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Warner's Sanders: Prepare for High-Def Disc Explosion

17 Apr, 2008 By: Sam Andrews

PARIS — The home entertainment industry is on the edge of an explosion in high-definition software sales, but industry executives need to ensure the business has the manufacturing capacity to meet demand, said Warner Home Video president Ron Sanders during a keynote speech.

Sanders, addressing more than 300 delegates at the 16th annual PEVE home entertainment conference in Paris, said that the opportunity offered by the high installed base of HD televisions was yet to be fully exploited, especially in Europe where he described the number of HD channels offered as “paltry.”

“We are going from 39 million homes with HDTVs in Europe last year to 139 million by 2012,” he said. “That is an enormous opportunity if we can convert those home into buyers of high-def DVDs.”

Quoting conference organizer Screen Digest's latest numbers on Blu-ray player penetration following the end of the format war, Sanders suggested that total Blu-ray households in Europe would grow dramatically from 9 million in 2008 to 67.1 million by 2012.

The key opportunity in the short term, Sanders added, lay with PS3 owners. He praised efforts by Sony to market the PS3 as a movie player, revealing that advertising in the United States had caused a healthy spike in Blu-ray disc sales and that the campaign was now rolling out around the world.

“Software sales are ready to explode,” he said, warning that, “This also creates a challenge for the industry because the replication capacity has to catch up with the demand if we are going to fulfill this opportunity.”

Paraphrasing Field Of Dreams, he suggested that investment in new replication lines was a pretty safe bet. “If we build it, they will come,” he said.

He also suggested that the home video industry should view digital distribution as an opportunity to augment the packaged-goods industry, not as a threat to its existence.

“We need to use digital media to increase interest in new product,” he said.“We need to explore how to use it to add value to the packaged goods. We don't see it as either/or — digital or packaged goods — we see them going hand in hand.”

He also believes that the digital copy or “second session” now being tested around the world on the DVD release of movies such as I Am Legend was key to adding value to consumer transactions and to increasing sales.

“The buy rates increase annually by 1.5 buys over standard-def DVD if you make this offer to consumers,” Sanders explained. “We think this can add some real strength to packaged goods.”

He also warned the industry not “to make the same mistake the music industry made by not making digital product available legitimately.”

Trials of the simultaneous release of VOD with DVD were also showing a benefit for the market on the back of increased marketing expenditure across the two platforms, Sanders said. Both VOD and sellthrough increased he said — Warner has seen 33% increase from its original DVD sales projections in Belgium, the Netherlands and the Nordic regions. But he did admit that, “DVD rental was down slightly but our rental business is down in the non-test markets also.”

“The important thing is that it growing consumers interest, and we are generating more consumer dollars from these films than we would have done otherwise,” he said.

At the same time, Sanders said the home entertainment sector had to look after standard-definition DVD on which the vast majority of its revenue is based. He also called on the business to find other ways of stimulating sales other than cutting price.Pointing to added-value products such as Ultimate Collector's Editions and complete TV series on disc, he said Warner had found “real consumer interest in stepping up to these more expensive gifts.”

“The key is that it is not just about growing standard def by reducing price and multi-buys, there are other ways to be doing that,” he said.

Local-language product also represented a “big opportunity” for the studios, he added. Films such as Ho Voglia Di Te in Italy, El Orfanato in Spain, Keinohrhasen in Germany, Warlords in China and L: Change the World in Japan have all set box office records in their respective territories, he said, and it is important for Hollywood to recognize this.

“Local language is playing a big part in the development of those territories,” he said. “If we are only a U.S. exporter of Hollywood product, we are not going to realize the potential from many of the local-language opportunities around the world.”

He also stressed the need to beef up efforts against piracy and pointed to joint efforts by copyright owners, ISPs and government officials in France to introduce penalties against those illegally downloading films as one of the most important developments in the anti-piracy campaign. Half a million films are estimated to be downloaded illegally in France every day and 25% of the French home video industry has disappeared in the last three years, he said.

A program called “Graduated Response” tracks individuals uploading or downloading copyrighted materials, he noted. The ISP is then informed and it contacts the user to ask them to stop doing so or face termination of their service.

“Despite what consumers think, file-sharing is not an anonymous transaction,” Sanders said. “We can trace the computers that are downloading illegal material from a peer-to-peer network and we want to make them aware of the fact that it is something we can do.”

He also suggested that once trials of much-increased spending against piracy in Spain and the United Kingdom were completed that it would be rolled out elsewhere.

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