VOD Pioneer CinemaNow Taking on Newcomers23 Sep, 2006 By: Erik Gruenwedel
Download-to-own movies have gone mainstream with Amazon and Apple recently bowing services and Wal-Mart said to be mulling entry into a market that once featured only CinemaNow and Movielink.
CinemaNow — founded in 1999 by Blockbuster Inc., Lionsgate and Microsoft, among other investors — in April (along with Movielink) launched its electronic sellthrough service, which included content from Buena Vista Home Entertainment, Lionsgate, MGM, Sony Pictures Home Entertainment, 20th Century Fox Home Entertainment and Warner Bros. Home Entertainment Group.
The company in July broke new ground when it began offering select theatrical movies for burning to DVD and playback on standard DVD players. Initial titles ranged from Charlie's Angels and Barbershop to Midnight Run, Scent of a Woman and Backdraft.
Home Media Retailing spoke with CinemaNow CEO Curt Marvis about the rapidly changing electronic sellthrough marketplace and how one pioneer hopes to remain competitive.
HMR: How do you see the competitive landscape of video downloading with Amazon, Wal-Mart and Apple eyeing the space?
Marvis: We would be fools not to be carefully watching the entry of very large-scale companies. At the same time, we do feel secure that we have been at this business for seven years. We are the only company that has all seven major studios on board for electronic sellthrough and rental. We are the only company that allows burning DVDs for standard DVD players.
We are a pure-play video distributor, and we believe that if this market grows to where we expect it to, there will be more than enough room for us to successfully grow this company.
HMR: How important is it to offer download-to-own on a standard DVD?
Marvis: It is incredibly important. It is the No. 1 thing our customers kept asking us. When you tell someone you can burn a DVD, the average consumer just assumes you can burn it and play it on a DVD player. They don't realize it usually means you can burn it to play on a PC it is already sitting on, which is hardly a great advantage.
So we had customers crying and screaming for the ability to do that and not understanding why they couldn't. If we have the same title available both for electronic sell-through to a PC or a DVD, we sell about five times more of the burned movie than of the PC-only title — even when it is priced higher.
HMR: Why have the studios warmed up to the download-to-own concept?
Marvis: Keep in mind, we have only a limited amount of product. We are negotiating with the studios for better titles, which we expect to get from them in the near term. I think the studios realize that the digital distribution marketplace is real and what consumers are interested in. At some point, you have to give in and give your customers what they are looking for.
HMR: What did you think of Sony's recent acquisition of Grouper.com?
Marvis: I thought it was interesting. Community-based sites wrapped around the video viewing experience are one of the benefits of the online business, compared to the traditional retail experience.
HMR: Would you offer user-generated content, and if so, how would you monetize that content?
Marvis: We have discussed it and done trials over the years. But I wouldn't say it is the No. 1 priority here. But we have some ideas that you might see in 2007.
HMR: Would some of that be ad-supported content?
Marvis: We already have ad-supported content. We have several thousand pieces of content available on a free basis on CinemaNow. We believe the ad-supported business model is sustainable now, and interesting for our licensors.
HMR: Do you think the evolution of digital distribution will change packaged media's position on the home entertainment food chain?
Marvis: Packaged media people have talked about the threats to it for a long time. I always use the example of online books: Readily available for many years, they have hardly caused book stores to go out of business. Maybe they have caused some consolidation, but there is still a thriving business at retail even though you can buy any book you want online.
I think the packaged media business will continue. I think we will see HD DVD become much more prevalent on store shelves, as standard-definition DVD becomes the first wave of major content that is available for digital distribution.
HMR: Do you see a day when a movie's simultaneous release on DVD and digital could earn more money than a traditional theatrical blockbuster?
Marvis: There have been attempts at that with some independent movies. It is certainly possible, but I don't see it as a factor on the immediate horizon. Everybody has spoken about the collapsing of [release] windows.
HMR: Does the Internet allow you to turn a small independent film into a ‘blockbuster'?
Marvis: I think the viral nature of the Internet has been proven, primarily on the video side with short-form content. I think that will expand as long-form content becomes more prevalent. At the end of the day, if it is a piece of content that works and captures people's imaginations, then digital distribution certainly provides an incredible distribution platform to get that film out in front of a lot of people very quickly. The opportunity exists.
That said, the so-called long tail is often exaggerated. You still have to market a film, you still have to have a great movie, and you still have to have something people want. It is not so much about the formula as it is the content itself.
HMR: Is sellthrough still the most lucrative to the studios, and will it always supersede rental, VOD, pay-per-view, etc.?
Marvis: What's driven [digital] sellthrough has been price points getting close to the rental prices. Sellthrough will be the dominant marketplace. Price points in digital distribution over time will continue to come down because distributors don't have the costs of creating the packaged goods and taking returns from retailers.
When digital distribution becomes more economical and more content is available, I believe the sellthrough business will generate revenue numbers much larger than what we've seen over the past decade with DVD.
HMR: Download service Guba.com recently announced it would cut in half through the end of the year both download and rental prices. How realistic is such a price cut, and does that officially start a price war within the nascent download market?
Marvis: Guba is early on in this business, and the numbers are relatively small. So I think slashing prices is something you can do because we aren't yet into a multibillion dollar business. There is less riding on such a move than in the future.
Consumers online have clearly indicated to us that they expect prices to be lower than retail. I think that is true of any product bought online. That pattern had held true for music, and I think it will hold true for movies.
HMR: How real is the iPod video market considering the screen size, capacity and battery life?
Marvis: We've always been big believers in the portable market. In the next few years, we will get even more aggressive with portable content. When a person can download a movie and burn it to a DVD and watch it on a portable device or on their TV, they want to do that on your own schedule.