Mitch Singer Discusses EST Plateau

7 Oct, 2016 By: Stephanie Prange

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Is digital ownership going to live up to its promise?

Industry veteran Mitch Singer sees ominous data from DEG: The Digital Entertainment Group.

Singer, a former Sony studio executive who is now a principal at Digital 360 Ventures, said electronic sellthrough — which had been growing steadily over the past couple of years boosted by early digital-release schemes — looks to be leveling off.

Singer spoke at the Oct. 6 Digital Media Pipeline conference hosted by the Entertainment Merchants Association.

After gaining steadily on VOD, EST revenue is projected to total $2.01 billion to VOD’s $2.07 billion in 2016, Singer said, calling it a “troubling number.” Given the EST growth pattern in previous years, projected revenue for 2016 should be higher, he said.

“Something has happened; it looks like [digital] ownership has stalled,” he said.

Why? Singer looked to his experience with the digital content locker ownership scheme UltraViolet, which he championed.

UltraViolet faced some hurdles he didn’t foresee that are still affecting EST growth, he said.

“UltraViolet really never got full industry support and the idea behind UltraViolet was, ‘Is there a way that we can come up with a brand that people identify with?’ I mean we know what DVD is. We know what Blu-ray is. But on the digital side we really don’t have a brand identifying kind of an ownership brand. We don’t really have a brand where consumers can say, ‘Oh I’m going to buy it,’” he said. "We just weren’t able to do it, and I think that really hurt us. It’s really about the benefit of an authentication service and what that means to the industry. And I think not only did we not communicate it very well to consumers, I’m not sure I communicated it very well to my studio partners as well. It didn’t go where I thought it would go, but I’m not saying the whole idea of a ubiquitous file service is dead, whether it’s UltraViolet or DMA [Disney Movies Anywhere] or something else, I think it’s very important that we have that kind of ubiquitous cloud.”

Singer still thinks the solution to digital ownership is a portable, cloud-based “token” that consumers can own. Portability is important, he said, referencing the Telecommunications Act of 1996, which allowed consumers to keep their mobile phone numbers when they changed carriers.

“It not only fostered competition; it actually forced the incumbents to innovate as well because they no longer had a proprietary lock on consumers,” he said. “So when I think about a ubiquitous file service, I think of it less from the consumers’ perspective. I think of it terms of a new startup. How do they enter the market if the only way a new user could actually use this new service is that they actually have to abandon their entire library in iTunes or in Amazon or in some other service? So the first barrier that I thought we really needed tackle was switching costs.”

Switching costs also affects competition.

“The innovation’s going to come from that small guy and so it’s very challenging to enter the marketplace if no one’s going to use your service because they are forced to abandon their library,” he said.

It’s also hard for smaller services to compete against goliaths such as Netflix and Amazon on licensing content.

“The startup has to negotiate like a 70-page extensively complex licensing agreement with the studios,” he said. “There’re a lot of barriers that startups have to get over.”

He added, “Innovation comes from new startups and I don’t think there’s been enough innovation in what ownership means. I think it’s one of the reasons it’s now stalled.”

As an example of the lack of digital ownership innovation, he noted there is no way to sell a digital copy to someone else, as there is under the First Sale Doctrine with physical media such as Blu-ray and DVD.

Not only is branding, portability and innovation a problem for EST, but subscription video-on-demand could be a foe.

“I also think we have to look at subscription video on demand as possibly being a reason [digital ownership has stalled],” he said.

Looking again at the overall home entertainment revenue numbers from the DEG, he said, “If you look at SVOD revenues, they actually make up the difference of [the other sectors’] declining numbers.”

Netflix and other SVOD services have some advantages over the studios, he noted. They have a steady stream of revenue from subscriptions, meaning they don’t depend so much on the performance of the latest hit, and they have a vertical monopoly (ownership of content and distribution). It’s the kind of vertical monopoly studios had until the late 1940s when congress forced them to divest ownership of theaters, he noted. That’s why the entry of Netflix, Amazon and other SVOD services into original content is also ominous — which brought Singer back to that “troubling” EST number.

“This number actually should be continuing to increase as it had in prior years if consumers felt comfortable owning, but it actually stopped,” he said. “I don’t know whether its SVOD, I don’t know whether people don’t see the same kind of value, I don’t know whether its just pure demographics … but we’ll see at the end of the year whether this is a blip or whether this continues. But I guarantee you that the studios are going to be very concerned about this given that the majority of their revenue comes from the ownership model, not the rental model. This is going to be a hot topic with studio executives.”
 

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