which stream will hit the jackpot but if you’re part of it from the start then, ka-ching! ka-ching!

  4. http://musicplustv.com/mpluspr/blog/472/

    Add that to another long list of Hollywood / new media collaboration.

    I think there’s something to be said for the long tail model of film distribution. Digital distribution has not only decimated the music industry’s revenues; it also made obsolete the long running, bank-on-the-breakout-hit model of doing business. So while the multi-platinum album is becoming increasingly rare, the average consumer actually is exposed to more and more music.

    Similarly, the film industry’s model, based on the high-margin blockbuster, will also become incresignly obsolete. In it’s place will rise the thousands and thousands of quality, indie films that used to languish in undistributed purgatory, that now find an audience, given due time.

    Hollywood executives have seen the music industry crash. They understand the vulnerability of their own models best. They have personally seen the thousands of annual movies that they love, but couldn’t distribute under the old system. Maybe, just maybe, some of them are doing it for their original love of quality film making. Imagine that “Oh shit!” moment!

  5. The problem is Hollywood confuses technology for technology and technology when CONSUMERS want it – from Cinemascope to “defeat” TV to quad sound Lp’s to the Buy once-throw away DIVX, Hollywood thinks we’re razzled dazzled – clearly that is NOT the right path and interestingly enough, the technologies they loathed (or loath at the start) are usually the ones that holds the most resonance – CD’s, DVD’s & the internet.

    The problem with JOOST – it requires a download and it’s basically iFilm with a player. People don’t want to load an extra app – why did YouTube win? EASE OF USE. Everyone has Flash. You don’t need a player.

  6. Let’s see, a ‘digital’ product distributed ‘electronically’ (or vice verse). Who would have guessed?

    Download, IPTV, VOD – much less overhead and much less pollution (yeah, I know, pollution don’t mean cacao).

    Here’s the thing. Putting away the vacuum, the competition for consumer cash/eyeballs is getting tougher by the day. Game consoles, interactive activities on the Internet, streaming of the same content repeatedly by more and more content owners (e.g. BBC VOD via IPTV available in America), etc.

    So how do you keep profits up if you will be getting less of each consumer’s cash and eyeballs (maybe one eyeball instead of two)?

    Lower distribution costs, for one. Save porn until you get really desperate. Studios can not throw a fit to make people buy DVD’s. Too many forces are coming into play. Expect dramatically increasing love for tech by content owners. But never subservient behavior. Content will always be king.

  7. Nick Hawkins Monday, April 30, 2007

    Content is king as Rick H. said, so for me, I’m realizing that my DVD sales have died down personally because there are a lot of crappy films not worth buying. That, and HDDVD vs BluRay is making me hem and haw until a market standard emerges.

  8. The name of the game in video distribution is long tail, not only in number of titles, but also in distribution channels. It does not matter what technology will be winner – top box, p2p, cable or satellite, Hollywod studios can’t afford to miss any of them, because even
    niche distribution channel may serve quite large audience.

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