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Digital Players Need to Team Up

14 Jan, 2004 By: Holly J. Wagner

The movie, computer and broadband service industries will have to work together to avoid a format war and the kind of downloading feeding frenzy that has looted the music industry, according to an analyst at McKinsey Research.

Computer makers and broadband providers are hesitant to use copy control systems because they fear alienating their customers, but studios are holding back quality movies until they are satisfied that they will get paid for every view. The result is that consumers who want legal video downloads have few options, analyst Luis A. Ubiñas contended.

While studios and TV networks are rightly concerned about piracy, focusing on stemming the tide of illegal downloads is not as important as creating a legal, easy-to-use system for downloading and storing movies, he suggested.

“Even though more than 13 percent of U.S. households have broadband Internet access, the market for legal digital content services remains underexploited, with total revenue of less than $1 billion,” Ubiñas wrote in his analysis.

Likening the present dilemma to the emergence of cable and satellite services in the early 1970s, Ubiñas wrote that studios would be wiser to make revenue-sharing deals with broadband providers much like those in place with cable and satellite services today, in which the content providers either split subscriber revenue or collect a carriage fee.

“Despite the temptation to go around broadband providers, partnering with them not only shares risk but also delivers access to their storage, distribution and consumer billing capabilities,” he wrote.

Media giants can take solace from the value that consumers put on unique, branded content, such as the what cable networks offer. Studios and networks have enough content to offer movies and TV shows online and on demand via various broadband providers to get a foothold with legal services before it's too late, Ubiñas concludes.

McKinsey Research's analysis comes just as two research groups released information about broadband penetration in the United States.

Nielsen//Netratings reported that 49.5 million, or about 38 percent, of home Internet users are accessing the Internet using broadband connections. The number represents a 27 percent increase in home broadband use in the six months from May through November 2003. Narrowband access remained flat during the same period, with about 69.6 million home users.

A subsequent Harris Interactive consumer poll indicated that 37 percent of American adults are accessing the Internet via home broadband connections, up from 27 percent at the end of 2002.

Internet adoption has slowed but is still growing, the Harris poll found. That survey of 2,033 adults found that 69 percent of American adults are going online, up from 67 percent at the end of 2002. Those accessing the Internet from home have reached 61 percent, up from 57 percent at the end of 2002, and those accessing the Internet from work are at 31 percent, up from 28 percent in 2002.

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