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ESCA: Digital Not Yet Ready for Prime Time

28 Jun, 2007 By: Chris Tribbey

Perhaps Jim Bottoms, CEO of research firm Understanding & Solutions, said it best during digital delivery discussions June 28 at the second annual Entertainment Supply Chain Academy conference:

“If DVD and physical product is mature, digital delivery is a prepubescent teenager that hasn't been introduced to Gillette or Clearasil,” he said.

When it comes to making things easy on consumers when they do go the digital delivery route, “I'd say we're probably in infancy, actually,” said Richard Bullwinkle, “chief evangelist” for Macrovision.

The setting may have been different, but the message home media experts have been delivering these past few weeks was much the same: Physical product rules and will continue to rule, as long as security, compatibility and affordability issues keep digital delivery from growing up.

“Physical DVD is a huge market,” said Tim Bridges, VP of media and entertainment practice for Capgemini Americas. “It's not going away soon.

“There's no doubt digital is growing, “ Bridges said. “… But at the end of the day physical product is still king, and will remain king for quite some time.”

For example, while the digital delivery business is supposed to more than double in size by 2011, the physical side will see only a 7% increase. But in terms of money, digital delivery will be a $540 million business in 2011, compared to $27.8 billion in 2011 for physical video business, according to PricewaterhouseCooper forecasting.

Home video sellthrough and in-store rentals accounted for 95% of home video spending in 2006, noted PricewaterhouseCoopers partner Debbie Newman.

“[Digital delivery] pricing continues to be an issue,” Newman said. “I can purchase a movie to own online, but it's the same price [as a DVD]. My personal opinion is that in 8 to 10 years, we're going to see a lot more adoption of this technology.”

Consumers' online habits need to change the way digital delivery business is done, said Seth Geiger, co-founder of research firm SmithGeiger. The leading demographic for online video are 18- to 24-year-old males, two-thirds of who are watching an online video every day, Geiger said.

“[Home entertainment] is very late to the game,” Geiger said. “There's no question this is the future. There's no question the genie is out of the bottle. The question is what do [we] do to take the high ground back.

“It reflects a fundamental shift of who's in control right now,” Geiger said, predicting streaming video would eclipse all other forms of time-shifting technology, such as SlingBox and digital video recorders. “Consumers dictate change. There are seismic shifts.”

The industry has already seen those shifts in the music industry, and should plan accordingly, many agreed.

In 2006, 580 million songs were sold digitally, up 65% from songs sold in 2005, according to Erin Crawford, SVP of Nielsen Entertainment. So far this year, 385 million songs have been purchased online, up nearly 50%, compared to the same point in 2006.

“What's most notable about the growth … we're seeing quarter by quarter growth still,” Crawford said, adding that most online purchases are for catalog titles. “We really haven't seen a slowdown in the growth of digital music.

“Digital music is still emerging. Digital video, with all the challenges that are still present … it's going to take a lot longer than digital music to get there.”

And to get “there” there need to be universal standards. Everyone knows where a DVD can be played. Not everything that you can get online works everywhere.

“Consumers want to feel like they really own [a digital purchase],” Macrovision's Bullwinkle said. “All the content [needs to] work on a broad range of devices.

“As far as [industry] standards go, we're a long way away.”

“The depth and breadth of the lack of digital standards is beyond unbelievable,” agreed Curt Marvis, CEO of CinemaNow.

“I think it's fair to say [digital delivery] is a very fragmented, unstructured industry,” Bottoms said.

But the need for reliable digital delivery will only continue to grow, many contend.

“There's huge consumer demand for content they can't get in traditional ways,” said Jim Taylor, SVP and GM of the Advanced Technology Group for Sonic Solutions. He said research shows digital distribution chains can save $6 per unit when compared to current DVD supply chains.

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