Posts for 'DECE'

Yesterday's announcement by retailing giant Wal-Mart that it was acquiring Vudu, the on-demand movie service, generated a flurry of reactions from industry commentators. Some think it gives Wal-Mart the juice it needs to finally be a major digital media player. Others believe that Wal-Mart's miserable record in digital media suggests that the deal will be much ado about nothing. I'm in the latter camp, but not because of Wal-Mart's track record, but rather because of Vudu's own shortcomings.

Vudu's problem is that its value proposition is hamstrung by both the deals the Hollywood studios insist on to give Vudu access to their titles and by the current state of technology. Each of Vudu's 2 movie delivery models - rental and download-to-own - has its own problems that severely curtail its consumer appeal. No matter how slick the service looks or how many CE devices it's embedded in, consumers will readily see these drawbacks and resist embracing Vudu.

The rental model is primarily handicapped by the ongoing provision that the rental period "expires" 24 hours after the movie was started. That means that if real life (e.g. a crying child, a call from an old friend, a household emergency) interrupts the Vudu's users' planned viewing window, they're out of luck. It's an absurd restriction, but all online movie rentals are laboring under it. Then there's the provision that most new releases aren't available for rental until 30 days after they debut on DVD. This kind of delay doesn't mean as much for a subscription service like Netflix (which of course just agreed to a new 28-day "DVD sales window" with Warner Bros.), because it has a huge back catalog to offer. But for Vudu (and Redbox) these delays are very noticeable to users.

The download-to-own model is even more challenged. First off, tech-savvy and value-conscious consumers are increasingly focused on cost-effective rentals or subscriptions, not purchasing films. The demise of DVD sales is ample evidence of this. The idea of creating a movie "collection" in a fully on-demand world is already on the verge of seeming as archaic as creating a CD collection has been for a while. And with download-to-own prices of approximately $20, which are more than a DVD costs, consumers will be even more hesitant.

But the real killer for download-to-own is the technology limitations, more specifically the lack of portability and interoperability. Say you're actually inclined to own movies using Vudu. What do you do, download them to an external hard drive? And when you travel, do you lug that thing around with you? When you get to your destination, what device will actually let you play back your movie from your hard drive? The issues go on. The reality is that ubiquitous, cheap DVD players and the compact size of the discs themselves have created a very high bar for digital delivery to exceed. "Digital locker" concepts like DECE and Disney's KeyChest are desperately needed to move digital downloads along, but even they are just a part of a larger CE puzzle.

So, although the Vudu service is very impressive, with a slick user experience and really nice quality video, the reality is that unless Wal-Mart is able to break through these challenges, the Vudu service is going to be marginally attractive to consumers at best. That means the Wal-Mart acquisition, in fact, makes little difference.

Maybe Wal-Mart has the clout to move the studios, but given mighty Apple's own difficulties doing so, I'm skeptical that Wal-Mart will have better luck. I continue to believe that Netflix's model - which combines the full selection of DVDs with the convenience and growing selection of online delivery (including TV shows by the way) - is a far better approach. Netflix may not have all the HD and user interface bells and whistles that Vudu has, but it's a far better value proposition for consumers. This is partly why Netflix has doubled in size, to 12.3 million subscribers, in the last 3 years.

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Daisy Whitney and I are pleased to present the 37th edition of the VideoNuze Report podcast, for October 23rd, 2009.

This week Daisy and I discuss my post from yesterday, "In the Digital Era, Disney is Walking to the Beat of its Own Drummer," which picks up on a WSJ article from Wednesday about the company's new DRM initiative dubbed "Keychest." Disney appears to be taking a lone-wolf approach since other Hollywood studios and technology companies have rallied around DECE, the Digital Entertainment Content Ecosystem. When combined with its ongoing resistance to TV Everywhere (while other cable networks jump on board), I argue in the post that Disney appears to be adopting a much more individualistic approach to how it envisions pricing and delivering its content in the digital era.

On the TV Everywhere topic, Daisy shares observations from a recent Beet.tv executive roundtable she covered, in which participants debated the concept's benefits to consumers. Daisy cites how the NYTimes.com isn't currently offering embeddable video as an example of how rights remain a key challenge for online video distribution. Online rights will be one of the factors determining how much content is made available in TV Everywhere at launch.

Click here to listen to the podcast (14 minutes, 59 seconds)

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Yesterday's WSJ article about Disney's new DRM initiative, dubbed "Keychest" was another sign that in the digital era, Disney keeps walking to the beat of its own drummer. Combine Keychest with Disney CEO Bob Iger's repeated skepticism about TV Everywhere and the need for Disney to receive incremental payments for online distribution and it's not hard to conclude that Disney envisions retaining much more control over how its content is delivered and priced going forward. It's also not hard to conclude that Disney's largest individual shareholder Steve Jobs's influence is being felt in the company's decision-making.

The Keychest DRM initiative in particular shows a real streak of separatism by Disney given the critical mass that DECE (the Digital Entertainment Content Ecosystem) has gained. DECE counts among its members multiple studios (Sony, Warner Bros., NBCU, Lionsgate, Fox), technology providers (Microsoft, Intel, Dolby, Philips, HP, Cisco, etc.) and delivery outlets (Comcast, Best Buy). Granted, DECE hasn't shown a whole lot of progress yet, but that's pretty much to be expected when you have this many big players at the table. Still, even getting all these companies to join forces is a hopeful sign of inter-industry collaboration.

And as the WSJ article underscores, the need to introduce some form of standardized DRM for movies in particular is growing more urgent. DVD sales, the industry's cash cow for years, are off by 25% at certain studios, yet movie downloads don't yet come close to filling the gap. Downloading is not only still a new experience for many, but it introduces key limitations (lack of portability, non-ubiquitous playback and confusing usage rights) that are significant inhibitors for future growth. Let's face it, not a lot of people are going to invest in building downloaded movie libraries when it's difficult or impossible to do something basic like play a movie on 2 different TV sets in their home. Downloading's issues need to be solved quickly if it is going to take off.

Meanwhile, Disney's posture on TV Everywhere has created real questions about what the company's goals are in online content distribution. VideoNuze readers know that I've been bullish on TV Everywhere because it's a win for the 3 main constituencies - incumbent video providers (cable operators and telcos), cable TV networks and consumers. By forcefully advocating a plan to offer TV Everywhere as a value-add to existing subscribers, with no incremental fees, video providers laid the logical foundation for cable networks not to expect incremental distribution fees ("We're not charging anything extra, so you shouldn't expect to either.").

From my point of view, rationale cable network executives should be excited with the prospect of TV Everywhere, as it provides them an on-ramp to online distribution (which they've been shut out of to date, given the absence of a sound online business model and fearing a backlash from paying distributors if they offered their content for free streaming) while preserving their incumbent dual revenue-stream approach and expanding their advertising potential.

Nonetheless, Disney seems unsatisfied. CEO Iger continues to float the idea of incremental payments for online access, even suggesting it will launch its own subscription services. That could mean consumers face the prospect of paying twice for the same content, which is unrealistic even for ESPN's vaunted sports coverage. Disney has seen success with ESPN 360, its premium online service, but it offers distinct content (supplementary pro-sports coverage and niche sports coverage) from its flagship channels. And it should be noted that broadband ISPs pay for 360, not consumers directly.

I tend to believe we're seeing Steve Jobs's influence behind the scenes with both Keychest and Disney's posture on TV Everywhere. That's pure speculation on my part I'll admit. But "Think Different" is more than a slogan for Jobs and Apple. The company's ability to succeed by pursuing a non-conformist, innovative path (e.g. iPods, iTunes, iPhones, Macs, etc.) in the face of market norms is beyond dispute. Emboldened by Apple's success and understanding the strength of Disney's franchises as an insider suggests Jobs would encourage Disney not to be constrained by nascent industry-wide initiatives. At a minimum Apple provides Disney with a pretty compelling case study of how to succeed by zigging when others are zagging.

No question, Disney has incredible brands, and is probably in the best position among major content providers to influence how things will unfold in the digital era. And its investment in Hulu shows it is willing (albeit belatedly), to align with joint industry initiatives. Still, its Keychest project and resistance to TV Everywhere raise the possibility that in pursuing its own path it could not only miss out on or delay benefiting from the efforts of others in the industry, but could also be over-reaching with the result being consumer confusion and discontent. Disney holds strong cards, but it needs to be careful how it plays them.

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