Maynard Consulting

By Paul Sweeting

September 19, 2008

There was good news and bad news for the studios at last week’s HDTV 2008 conference sponsored by DisplaySearch.The good news is that DVDs—by far the studios’ most important revenue stream—remain incredibly popular with consumers despite the hype and noise surrounding digital distribution.

Discs account for 81% of consumer spending on movies, according to DisplaySearch research, compared to only 0.6% spent on movie downloads (18% comes from theatrical ticket sales).

The bad news is, DVDs remain incredibly popular with consumers, accounting for 81% of consumer spending on movies, compared to only 0.6% spent on downloads.

The paradox comes from the fact that while the DVD format remains popular with consumers, it is unquestionably a mature business for the studios. And what the studios ultimately need is for some other format to get popular enough to inject some growth into their business.

Speaking at HDTV 2008, Walt Disney Studios Home Entertainment GM Lori MacPherson offered a perfect illustration of the paradox (although that may not have been her intention). According to MacPherson, more people have transferred the DVD’s embedded file on the studio’s first title to feature a digital copy, A Nightmare Before Christmas, than have downloaded the movie across all the various digital platforms where it’s available.

“When we talk to people, we find that the avid downloaders also want to own physical discs of those same movies,” MacPherson said. “We need to be responsible about windowing to keep the business healthy. You need a lot of VOD transactions to offset the loss of a DVD sale.”

Indeed you do. And therein lies the problem for the studios.

On a title-by-title basis, particularly for new releases, DVD still delivers for the studios better than any other distribution channel does or can.

But in the aggregate, the business has nowhere to go but down.

Even as the format remains popular with consumers, prices continue to erode, unit sales overall are flat at best, shelf space has shrunk and catalog titles—often the most profitable for the studios—are ever-less welcome on the shelves of the biggest national retailers.

The introduction of Blu-ray Disc may slow that erosion somewhat, but as I’ve argued in previous columns, for now, hardware makers are driving the Blu-ray train, not the studios: Hardware prices remain high, so software sales remain small.

At best, innovations like Blu-ray and digital copy could help the studios hold onto some margin and arrest, at least for awhile, the further erosion of the optical disc business.

That would be fine if the costs of making and marketing pictures weren’t growing. But they are. And what the studios really need is something that will help revenue keep pace.

MEANWHILE, amid the smoking wreckage of Wall Street last week, studio chiefs at the Goldman Sachs Communicopia conference did their best to reassure investors that the economic slowdown will have little overall impact on movie revenue.

While acknowledging the tough economy, DreamWorks CEO Jeffrey Katzenberg called the movie business “recession resistant,” noting that DVD remains strong, with sales down just 3% this year.

“Our product, both our first-run releases and our library, have continued to do well,” he said. “We have not seen either price or margins erosion for us. All businesses are challenged and the home video market is challenged, but it has held up surprisingly strong.”

The real challenge to Hollywood from the financial crisis, however, isn’t the impact on revenue but on access to capital to fund production.

For the past decade, the studios have been tapping vast pools of Wall Street money as hedge-fund managers looked for some place to invest all the cash they accumulated and chased blockbuster returns.

While the studios have gradually been moving away from Wall Street cash in the last 18 months, as they increasingly look overseas and to sovereign wealth funds for capital, there’s still plenty of hedge-fund money in the pipeline. The studios now have to worry about whether all the money committed will really be there, given the current credit and liquidity crisis.

Ironically, the seizing up of capital markets may finally force the studios to slow the growth of production costs.

http://www.videobusiness.com/article/CA6597746.html?q=good%2C+bad+news

The speed by which videos of boxer Manny Pacquiao’s ring fights reach sidewalks - less than a day after the live TV feeds - shows that in the video business, money goes to those who are fast. Precisely why, apart from the price difference, the once thriving video rental business is now dead - well, almost.

I’ve often wondered why universities don’t consider expulsion an appropriate consequence when dealing with students who use university property (hardware) and/or services (free internet access, bandwidth) to commit illegal acts (piracy and illegal distribution).

The MPAA has published a “best practices” document which addresses the enormous problem of Digital Piracy in the college setting.  I recommend it:

http://www.mpaa.org/educational/BP.pdf

Content producers are always being told “too bad” when they discover their stolen content abroad.  Those days may be nearing an end.

“The Baucus-Hatch bill, introduced in the Senate Finance Committee contains two provisions, one of which is also included in PRO-IP: the appointment of IP attaches at U.S. consulates around the world to work with other countries on IPR enforcement.”

If you are a content producer working in any medium, now is the time to get involved. 

Read the rest of the article here.

Click here to read the full details of the bill.

from FORBES magazine: 

If the advent of streaming video and direct downloads hadn’t already signaled the impending death of video disc sales, add another nail to the DVD distributor’s coffin: a technology that lets anyone copy any DVD–and seems to be perfectly legal.

Real Networks, the maker of the free online media player Real Player, on Monday announced a new program it calls Real DVD, designed to let users legally “rip” a DVD’s contents to their computers. The program, which will cost around $50 and becomes public later this month in a $30 trial version, allows any DVD’s contents to be pulled from a physical disc to an iTunes-like library on a user’s hard drive; the process takes between 10 and 30 minutes.

The goal, says Real Networks Vice President Jeff Chasen, is to do away with space-consuming discs and let users create a backup copy of their video collection. “Our aim is to help people get more out of the DVDs they already own,” he says.

But the software is just as likely to help users get more out of DVDs they don’t own. A Real DVD user could easily borrow and rip all of a friend’s DVDs, or better yet, sign up for Netflix and add dozens of movies to his or her digital library every month without purchasing a single disc.

Real Networks’ take on that piracy problem? “Our message is that this is only for DVDs that you own,” Chasen says. “We don’t know what you’re doing with it. There isn’t a mechanism for us to know that.”

That “see no evil” answer isn’t likely to please movie studios and other copyright holders. But Real DVD doesn’t appear to do anything clearly illegal, says Laurence Pulgram, an attorney with Fenwick and West LLP who defended the file-sharing program Napster in its 2001 copyright case. After all, the software doesn’t actually break the encryption on DVDs. Instead, it merely copies the encrypted file and uses the same player technology installed in a typical hardware DVD player to read it.

Real DVD also installs a new layer of digital-rights-management (DRM) code on files, blocking users from copying them more than five times to other computers. That, the company argues, will prevent the ripped DVD files from ending up on Bittorrent or other peer-to-peer file-sharing networks.

Those measures allow Real to make a strong argument that it merely allows “fair use” of copying for convenience and backup purposes–not piracy, Pulgram says.

Then again, courts have yet to test the extent of that fair use. “No court has ever held that you’re entitled to make one extra copy of a DVD, much less five,” Pulgram notes. “But the same is true for ripping a CD, and the industry has never pushed this point.”

For morally flexible media consumers, ripping DVDs isn’t new: Downloadable programs like Magic DVD Rip Studio and Easy DVD Ripper have long offered the same function. But unlike Real DVD, those programs break the encryption on discs and thus violate the Digital Millennium Copyright Act’s prohibition on circumventing copyright protections.

Real DVD’s technique, on the other hand, already has a legal precedent. Sunnyvale, Calif.-based Kaleidescape sells a “movie jukebox” that also lets users copy DVDs without breaking encryption, albeit in a device that costs more than $14,000. The DVD Content Control Association, a consortium of media and electronics companies, sued Kaleidescape in 2005. The case was decided in Kaleidescape’s favor, though it’s currently under appeal.

For Real Networks, offering this sort of barely legal application is an old habit. In April 2007, the company released a version of Real Player capable of recording and storing any YouTube video, potentially allowing users to download copyright-infringing clips before content owners could have them pulled from the user-generated video site. (See “YourTube”.)

That tactic didn’t pull many new users away from leading competitor Windows Media Player, says Forrester Research analyst James McQuivey. In fact, most users are now ditching all software media players for streaming video, he says. And as Real Player becomes less relevant, McQuivey says Real Networks is again pushing legal boundaries to gain an audience.

“The movie studios won’t be happy about this,” he says. “But Real is willing to risk that ire to help their market position.”