Archive for category HDTV DVDs

Coming Soon To A Store Near You

Hollywood DivXI know that I’ve been critical of DivX’s efforts to woo Hollywood in the past, but I’ve also got to give them credit for a win when I see one and I think they knocked it out of the park when it comes to Paramount.

Recently, Paramount announced that they were going to be distributing content on USB sticks. At the time, they didn’t say what format it would be in and even on DivX’s conference call there was no mention of this realization of their strategic vision, but Electric Pig is reporting that the Paramount movies will in fact be encoded in DivX.

With only 20,000 memory sticks for sale and at a price of approximately $33 US, Paramount is still clearly in the testing phase, but the fact that they choose DivX demonstrates the clear advantage that DivX has over all of their other digital competitors. They have the only real solution for brick and mortar retailers.

If Paramount tried to do this with a proprietary solution, it wouldn’t work because it wouldn’t give them a way to get that movie to the television. They could try to do it with Apple, but Apple doesn’t have the same reach to the TV, especially in Europe where this is being launched.

To date, most of my thoughts on DivX’s courtship of Hollywood have centered on the futility of trying to win enough support, so that online retailers could adopt their technology for digital distribution. If you can’t get a Disney or UMG to license DivX’s format, it makes it tough for someone like Netflix or Blockbuster to use their codec even with the other 80% of the content owners on board.

The beauty of the USB distribution strategy is that they won’t need 100% industry support in order to move their plans forward. Shelf space is limited as is, all they need is for a single studio to want to take advantage of this and there will be more than enough titles to tempt you with while you are waiting in line at the cash register.

Now I know what many of you are thinking, movies on USB are pretty lame. When Paramount made their announcement, there were more than a few commenters who zinged them for being out of touch with current trends. While there’s no doubt that the world will go digital, I also realize that the major studios aren’t going to abandon the retail partners that deliver the majority of their profits each and every year. It may end up becoming super easy to buy movies straight from your home, but if you have millions of consumers visiting a store each day, you can bet that the studios will want to reach those customers where they are hanging out. The shelf space is too valuable to be abandoned.

DivX on USB also opens up new business models for the studios. Instead of selling three DVDs, they could package all the Godfather films on one stick to justify a higher price tag or they could offer an entire season of television on an 8GB stick instead. If a retailer can sell something for twice the price, they will take smaller margins from the studios for the larger transaction. With the studios under pressure to develop new revenue streams, this will be too tempting for them not to exploit.

There’s no doubt that DVD is moving to Blu-Ray, but DivX memory sticks allow their Hollywood partners to reach consumers who may not have upgraded to high def just yet. With the industry in a state of flux, being able to sell a device that can be read by any computer and over 200 million devices gives DivX broad reach when it comes to the world of disconnected playback.

Paramount may be approaching this market cautiously, but I think people have greatly underestimated the size and the impact that USB films will have. It may not be cutting edge technology, but there are too many powerful companies who need it to succeed for it to fail. At the birth of this industry, it’s encouraging to see Paramount actively supporting their partnership with DivX, instead of just taking a licensing payment and then ignoring what their technology can offer.

USB movies won’t necessarily solve DivX problems with their shifting business model, but it does underscore the significance of the platform that DivX has built. As much as DivX is threatened by the obsolescence of the DVD, they can also benefit from the format shift. So far, they haven’t done a very good job of managing this transition, but this deal proves that even an old dog can learn new tricks. If retailers start asking for DivX as a weapon against Blockbuster and Netflix, other studios might also understand the benefits of using open and popular technology to make more money.

DivX On The PS3: Is Sony Selling Consoles or Sabotaging HD-DVD?

Loving the Playstation 3When I found out that DivX was going to be supported on the PS3, I was pretty much floored by the announcement. I can see lots of reasons why Microsoft would want to add DivX to the Xbox, but with Sony’s studio assets, I never expected them to embrace the format.

While there is no way for me to know what really motivated Sony, I do have my suspicions.

On a basic level, Sony obviously adopted DivX as a competitive strategy for the console market. Announcing support for a popular codec among hardcore gamers, makes a lot of sense, especially going into the holiday season. Whether or not Microsoft ends up adding DivX to the Xbox 360, Sony’s support for DivX will certainly provide a boost for the console.

On the surface, this explanation seems to make a lot of sense, but the tin-foil hat part of me, can’t help but wonder, if this really had more to do with Blu-Ray.

The current state of the HDTV DVD market is a mess. The Blu-Ray and HD-DVD camps seem to have settled for a stalemate and consumers are getting shafted in the process. By choosing a side in this battle, consumers risk ending up with obsolete technology, but that isn’t the greatest obstacle to adoption. The real reason why consumers are sticking with the standard DVD, is because they can’t get all of their content on either format.

It might be great that you can watch James Bond on Blu-Ray, but it’s a serious weakness when consumers can’t watch Universal, Paramount or Dreamworks content. If Sony was only certifying the PS3, I would dismiss these thoughts as paranoid delusions, but at DivX’s most recent investor presentation, they did say that they hoped to announce the first Blu-Ray/DivX chip before the end of the year.

Now I would never expect Sony to come out and openly endorse piracy, but if you think through the implications of PS3/DivX support, you might understand why I think that they are really engaging in a form of HD-DVD sabotage. By supporting DivX, consumers won’t get the same HD experience, but they will get access to all of the forbidden HD-DVD content and that has huge value to the consumer.

DivX support won’t be enough to end this silly war, but it could prove to be an important band-aid for the Blu-Ray camp. By partnering with DivX, Blu-Ray is now able to offer all content, even if some of that happens to be illegal. I don’t believe that DivX support will change the format war, but it will certainly put pressure on the HD-DVD format. Their advantage so far, has been based on the exclusivity of content and if Blu-Ray consumers are denied the programs that they want, I have no doubt that they’ll turn to DivX as a solution.

Whether Sony adopted DivX to help jump start PS3 sales or to gain a guerrilla advantage in the HD wars will remain a mystery, but either way the move is so shrewd, that I’m surprised to Sony make it. After seeing so many failed attempts at trying to maintain a proprietary system, it is a welcome relief to finally see cracks appearing in the Blu-Ray defenses.

While DivX support on the PS3 isn’t an admission that Blu-Ray has failed, I do think it’s a sign of how far Sony is willing to go, in order to win this battle. If both camps would just agree to cross-license their content, we could end this stupid war, but in the meantime, at least consumers will soon have illegitimate options, to get at the content that the studios don’t seem to want to sell them.

Naturally It’s From Sony

Marvell Unveils Redbull For Video HD Microchip

Qdeo Powered ICThere are a lot of gadget nuts out there, but when it comes to the microchips, they don’t really get a lot of buzz. I think part of why they don’t get more attention, is because you have to have an advanced Engineering degree, in order to understand most of it. Even after hundreds of millions of dollars in branding, I still don’t think that I could tell you the difference between an Intel and an AMD chip. All I really care about is how fast my computer will run and whether or not I can download movies onto it.

As a consumer, it’s easy for me to tune these details out, but as a Technology Enthusiast, I know that these chips represent the forefront of the consumer electronics industry. Before the product launches at CES, before the beta testing, even before the prototype, you need that microchip. It may take years for the buzz to catch up, but the advances that we see today will be the hot products of the future. I can’t admit to understanding it all, but it’s exciting to see the foreshadows of what’s to come.

Marvell Technologies unveiled their own vision of the CE future today and I was lucky enough to sit in on a conference call for the unveiling. During the call, Nikhil Balram, one of the inventors behind the chip, fielded questions from reporters and described how this tiny little device is going to bring HDTV to standard definition downloads.

Marvell has named the new chip Qdeo (quiet video) and hopes to develop the brand into something consumers will recognize. At a very basic level, Qdeo allows you to up-convert standard definition video into an HDTV signal. There are of course DVD players on the market that already do this, but Marvell is trying to take this to another level by providing up-conversion features on all video content, not just DVDs.

Over the last few years, we’ve seen a lot of interest in portable video. While there are many different ways to get video on the go, most of them end up involving smaller/downgraded video files than what’s necessary for HDTV. This isn’t a problem if all you want to do is take high res content you’ve purchased on your TV and minimize it for a cell phone, but if you want to take content you’ve downloaded for your cell phone and put it on your big screen TV, then get ready for quality that looks worse than the camcorder movies that float around on bit torrent.

Because of bandwidth considerations, most portable content isn’t ready for prime time. While there are ways to buy HDTV content for an Xbox360, most downloadable video solutions tend to be compressed for speed instead of quality.

What Marvell’s technology is trying to solve, is the quality problem that consumers face, from having so many different video choices. In order to address this issue, they built an algorithm that can support up-conversion features regardless of the resolution of the original file.

During the presentation, I didn’t have an opportunity to see a video of the chip at work, but Marvell did have several photo examples of the technology in action and I could see a difference. Marvell has more examples on their website, if you are interested in seeing some visual demonstrations of the product at work.

The technology makes three major improvements to the video signal.

First, the chip helps to eliminate the rough edges that you’ll find in a lot of videos. If you’ve ever seen a low res clip on a big screen TV, you’ll know that when you increase the size of the screen, it makes it really easy to see the individual pixels in your content. These show up as uneven lines and make your video look like it’s composed of a bunch of blocks. With the Qdeo technology, they’ve figured out a way to automatically blend these pixels, so that it appears more natural.

Secondly, the chip helps to remove noise from the file. This helps to add more contrast to a video and makes it easier to focus on the subjects in the video. From a consumer standpoint, this is probably the most noticeable improvement. By removing a lot of the white noise, it helps to make the video more vivid and alive.

Finally, the chip includes an automatic adjusting feature for color remapping and contrast enhancing. This was probably my favorite feature during the demonstration. Normally, I have a tough time distinguishing between colors because I am color blind, but even I was able to see how dramatic of a difference there was between an untreated photo and the end product. I don’t know their secret sauce behind this feature, but the end result appears to take areas that are over exposed and shift that light to areas where there are lots of shadows. It also makes the colors more vibrant, but doesn’t adjust the color of flesh, so it prevents people from looking like Oompa Loompas.

For the launch of the chip, Marvell has partnered with Meridian iRIS, in order to create an iPod high definition converter that plugs directly into an HDTV. Once it’s hooked up to your TV, all you need to do is dock your video iPod and you should be able to see high resolution copies of whatever movies you happen to have on the device.

As the market for this new technology develops, Marvell is hoping to expand the functionality into HDTV DVD players, set top boxes, flat panel TVs and media bridge products.

It’s hard to really get a sense of how powerful the technology is without seeing real life examples, but I think that the chip would have the biggest impact for the television market. Because the end result will only be as good as the display technology, even great video signals can be comprised by the wrong television. When I asked Balram as to whether there was a difference in the quality of a Qdeo TV vs. a portable device that connects to a different set, he seemed to feel that it wouldn’t be that significant.

“at that stage, once you are doing the processing at the source device, you’re really bypassing the processing in the TV. So whether at one stage, it actually did the processing or didn’t, at other stages you are simply using it as a raw panel. So then you get into things like which companies make better panels compared to which ones.”

With a longer design time for televisions, don’t expect to see Qdeo in any HDTVs right away. For those who can’t wait, Meridian does expect to have their HD iPod dock available sometime in October. Once we start to see the early reviews come in, we’ll know how good this technology really is, but if Marvell delivers on their promises, it should be beautiful technology to see in action.

Stage6 Traffic Explodes: Every Dream Has A Price

Every Dream Has A PriceDivX reported their second quarter earnings yesterday and from a financial perspective, there really weren’t too many surprises. The core business remains strong, but Stage6′s growth is certainly starting to impact earnings. The company ended up beating Non-GAAP expectations by a penny, while revenue came in slightly above the $18 million, that the analysts had anticipated. The company guided toward higher revenue expectations for the 3rd quarter, but reined in analyst expectations for the fourth.

From a strategy perspective, things were much more interesting. Lots of exciting news to digest. On the call, DivX addressed their opportunity to gain market share in their core licensing business, the future of DivX connected and how other emerging technologies could fit into that, and perhaps most importantly, the reasoning behind their plans to separate Stage6 from the larger company.

Of all the strategies discussed, there was one that surprised me the most though, DivX has made the decision to try and bury their hatchet with Hollywood, in an attempt to get DivX DRM blessed by the studios. I’m less than optimistic on management’s chances, but if they could pull it off, it would make DivX Connected a pretty compelling solution.

Trapped Between DVD and VOD

The DVD player market continues to account for the majority of DivX’s core licensing revenue. At the end of March, DivX had 32% global penetration of the DVD player market. This was up from 21% from a year earlier. During this quarter, $14.2 million of their revenue represented royalties from their OEM partners. Sony actually accounted for over 10% of their licensing revenue and I still can’t find Sony DivX DVD players in the US.

At this point, DivX has achieved 90% penetration levels in France, Spain and Russia. In the US, the percentage of DVD players that included DivX doubled over a year ago and is now at 28%. In Japan, they still only have an 11% penetration level, but this is up from 5% a year ago. Over the last year, they’ve been able to successfully renew their contracts with their top OEMs and have been able to maintain pricing levels.

By growing their market share for the DVD player market, it has allowed DivX to continue to post impressive year over year growth, even though it’s clear that the DVD has peaked. Right now is an awkward time for DivX because there are so many uncertainties as to how the VOD market will end up shaking out. There are many pundits who are worried that DivX won’t be able to replace their DVD revenue as it tapers off.

To me, this seems a little foolish and is a bit like being afraid of the boogie man. The DVD market will not disappear overnight, it will live longer than the VCR survived. As people migrate to digital TV, DivX is in an excellent position to benefit from that. If their OEM partners see that there is no more demand for DVD players, it will make DivX certification an even greater necessity for them.

The transition to VOD will eventually happen on a mass scale, but it will still take years before the next generation of TV gadgets hits the mainstream.

When Greenhall was asked about how long he thought it would be, before the public started to move from DVD players to connected devices, he told analysts that because DivX’s ecosystem was so dependent on their OEM partners, that it was hard to forecast the transition, but that when it happens, the revenue will come quickly because their partners produce goods for the mass markets.

Emerging Technologies Will Open New Doors

Part of what makes DivX such a question mark, is the sheer size of their addressable market. They’ve established a nice business in the DVD market, but now want to expand DivX to a whole host of devices. During the earnings presentation, Hell listed the following technologies as a few of the markets that are on their hit list; Mobile devices, set top boxes, digital still cameras, game consoles, portable media players and digital televisions.

Of these potential markets, the cell phones have the most potential. Over this quarter, Samsung announced their second DivX enabled phone and will be selling the phone in the Chinese market. Since their first Samsung phone announcement, DivX has seen a lot of interest in working with other cell phone manufacturers.

Their OEM partners are excited about the technology and are coming to them for access. There will be more models announced in the future and while they didn’t give a time line, management seemed optimistic that the announcements would come soon.

On the set top front, during the quarter Divx announed that both St Microelectronics and NXP were both developing chips for a DivX set top box solution.

The box will allow you to plug in an external hard and play DivX files directly on your TV. This helps to solve the problem of getting DivX content to the living room, but still doesn’t help to add to the DivX content eco-sphere. You can’t take the TV off the box, but at least you can bring DivX to it. Hell also said that there was one more set top chip deal that hasn’t been announced.

Hell also included DivX HD as part of the emerging category. HDTV has been one of the hottest growth areas in consumer electronics. Users are starting to revolt. People love the DivX HD teasers on the stage6 website and from (cough) “others sources” on the innerwebs, but they can’t get it to the TV without some kind of a media center.

DivX wants to license their HD technology on top of HD-DVD and Blu-Ray players, but I think that they’d have a much better shot at convincing their OEM partners to sell a low priced DVD player with “DivX HD.” included. With as much as the studios are charging for the next gen players, a box with DivX HD certification and a dirt cheap price point, would appeal to consumers who know better than to try and pick a side in a Hollywood format war.

DivX Connected: Bringing Partners Into The DivX Community

DivX has talked quite a bit about their Connected initiative, but they’ve always left things a little sketchy on the details. Is it a box, is it not a box? Who could really tell, but after launching a prototype of their connected solution for beta testing, the company is now starting to open up on the details. DivX Connected can be a lot of things, but they see it being a similar experience to Apple TV, except minus the high cost and the restrictions on content.

The whole concept is really a lot larger than the prototype box. It’s about bringing a diverse set of partners together, in order to create a seamless experience for consumers. Hell describe their efforts on the program during the call. “We are engaged in a large cross section of partners to implement DivX connected on existing devices. From connected DVD players and digital televisions, essentially any devices that has connectivity and DivX playback ability.”

This philosophy of openness extends even beyond the hardware devices and includes the companies that are trying to sell internet video, as well as the content producers themselves.

“going forward we will focus on a broad range of content solutions through a powered by DivX model, working with a variety of partners to deliver content. In this model Stage6 becomes one of many partners using our technology. To make this happen we are doing two things, First we are increasing our focus on premium content and re-engaging in discussions with major content providers who want to take advantage of our significant footprint. Secondly, we’re building out our existing video on demand product platform so that we can offer out of the box scalable solutions to any distributor of digital content from online retailers to network operators.”

This is a big shift for DivX and one that could have important ramifications. From early on, DivX has bumped heads with the studio fat cats. In the past, DivX has relied on their users to distribute their codec through the P2P networks, but now that the studios are beginning to warm to internet delivery, DivX is seizing on this opportunity, in an attempt to beef up the content that they can offer their own consumers.

Right now, businesses don’t pick their codecs based on quality, they use the ones that the studios tell them they are allowed to use. People like to complain about internet video services not supporting Apple, but that is because Apple refuses to license their codec to anyone. DivX wants to go the other route to try and work with everyone, but until DivX DRM can get Hollywood’s blessing, they’ll be frozen out of the mainstream market.

I’m skeptical that the studios will be particularly eager to work with DivX, but if they could pull it off, it would open plenty of doors for them and would certainly be a game changer for the company. On the call, Hell said that they are trying to go after this opportunity in two ways.

“First we’re going to be focusing on the studios themselves and other providers of premium content to get adoption and format approval from them. In addition, we’ll also be working with other content distributors, folks like Amazon, Netflix, Movielink, etc. so that we can enable their platforms and again we’re moving into a role here where we don’t want to be a storefront, in terms of the DivX Corp business. We’re looking to power other people’s platform.”

It’d be easy for DivX to try and sell content themselves (in fact that’s part of what Stage6 is about), but this is a low margin business and DivX is better off letting others fight over the content. By charging for access, it leaves room for much healthier profit margins. It also gives them a greater exposure to consumers, than anything that they could accomplish independently.

Right now, Apple wants to lock everyone else out of the market, but this is why AppleTV is such a weak platform. Not only do you pay for it, but then you have to buy only their content. DivX wants to see a world where they can bring Blockbuster and Netflix together and let consumers decide which service they want to use. By maintaining their commitment to keeping their platform open, it improves their competitive position over Apple and Microsoft, but none of that matters, until Hollywood agrees to let companies distribute video content in DivX’s format.

A Start-Up Trapped Beneath The Microscope Of Public Scrutiny

Since the launch of Stage6, it’s been an unbelievable hit. The growth has shown no signs of slowing. Since it’s launch, it’s help to push 35 million DivX web player downloads, but hasn’t generated much in the way of direct revenues. For now Greenhall wants to build up the community, before trying to figure out how to make money off of it.

“Like many sites in a similar stage of their life cycle, we’re not actively trying to monetize this user base, yet. We believe that building a community first will enable us to explore a number of different revenue models in the future, but building the community absolutely comes first.”

Since the the site’s launch, the community has responded enthusiastically to the video sharing portal and what started out as a reasonable $1 million marketing expense during the 1st quarter, has now swelled to a $2.4 million bill for this quarter (of which 70% is bandwidth.) Next quarter DivX estimates that they’ll need to spend $4.5 million and another $5.4 million in the fourth quarter. Stage 6 has about 20 -30 DivX employees that work on the site.

With the traffic and the costs starting to add up, it’s no wonder that the company wants to raise outside funds and operate Stage6 as a separate entity. During the call, their CFO, Dan Halvorson gave the reasoning behind the plan,

“Most businesses, at the same point in their life cycle as Stage6, simply wouldn’t be public or part of a public entity. They need to make investments that don’t have immediate tangible ROI or have too strong an impact on a company’s balance sheet to justify. We believe strongly that Stage6 has built a foundation that not merely be sustained, but rather amplified. As such, our board and management, thought it would be best to value our alternatives and one viable option is that Stage6 would be separated out and run as a private company.”

DivX said tat they’d like to finish the break up as close to the end of the year as possible. I’m not sure if this is for tax reasons or strategic purposes, but in the meantime, they are estimating that they’ll need to put another $10 million into the site. Greenhall wasn’t sure, on how they’d end up valuing Stage6, but was open to possibilities and wanted to do what’s best for DivX shareholders.

They may look for a private equity deal or an institutional investment, but they want to keep their options open. After announcing their intent to separate the the two companies, they’ve already received inquiries from financial and “strategic partners” on making an investment.

Overall, DivX didn’t blow anyone’s socks off this quarter, but they did continue to show that their business is healthy and that their business model is valid. They also continued to demonstrate their commitment toward investing in their growth. The extra R&D may end up bothering some shareholders in the short run, but once they break the two companies apart, they’ll have two businesses exposed to the white hot internet video sector, instead of a house divided.

Disclosure: I own stock in Netflix

Sony Has Already Lost The Console Wars

Game Over For The PS3There is no doubt that Sony dominated the second generation of the console wars. Their PS2 platform had an early jump on the Xbox and Sony never looked back. Since it’s launch, the console has sold over 105 million units and has made Sony a video game powerhouse.

Given their footprint, Sony should have had an easy time convincing their customer base to upgrade, but as the latest generation of consoles have launched, Sony has lost their control over the market, after trying to force users to buy a Blu-Ray drive, along with the console. The inclusion of the drive has resulted in high prices, product delays, and limited supply during the launch. Even after Sony has agreed to sell the console at a loss, they still have not been able to get the device down to an acceptable price level for consumers.

As the latest generation of consoles have been hitting the market, Sony’s PS3 sales reflect some pretty troubling numbers. They may have recently celebrated their 1 millionth sale in Japan, but overall they’ve actually performed pretty miserably. According to the latest data from the NPD group, Sony sold a pitiful 98,500 PS3 consoles for the month of June.

Sony is quick to point out that these figures represent a 21% increase over their May sales, but even with the gain, if they continue at this pace, it will take them 83 years to hit 100 million console sales. If Sony was hoping to sell 100 million consoles over the next 5 and a half years, they would need to increase their sales from 98,000 units a month to 1.625 million.

Now to be fair, Sony’s latest price cut on the PS3, has improved sales. The company reports that they’ve seen a jump of 135% since lowering the price by $100. The problem is though, that the price cut is really only temporary and perhaps even worse, it may have prompted Microsoft to consider slashing $50 off of the price of their own consoles.

With the Wii taking half of the market and Sony and Microsoft fighting for the rest, Nintendo has put themselves in an enviable position in the console wars. They’ve not only been able to draw in non-core gamers without sacrificing profits, but they’ve also been able to convince consumers that the Wii can compliment an existing console system. With their innovative game play and their low price margins, they’ve been able to turn single platform households into dual console living rooms.

The addition of the Wii as a 2nd option creates big problems for Microsoft and Sony, because it eats into the profit centers of the video game industry. Because so much of the money on gaming is made on the software, having another competitor in the living room, can have a significant impact on the profit margins for that customer. Nintendo’s ability to not only capture market share, but to also siphon off video game sales from the incumbents, will change the dynamics of the third stage in this battle.

Given Sony’s prices, it’s a lot harder for them to convince a Wii family to compliment their console by adding on a PS3 system. While the graphics are much nicer than what the Wii offers, the extra entertainment benefit isn’t worth the additional cost attached to their super computer.

When Sony could control the video game market, they were able to negotiate gaming exclusives, but now it’s Nintendo that has the pipeline of exclusive titles. There will be those who argue that less price sensitive customers would buy a PS3 over a Wii in a heartbeat, but if you look at the most recent Nielsen’s survey, high end households are actually more likely to choose Nintendo over the PS3.

If Sony is failing to sell their Blu-Ray infested video game console to the least price sensitive customers, it doesn’t make me very optimistic that price cuts will be a very good long term solution for competing against the Wii and the Xbox. While there is still plenty of time for Sony to retake their lead in this latest incarnation of the console wars, I believe that their missteps at the starting blocks have all but assured, that they’ll never be able to outsell their PS2 console.

Blockbuster <3 Blu-Ray or Shotgun Wedding?

A Nice Day For A White Wedding

Last week, Blockbuster made a pretty big splash after they announced that they were going to support Blu-Ray exclusively at their retail stores. The move prompted a lot of people to ask if this was a sign that HD-DVD was dead in the water. After all, Blockbuster has a significant retail presence and their support for one format could be interpreted as a sign that consumers are demanding Blu-Ray over HD-DVD.

On the surface, this explanation seems to make sense. Blockbuster even went so far as to tell people that 70% of their test stores were choosing Blu-ray content. Sooner or later Blockbuster was going to have to choose a format and by doing it publicly, they were able to control how that information got out. Irrespective of their motivation, the move was smart on many levels and helped Sony to shift momentum back to Blu-ray, in the never ending format wars.

It could be that this is all there is to this story, that Blockbuster choose their customer’s preferences over corporate interests, but as a conspiracy theorist, I can’t help, but feel that there is more going on, back at Blockbuster HQ.

It’s entirely possible that Blockbuster’s love affair with Blu-Ray was an isolated business decision, but I suspect that Uncle Sony may have brought a shotgun to the wedding, in order to make sure that Blu-ray stayed relevant.

Over the last year, the DVD kiosk market has started to get hot. Consumers may have been skeptical at first, but once they get a taste, they have to come back. By the end of the year, there very well could be close to 10,000 kiosks in North America.

Even though the current kiosks have proven to be popular, Blockbuster and Movie Gallery have largely sat out of the DVD kiosk expansion. It could be that they don’t have the capital to pursue the technology or it may be that they really don’t see a future in kiosk rentals, but I believe, that they’ve been holding out for something even better, burn on demand DVD.

As the DVD kiosk market develops, I think we’ll see two different business models unfold. There will still be the current kiosk that offers a couple dozen choices and an inventory of 500 – 1000 discs and there will be the burn on demand machines that will carry 2,000 – 3,000 different movies that you can burn at the retail level. The current kiosks will be popular because they take a relatively low investment and the owners can control the costs of the content because of the fair use doctrine. If you play your cards right, you can make the kiosk pay for itself in the first year you own it. These are especially well suited for adding DVD rentals to a high traffic locations that normally couldn’t support a video store.

Unfortunately though, for a lot of retailers, the limited capacity of today’s kiosks prevents them from using the technology in more powerful ways. If you can’t replace your entire inventory with a limited number of discs, than it’s hard to convince the video stores and big box retailers to adopt the technology. While today’s technology will play a vital role in the future of the DVD rental market, it will be burn on demand that has the potential to save the video stores from extinction.

To a certain extent, Blockbuster will be interested in using the burn on demand kiosks in order to minimize real estate and cut down on employee costs, but the real benefit of the kiosks will be the new franchising opportunities that will open up to them. As the video store industry has gone into consolidation mode, Blockbuster’s franchisees have had a very difficult time adjusting to the new rental environment. Disagreements over the online program and the end of late fees, has even caused one of their first franchise owners to sue Blockbuster for breach of contract. As the market has collapsed, attracting new capital has been difficult and Blockbuster has struggled in replacing this lost revenue.

One of the problems with the stand alone burn on demand kiosks, is that these will not be cheap. It will take a healthy chunk of capital in order for Blockbuster or Movie Gallery to take advantage of this expanding market. With the introduction of the technology though, Blockbuster can leverage their brand by offering franchisee investors an opportunity to help create a new automated video store network.

This would help to raise outside capital that isn’t dilutive to Blockbuster shareholders, doesn’t increase debt, and would give smaller investors, a direct opportunity to invest in the growth of this emerging market.

When it comes to Blockbuster’s retail stores, I believe that they’ll look less like a kiosk and more like a Kinko’s. Blockbuster would be well served in studying the success that Paul Orfalea has had in building his company. The same concepts that he applied, will be key components for maximizing the success in using the technology. Burn on demand at the store level will need to work like a machine, in order for Blockbuster to provide the optimal retail experience, while minimizing their costs at the same time.

Little things like allowing customers to select a film online and have it available for pick up will matter a lot. They may even be able to charge higher prices by guaranteeing that you can always get the movie that you want. With a server and a couple of fast burners, Blockbuster could reduce the size of their real estate and improve customer selection at the same time.

For Blockbuster the stakes are huge.

Unfortunately though, the stakes for Sony are even bigger and while the technology to deploy burn on demand has been here for a very long time, like anything involving Hollywood, it’s been tied down over disagreements tied to the licensing of formats. Last December, things looked promising, that we might be witnessing the birth of this technology.

Time Warner CEO Dick Parsons said that 2007 would see the introduction of burn on demand technology for their retail partners, the DVD forum even “approved” a standard for the DRM, and in anticipation of the launch, Sonic solutions went as far as to announce that they were launching a commercial and retail solution using the technology. Despite all of these signs of this technological evolution, somehow the licensing discussions got hijacked by the DVD-CCA, and everything started to break down.

While Blockbuster hasn’t publicly discussed their burn on demand ambitions, there have been hints that they’ve had their eyes set on this target. Earlier this month, Lionsgate’s CEO Jon Feltheimer said that the company had digital distribution agreements in place with Best Buy and Blockbuster. Many in the press, assumed that he was referring to a movie download service, but no one stopped to consider whether or not “digital distribution” could occur at the retail level. Later, Feltheimer backed away from the comments, which could be interpreted as a sign of on going discussions.

Many retail and technology companies had hoped that Hollywood could come to a decision, but over the last six months, it’s been nothing but a series of delays. When the group met last April, they still couldn’t resolve their impasse and the decision was put off for another two months, while the studios considered their alternatives.

While there is no way for me to know what goes on behind the closed door DVD-CCA sessions, what I do know from my sources in the kiosk industry, is that the disagreement over the licensing has largely been between the studios, not the consumer electronic companies involved. At one point, Sony was even looking into building their own DVD kiosks, that would burn Sony films exclusively.

This would obviously be a less than ideal solution for consumers and retailers, but it suggests that whatever the core issues are, Sony is concerned enough about them, that they are willing to ostracize their customers, in order to maintain their hold on the DVD market.

What makes me suspect that Sony may have brought a shotgun to Blockbuster’s wedding, is the timing of the announcement of their engagement. It was a week and a half before today’s meeting, where the DVD-CCA, (cough: Sony) will decide whether or not consumers should be able to buy a burn on demand DVD or whether it poses too much of a piracy problem :roll:

Coincidently enough, two days before the meeting, Rimage, also issued a press release where they mentioned their love of “Blu-ray” six different times. Rimage also recently announced a $6.5 million order from an unnamed “national retailer”. Rimage helps to make DVD publishing systems, Sonic makes the DRM.

Now, this is just speculation on my part, but considering that Sony owns half of the patents in the DVD-CCA licensing pool, I’m going to assume that they’ve got some control over what happens with the DVD-CCA. If the DVD-CCA can’t agree on a decision, than it might delay Sony’s digital plans, but it would certainly mean a lot more to a company like say ohhhh I don’t know, Blockbuster? It’s easy to dismiss, Blockbuster’s acceptance of Blu-ray as a day to day business decision, but in the larger context of their digital strategy, I think the move very likely could have been made, to shore up Sony’s support for the burn on demand technology.

While the DVD-CCA did meet today, I haven’t been able to find out the decision. They don’t like a lot of public attention and haven’t posted anything publicly. They did post their support for a law making all DVD copying illegal though. It’s hard to argue with them, I can only imagine how terrible it would be if consumers were allowed to make fair use copies of their content.

It could be that I’m reading entirely too much into this, but after watching Sony destroy their own PS3 with a forced Blu-ray “upgrade”, I wouldn’t put it past the company to try and use their muscle on the DVD-CCA board, in order to squeeze a retail partner like Blockbuster. You can call it payola or you can call it smart business, but it’s hard for me to blame Blockbuster, even if their “support” for Blu-ray may have involved a little tit for tat.

If it unlocks the key to burn on demand, then Blu-ray is a small price to pay, for a real shot at long term survival. Until, the studios can figure out a different economic equation, the video stores won’t survive the commoditization of media.

Update – It looks like it’s official, or at least sort of. I’m not sure if Blockbuster’s support was what it took, but the DVD-CCA finally authorized burn on demand for consumers and retailers. The paperwork won’t be signed until next week, but the move opens the door for a brand new market to unfold. It will take time for the rollout of actual products, but I expect that it won’t take long before we start seeing plenty of retailers adopting the technology. It’s way to early to tell how this market will shake out, but I expect to see lots of competition.

I Want My HDTV

Doing The 1080p

First HD-DVD, Now Blu-Ray – Hackers Set HDTV Free

It didn’t take long for the hackers to figure out how to get around the new copy protections on the HD-DVD discs and now it turns out that, it didn’t take much longer, to crack Blu-Ray either.

Given how paranoid the studios have been about letting HD content online, I’ve got to imagine that there are more then a few media execs, a little upset right now. Blu-Ray and HD-DVD was supposed to feature the best copy protection that Hollywood has to offer, but like all DRM, it melted against the collaborative intelligence of the web.

I hate the fact that the studios use piracy as a red herring for why we can’t control our content. They pretend that piracy is why we can’t use TiVo HD to go or why they won’t license more films online, but the truth is that they just really want to sell more fat margin DVDs. Their content is already available online because their own copy protections have failed. Instead of hiding behind shallow excuses, they should embrace the digital revolution and offer consumers a way to pay for the content that they can already get for free. The studio fat cats can complain about how much piracy is hurting their business all they want, but it’s hard for me to be very sympathetic when they won’t offer the content online, even for a fee.

Gefen Introduces USB Support For Upcoming PVRs

I was watching GeekBrief TV last night and saw that admidst the hubbub of all the CES news last week, I missed an announcement by Gefen that they’ve decided to throw their own hat into the DVR ring and will be releasing two new PVRs next month that should make it easier for consumers to archive and move their content around the digital home. On both their standard definition PVR and their high definition box, they plan on building support for a feature that allows you to export your shows via a USB connection to external hard drives and other portable devices.

At CES, their high definition demo box was still missing USB support, so details are still a bit sketchy, but Gefen told Everything USB that “it is highly likely that it will be implemented before shipping.” No word on pricing, but the boxes should ship sometime in February.

This is very cool functionality for Gefen to introduce, but it’s not likely to be very popular with the MPAA. If it was up to the studios fat cats, you would be required to pay them money for every device that you want to watch content on, so it’s possible that Gefen may have just painted a big sue me sign on their backs, but others have been pushing this envelope for years and so far, have managed to stay out of court.

While technically, it’s not the same functionality, TiVo has been offering TiVo To Go on their series 2 DVR for a couple of years now, but they haven’t been allowed to offer it on their high definition series 3 or HD DirecTiVo boxes. From the very beginning, Microsoft’s media center has always allowed you to transfer content directly to your home network, including both standard definition and OTA high definition content, but once the cablecard Vista machines are released, Microsoft will be forced to disable content portability features, in order to placate the goons at CableLabs, who have somehow managed to put themselves into the position of being able to dictate what features consumers can and cannot have on their home theater systems.

Because Gefen would also need to go through the CableLab certification process, it’s hard for me to imagine that this new PVR will offer cablecard support, but even without access to the HDTV content from the cable channels, the USB export functionality is still pretty sweet. Given the amount of hard drive space that HDTV content takes up, you would need a couple of external drives, but you could easily rotate hard drives on and off the unit and could start creating an impressive digital library of archived HDTV content to watch later on.

As this technology continues to develop, it will be interesting to see how the content owners react and what moral and legal issues are raised by this sort of support. When I first got my TiVo series 3, I signed up for HBO for about 2 weeks before cancelling and yet months later, I’m still watching high definition HBO movies that I recorded onto my 750 GB internal Weaknees drive. Is this the equivalent of ripping mp3′s from an all you can eat monthly music package like Napster or Yahoo! music or ethically is there something different about taking advantage of HBO in this way, because I haven’t stripped out any DRM? To be honest, I’m not sure what the moral high ground is in this situation, but as technology continues to advance, issues like these will eventually need to be addressed, especially given how paranoid the MPAA seems to get about high definition content.