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A Burning Question

4 Jan, 2008 By: Marie Bloomfield

Could manufacturing-on-demand (MOD) be the solution to a shelf-space crunch?

The DVD business is approaching saturation in key markets, resulting in intense pressure on both brick-and-mortar and online retailers.

This situation has been exacerbated by the arrival of two high-definition formats. The combination of vanilla discs, premium discs and special-edition boxed sets across up to three different formats (DVD, Blu-ray Disc and HD DVD) means that a release can come in as many as 10 different SKUs.

For retailers, reconciling the expanding DVD catalog with limited shelf space is becoming increasingly urgent. Meanwhile, rights holders have a growing concern that many titles are simply not strong enough to secure shelf space.

Proponents of MOD argue that this technology has the potential to address these problems.

MOD could benefit rights holders

From a retailer perspective, the deployment of on-demand fulfilment services could alleviate the pressure on inventory by enabling them to stock some titles virtually rather than physically. Both brick-and-mortar retailers and online retailers are in a position to incorporate MOD, with service providers having developed solutions tailored to both types of businesses. MOD solutions can be installed in-store — either as a standalone kiosk or combining a consumer interface on the shop floor with fulfilment behind-the-counter — or in a warehouse for the fulfilment of orders made online.

Such services might also make it possible for rights holders to exploit long-tail content — niche titles that individually might generate only a fraction of the revenue of a new studio release, but that collectively could become a significant revenue stream.

MOD also could allow rights holders to release content that has not previously been made available on DVD. Screen Digest research indicates that a wealth of content has not been released because it is not considered commercially viable for traditional DVD distribution. Warner Bros. for instance, has 6,600 movies in its library, but only about 1,500 have been released on DVD. In addition, the studio boasts around 50,000 TV episodes, of which about one in 10 have ever been published on DVD. While many unreleased catalog titles may not have stood up to the test of time, others continue to languish in the vaults because their potential audience, although identifiable, is not considered large enough to justify the investment that a traditional DVD launch entails.

MOD can offer an avenue for this kind of content because, unlike the traditional video supply chain, it does not require the rights holder to make any commitment to replicating in large volumes. Instead, product is manufactured on a unit-by-unit basis.

MOD also opens up the possibility for rights holders to experiment with new business models for non-movie content. There are many ways in which this could be exploited, such as making episodic and short-form content such as TV and music videos available individually, so that consumers can pick and mix segments.

Some rights holders have expressed concerns that such a proposition could undermine the lucrative market for TV DVD boxed sets, but Screen Digest believes that cannibalization would be minimal, given that most consumers would probably not elect to purchase a handful of episodes on a MOD basis instead of a season boxed set. Indeed, it is arguably just as likely to stimulate sales of boxed sets, as consumers who purchase a few episodes of a series through a MOD service may subsequently be inclined to invest in a prepackaged DVD version of the full season.

More retailers in the mix

In addition to potentially making a broader selection of content available, MOD also could be harnessed to make video accessible through a wider variety of retail outlets. For existing DVD retailers, MOD can expand title breadth. But for retailers that do not currently offer DVDs, it could represent a way to add video to their product mix for the first time.

In October 2007, Walgreens — the largest drug store chain in the United States — announced its intention to roll out an MOD service in early 2008. The company does not stock prepackaged DVDs. So this could represent the first large-scale instance of a retailer entering the DVD market via MOD. This allows the host store to offer a large video inventory without having to manage the physical product and all that entails. Thus, a fully-stocked MOD kiosk might eventually enable such stores to compete on range with specialist video retailers.

For consumers, MOD represents convenience. Shoppers will have a wider range of titles to choose from when browsing for videos. And when they're looking for a specific title, they will be more likely to locate it without having to visit more than one outlet.

So in theory, it seems MOD does have the potential to generate incremental sales in an era of slowing growth for the video industry, something which already has persuaded two major retailers to explore the platform. E-tailer Amazon has implemented MOD services as part of it online operations, opting to manufacture select titles on-demand at its fulfilment centers in response to individual orders, rather than retain copies of these titles in the warehouse.

At the moment, the MOD services burn content onto DVD. Nonetheless, there are issues surrounding DVD MOD, particularly the time it takes to burn to each disc. On average, it takes 15 minutes to burn a disc — a relatively long time in retail terms. And in-store MOD kiosks might be considered clunky. If providing MOD online — where the goods are manufactured remotely — production time is less of a concern.

In view of this, MOD service providers also are developing solutions that will support other packaged media formats, such as flash-based memory cards and USB keys, as well as the digital delivery of direct-to-portable media devices. If successful, such systems might one day help to accustom mass market consumers to migrate away from packaged media and toward digital delivery.

Marie Bloomfield is an analyst in the video department at Screen Digest.

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