DVDs Will Survive

October 18th, 2006 Davis Posted in Movies, VOD, Kiosks, Disclosure - I own stock in co. mentioned, Netflix |

Over the last 12 months I feel like I’ve spent more time reading about video downloads then actually watching them. Video downloads have been around for years through Movielink, but they haven’t caught on largely because consumers have a limited selection, the prices are too high and it’s a bigger hassle getting them to the television, then it is renting a DVD or watching a movie on TV.

To a certain extent, I think that the studios have intentionally kneecapped the downloading business in a distorted attempt to prevent the spread of movie downloads, but the more new movie download services that I see, the more that I’m convinced that it has a long way to go before it replaces the DVD. This isn’t a popular opinion amoung the digital elite and there are certainly those who would disagree with me when I say that the DVD still has a lot of life ahead of it, but nonetheless it’s a reality that I’ve accepted after seeing so many of these movie downloading services turn out to be box office flops.

Despite my own cynacism though, the internet has certainly changed the distribution of movies and once consumers go down the on demand road there will be no turning back. To give Hollywood credit, they have begun experimenting with different business models and consumers have certainly shown demand for streaming TV shows from the confines of the PC, but when it comes to that 2 hour flick, consumers still want to watch it on their big screen TVs instead of the computer. As the industry changes, I believe that there will be a middle ground reached between movie downloading services and traditional DVD distribution. That middle ground will be filled by partners like Amazon, Walmart and Blockbuster Video. The difference between the experiments today though, is that this middle ground won’t be a direct movie download for consumers, but will rather be a DVD burn on demand service that will finally bring the longtail to retail businesses.

In a very well written piece, Chris Taylor with Business 2.0 explores this very issue and offers a compelling argument for why the DVD still has a long life ahead of it. In the article, Chris points to problems with video quality using wifi devices, the fact that DVD players have much higher penetration rates than even the computer and to a relatively quiet deal that Sonic and the nefarious Macrovision entered into last week, as proof of this upcoming shift in the DVD landscape.

While Chris summarizes the issues much better then I could, I would add a few points to his argument for why the DVD will survive. While studios have been pumping out old TV shows on DVD at a shameful pace, there is still a lot of content that they can’t justify bringing to print because the demand is simply not there. With burn on demand technology, studios can make use of their entire archived content without having to worry about production minimums, retail shelf space or any of the physical constraints that prevent b-movies from making it into mass circulation. While each title might not be individually popular, if there are a lot of people who want access to fringe movies, this will prove a lucrative revenue source for content that the studios wrote off as a waste long ago.

Earlier this week, I had lunch with MikeK from Hacking Netflix and we were talking about kiosk technology. One of the issues that Mike brought up was that he was skeptical that we would ever see burn on demand adopted on a wide scale because of the difficulties in clearing the rights for access to this technology. To a certain extent, he’s right. A compelling movie download service has been difficult for any company to put together in large part because the studios have dragged their feet, there are exclusive distribution arrangements and believe it or not negotiating for the music rights in movies, has been a nearly impossible task. While all of these are serious challenges to movie downloading, I would still be wililng to bet Mike a free lunch that we see burn on demand adopted at the retail level within a year for two reasons. First, the studios aren’t going to kill the goose that laid the golden egg. The video store has been a jackpot for Hollywood execs and you can bet with Movie Gallery on the brink of bankruptcy and with Blockbuster having a less then stellar balance sheet, that they are now prepared to make sacrifices to help save those businesses. Secondily, and perhaps more importantly though, Hollywood has not negotiated away their rights to offer DVDs on demand at a retail level. Movie downloads are problematic, but whether they allow Walmart to burn DVDs at the store level or whether they do it at a factory, they are still allowed to distribute their entire library of films without having to negotiate new music rights or ways around the exclusivity agreements because the end product is still the sale or rental of a DVD.

At some point, movie downloading will replace the DVD. The convenience of having everything on demand is too compelling for consumers to ignore, but it will take years and many more challenges before we get to that point. In the meantime, Hollywood will embrace the next generation of High Definition DVDs and will introduce a retail burn on demand solution that will eventually give consumers access to 100,000 films from their local video store or entertainment kiosk. Only time will tell if I’m right or wrong, but in ten years, I believe we will look back and see that the DVD did a good job of surviving despite all of the skeptics who believe that the DVD has gone the way of the VCR.