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Surviving Media Fragmentation

11 Feb, 2006 By: Kurt Indvik

Just last week, Viacom president and CEO Tom Freston told analysts, “We welcome media fragmentation.” He said the company is completely “platform agnostic” and is preparing to take advantage of the digital delivery future.

The signals from Hollywood regarding its commitment to digital delivery are getting stronger, indeed. Paramount Pictures in its recent restructuring tapped former home video chief Thomas Lesinski to head up its digital media business. The Walt Disney Co.'s acquisition of Pixar brings in Steve Jobs as a potential force for greater digital change, even as its CEO, Bob Iger, talks of thinking outside the traditional windows model. Late last year, Kevin Tsujihara took over as president of the Warner Bros. Entertainment Group with a mandate to maximize the company's assets across all the developing media pipelines and platforms.

Digital technology will produce the next generation of entertainment platforms to bring yet another level of convenience and control to the consumer. And when those financial models are figured out, a good deal of the public's entertainment dollars will follow. It's why home video has grown into a $25 billion industry. Why watch a movie in the theater or wait for it to appear on TV when you could rent or buy it cheaply and watch it at home? It's why Netflix's rent-by-mail business has increased its revenue in 2005 by 36%, to $688 million, at the expense of the brick-and-mortar rental business. And it's why it modestly expects to have 6 million members by the end of this year.

Will the Netflix model bring a cataclysmic collapse of the brick-and-mortar rental business? Could digital delivery bring an end to the rent-by-mail Netflix model? Doubtful. But like radio, TV and movie theaters that all have weathered the onslaught of new technology, the packaged media rental business will have to change and find a profitable, if less dominant, market position.

The major rental chains are cutting costs, reducing store sizes and anticipating a renewal with high definition. Netflix is exploring the download business. I suspect this “media fragmentation” won't result in anyone's demise any time soon.

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