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NEWS ANALYSIS: Digital Drivers in Overdrive

24 Jun, 2013 By: Thomas K. Arnold

Hollywood’s digital drivers are shifting into overdrive.

Consumers have not just accepted the notion of ordering up movies and other entertainment electronically, they’ve embraced it — to the point where terms such as “streaming” and “VOD” (and, of course, “Netflix”) have become common components of pop culture.

Indeed, it has been said that Netflix has single-handedly changed the face of television by tossing entire seasons of new series — from canceled network toss-off “Arrested Development” to originals such as “House of Cards” and “Hemlock Grove” — directly into its streaming service, leading to what TV writers are calling “binge viewing.”

But the digital juggernaut is by no means limited to streaming, the descendent of video rental. Electronic sellthrough, for years a nonstarter, is finally coming to life as well.

According to first-quarter 2013 numbers released in May by DEG: The Digital Entertainment Group, consumer spending on EST soared 51% in the first three months of this year, to $231 million. Granted, that’s still not a huge number, but keep in mind that’s for just one quarter. Multiply that by four, and you’re getting close to 20th Century Fox president Mike Dunn’s prediction several years back that once EST hits $1 billion in annual sales, “you’ve got a viable business.”

Much of the credit for EST’s growth comes from consumers’ growing familiarity with obtaining entertainment digitally. Just like video rental set the stage for sellthrough in the wake of DVD’s 1997 launch, streaming appears to be prepping consumers for digital ownership.

UltraViolet — the cloud-based digital rights system backed by the Digital Entertainment Content Ecosystem (DECE)  — is certainly fueling consumer awareness, interest and acceptance of EST.

Buy a movie once and you get permanent rights to watch it anytime on any device. That’s a compelling proposition, said Sony Pictures Home Entertainment president David Bishop.

“UltraViolet keeps making great strides, boosted by retailers like Walmart,” Bishop said. “Besides offering consumers the ultimate in convenience, it makes the concept of digital ownership easy to understand and simple to adopt.”

Mitch Singer, head of the DECE, agrees.

“UltraViolet gives consumers much more playback flexibility with the films they buy for their collection, which will then lead them to collect even more titles,” he said. “And it really cements the ownership proposition because you no longer just own a movie on a disc — you own it on whichever device you happen to want to watch it on.”

Furthering the cause of digital sellthrough, several studios, including Disney, have taken digital copy off the physical disc and placed it on the Web.

“The marriage of physical and digital distribution is fueling powerful new business models and content opportunities,” said Lori MacPherson, EVP of home entertainment for Walt Disney Studios.  

Not to be outdone, Fox in September 2012 bowed DigitalHD, a platform designed to distribute new and catalog releases via online channels, including Best Buy’s CinemaNow and Walmart’s Vudu.

“Our strategy is simple: Support fostering easy, affordable and accessible ways for consumers to access their movies and TV shows across their devices,” said Jamie McCabe, EVP of worldwide VOD and DigitalHD for 20th Century Fox. “There’s an unprecedented explosion of connected devices in the marketplace, and our aim is to ensure we are creating the best ‘all access’ premium experiences.”

Several studios have been pushing digital sales through an early release strategy, in which a title is available digitally before its disc debut. Sony Pictures was a pioneer in this effort. In December 2011, Sony Corp. of America EVP and CFO Rob Wiesenthal told the UBS Global Media and Communications Conference that by releasing a digital version of Bad Teacher two weeks ahead of its disc debut, the studio saw digital sales rise 25% and experienced “no cannibalization” of physical sales.

One of the latest early-release ploys came in May, when Fox made A Good Day to Die Hard available on DigitalHD three weeks ahead of the title’s disc release.

In one of the most innovative ways a studio has tied digital distribution into a film’s theatrical and disc release, Warner Bros. in April partnered with Walmart to offer exclusive access to Man of Steel in theaters before the film’s general release. Each movie ticket bought at Walmart came with a code that let customers preorder a Blu-ray Disc combo pack or HD digital download of the film with exclusive content.
Digital drivers are also revving up their efforts outside Hollywood.

Rovi Corp. partnered with Toshiba Corp., launching a new line of digital TVs with its DivX Plus. Westinghouse Digital will debut a new Roku-enabled 50-inch LED HDTV on June 26 (see story, page 6). Redbox Instant by Verizon will offer its rental service to Roku media players beginning this summer. Flixster.com is making available its app on Panasonic’s line of 2013 Viera connected devices (see story, page 6).

Erik Gruenwedel contributed to this report.


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