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DVD Not Dead, But the Digital Future Is Here

1 Jun, 2006 By: Stephanie Prange

The reports of DVD's death are exaggerated, but the business is entering a period of transition as two high-definition formats hit the market and digital downloading makes strides.

Change was the keyword at the fifth annual Home Entertainment Summit: DVD's Nine Lives, produced by Home Media Retailing in cooperation with DEG: The Digital Entertainment Group and The Hollywood Reporter.

“We must not fear change,” said Universal Studios Home Entertainment president Craig Kornblau, honored at the summit with the 2006 DVD Visionary Award. “We must seek it and embrace it.”

The DVD business is entering a period that will test the mettle of marketers, noted 20th Century Fox Home Entertainment worldwide president Mike Dunn.

With DVD, competing high-def formats Blu-ray Disc and HD DVD, and different digital delivery options, the future will be a “real integrated world that the marketing guy is going to control,” he said.

The job of the home entertainment executive is more complex, noted speakers on the presidents' panel.

“We've become bipolar,” said Bob Chapek, president of Buena Vista Home Entertainment, noting home entertainment executives must be fluent in technology as well as the traditional packaged-media business.

Executives said they now devote between 20% and 50% of their time to new delivery options.

“The job seems to change every week you come in,” Chapek said.

“We are now in the mode of trying to anticipate consumer behavior,” said Sony Pictures Home Entertainment president, North America, David Bishop. “There's a lot of R&D going on.”

Much of the anticipation of consumer habits involves the digital download world, where studios have been offering more and more movies in the same window as DVD.

“Unlike the music business executives, who wanted it to go away, we knew it wasn't going to go away,” Bishop said.

Executives on a digital downloading panel said studios this year had become more open to video-on-demand delivery because they were confident of the copy protection and because they wanted to provide a legitimate product to head off illegal downloading. Also, the services appeal to the young demographic.

Downloadable hit movies that can be burned on a DVD playable in any DVD player are in the near future, they said.

Still, they agreed digital downloading won't have much of an impact on packaged media for at least a decade.

“The DVD business is a multibillion dollar business,” said Bruce Eisen, president of CinemaNow. “The VOD business is not quite that.”

“Digital possibilities are just going to grow the pie,” said Warner Home Video president Ron Sanders. Retailers who embrace the digital future will win, he said.

“Get an online site up immediately,” was Kornblau's advice to retailers. He also urged them to work with studios to enter the digital download world in some fashion.

Still, packaged media could be more resilient than some think, Dunn said. The packaged-media business could develop a “killer ap” in the new high-definition formats, in which interactivity, ease of use and quality could make the disc the premiere storage device for content.

All the executives said the adoption of HDTV — projected to be in 25 million households by the end of the year — makes high-definition discs a necessity for studios. Consumers will find high-definition content elsewhere if they don't have a packaged-media option.

Managing the transition from DVD to high-def disc will be tough, executives said.

DVD is by no means a dying format. Executives expect anywhere from flat to single-digit growth in the business this year, after a tough period last summer.

The sellthrough DVD business grew 6.5% from 2004 to 2005, from $14.2 billion to $15.1 billion, noted Peter Staddon, EVP of marketing for 20th Century Fox Home Entertainment and VP of the DEG. Still, the falloff in the VHS and rental market revenue resulted in an overall flat business that clocked in at $23.2 billion in both years.

While the price of DVDs and rental transactions (mainly through subscription services such as Netflix) is dropping, the business produces a “huge amount of volume” and is still strong, Staddon said.

Executives must be careful not to confuse the consumer with the new high-def formats, he said. “A confused consumer doesn't buy a lot of product,” he said.

The dual-format launch of high-definition discs is now a forgone conclusion, and some speakers said the two could happily coexist. But the image constraint token (ICT) encoded in high-def discs could prove an impediment to adoption, especially internationally, noted Helen Davis Jayalath, an analyst with Screen Digest. Early buyers may not have HDTVs equipped with HDMI. If ICT is implemented in the disc, these early TVs would down-res the programming, significantly altering the picture quality and creating a bad impression with the consumer.

Studio representatives on a high-definition panel downplayed this problem. “It's a non-issue,” said Adrian Alperovich, EVP of international for Sony Pictures Home Entertainment.

But retailer Robert Zohn, president of Value Electronics, said, “I disagree. The studios would be shooting themselves in the foot [to implement the technology].”

Speakers indicated consumers would like to have a transitional hybrid DVD and high-def product that could be played on the HDTV setup as well as DVD players around the house.

Steve Nickerson, SVP of market management for Warner Home Video, said his studio would be putting out several hybrid DVD and HD DVD discs in coming months, Alperovich said Sony had no plans to put both formats on its Blu-ray discs.

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