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IRMA Prepares for Digital, But Attendees Say Packaged Media Isn't Going Anywhere Soon

14 Mar, 2007 By: Jessica Wolf

INDIAN WELLS, California — The International Recording Media Association is embracing the digital age.

The group announced it will change its name this summer to the Content Delivery and Storage Association (CDSA) and broaden its membership to include more digital-based companies. The announcement came here at the 37th Annual International Recording Media Association (IRMA) Forum.

Outgoing IRMA Chairman Dave Rubenstein, CEO of Cinram International, announced the name change as a prelude to a day punctuated by discussion and dissection of the emerging market for digital delivery.

Digital delivery of video content will make up about 25% of the market by 2010, said Charles Van Horn, IRMA president, presenting Understanding & Solutions research.

There's been loads of hype around digital distribution of late, while at the same time most people in the industry are in agreement that the physical disc isn't going anywhere, IRMA presenters and panelists noted throughout the confab.

“Change in consumer preference and habits don't happen as quickly as headlines predict,” Van Horn said.

It's telling that Wal-Mart is the first big-box, brick-and-mortar retailer to launch a proprietary digital-delivery service, he said. That retailer wields the most power in the physical market, although it makes the least money on actual disc sales, relying on the draw of movie media to lure shoppers, Van Horn said. The good news is, Wal-Mart wants to hang on to that lure and has a vested interest in keeping the DVD and other physical discs alive, he said.

“They are going to make sure that [digital delivery] is a collaboration so everyone makes money on discs as long as possible,” he said.

Still, players in the packaged media business, including analysts, content suppliers and retailers, are right to brace for this brave new digital world, presenters said.

The whole pie stands to grow with digital delivery ramping up alongside next-generation discs, said Danny Kaye, EVP of research and technology for 20th Century Fox Home Entertainment.

Right now, “new media” (which includes digital downloads) constitutes $0.3 billion in home video revenues, compared to $33.5 billion from traditional sources, Kaye said. By 2011, new media revenue will grow to $4 billion, but traditional revenues will grow as well, to reach $38.3 billion.

TV shows dominate the current market for video downloads and, ironically, will continue to do so until downloaded content is easily accessible on the TV, said Tom Adams, president of Adams Media Research.

TV show downloads will hit 500 million by 2011, with movies at 200 million. The end of 2008 will mark 300 million TV show downloads, compared to less than 50 million feature films downloaded, Adams said.

When it comes to feature films, downloads are going to steal more market share from rental than from sellthrough, when factoring in the ramp-up of next-gen disc sales over the course of the next five years, according to Adams Media Research.

Last year, the studio revenue breakout from feature films was 28% sellthrough, 24% box office, 23% premium subscriptions, 22% rental and 3% pay-per-view, video-on-demand and digital Internet sales combined.

In 2011, that mix will shift a bit to stand at 27% sellthrough, 23% box office, 21% premium subscriptions, 17% rental and 12% PPV, VOD and digital sales.

Digital downloading is still a niche, said Bruce Leichtman, president of Liechtman Research Group. Most downloads are coming from the same demographic group — 18 to 34 year olds — and they account for 41% of daily downloading and 31% of weekly downloads, he said.

Industry watchers need to take so-called success stories such as Apple's iTunes with a grain of salt, Leichtman said.

The 2 billion tracks sold, 50 million TV shows and 1.3 million movies downloaded Apple is touting is “not a lot,” Leichtman said.

“This is not a hit yet,” he said. “Will it be a hit? We have to keep reality here. It's not going to be a hockey stick increase.”

The truth is, at the pricing schemes iTunes offers, Apple actually may take a loss on digital downloading, thanks to infrastructure costs, said Andrew Parker, CTO of CacheLogic, a peer-to-peer technology company that's servicing the upcoming launch of BBC shows for Internet delivery on the BBC iPlayer.

“Apple can afford to take a loss on distribution of videos because they've got a couple of devices bringing in a couple of hundred dollars each,” he said.

Internet Service Providers are not equipped to handle massive video downloading, and may not be for another 10 years, said media consultant and keynoter Warren Lieberfarb, former Warner Home Video head and “father of DVD.”

For a popular title such as Shrek 2, which sold more than 11 million units on DVD in its first three days of release in 2004, in terms of memory, that's 66 pedabytes — 33 times the amount of data in the entire Internet, he said.

“The Internet is not yet ready to distribute major video releases,” Lieberfarb said.

P2P networks may be the answer to a lot of digital-delivery issues, said CacheLogic's Parker. Downloading actually speeds up as more users gravitate to sites and content, rather than the opposite, he said. Most ISP's bank on the fact that all the same users won't show up to download the same content at the same time, he said. Traditionally, that's not how the movie market works in any of its distribution windows.

Major players have been established in the current digital market, but one wild card is the cable companies, presenters said.

“Right now, digital cable can't match the selection of the Internet, but it could play a critical role in the future, whether that's as a pipeline provider or as an actual vendor of content,” Adams said.

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