The Future of Digital Content Distribution: To save the Future it’s time to kill the Present

Consumers and content creaters/owners have long been at odds over the rules of distributing content. Not to say that content creators have been in the wrong, per se, just simply they’ve very carefully crafted systems of “windowing” that were designed to maximize revenues from consumers by creating the critical foundation of the Entertainment & Media industries– “artificial scarcity”. In short, if a limited amount of something is available in a limited means of access then its value is logically higher than if it were available in unlimited amounts and/or near limitless means of access. That’s why Movies and TV show episodes have been so rigidly controlled in their release to consumers.

The thought most prevalent amongst content owners has been that if a Movie were to be made available in shorter timetables from the theater to On-Demand to DVD to Digital Streaming rights then its value would drop ten-fold or more because people would think “Screw that, I’m not paying $40 to see it in theaters or $20 on DVD. I’ll just wait until it shows up in my Netflix or Hulu accounts!” TV shows follow a similar trail of fear with their limited (if any) episodes viewable via digital options like iTunes, Hulu, or Netflix because there is still the notion that designated TV time slots and physical DVD season sets will draw more revenue from viewership in the long-run.

Well, two things have spent the last decade turning all this logic on its head; Digital Piracy and Consumer-Controlled Technology. The power has shifted greatly since the late 1990s when content owners truly controlled when and how consumers would get to watch Movies and TV shows. Piracy was thought of as a minor annoyance, but over the last 10-12 years its become a major epidemic–partially from some users eagerly wanting to pirate anything and everything in sight, but mostly from a large contingency of users upset by the time delays and cost factors involved.

The DVD was heralded as a savior technology as VHS began to enter old age. The idea of collecting these neat little discs, getting to enjoy “digital” content was just too cool to not jump onto starting in 1997. And everyone was happy for some time. But then, Movie collections became too large, TV show seasons went unwatched, and consumers started wondering about just how much they were really spending for the unknown quality of their favorite content. The physical video rental store died as people eagerly bought DVDs in chaos, but then people realized just how much they missed it when wanted to check out a recent release but not wanting to pay full price. In short, most Movies and TV shows that come out just aren’t that good and people don’t want to fully commit to something they’re uncertain about.

Netflix saw this coming and really hit it spot on with their Watch Instantly option. Although content owners were reluctant to embrace digital distribution because the margins weren’t as good as DVDs, it was a nice area to look at. Well, over the last 7 years Netflix has been exploding in its user base, primarily led by Watch Instantly sign-ups, and DVDs have plateaued before starting to decline harshly. Hulu was another solution brought to the table, but if you don’t feed the animal it won’t grow to be strong. In other words, there is a serious lack of Movie content there and limited TV shows available (except now it’s a bit better with Hulu Plus having more episodes, but still there are TV commercials that irritate paying consumers).

In all their wisdom Steve Jobs and Apple saw a similar piracy/technology problem with Music several years ahead of Movies/TV’s issues. When piracy started eating into CD sales (and not to mention people just wanted to jump over to MP3s anyway) Apple created iTunes to collect it all in a simple, easy to use program. Then they created the iPod, essentially creating the only MP3 player anyone would use, and had the heft to convince the Music industry to jump about the digital train– whether they wanted to or not. $0.99 per song sounded outrageous, but it worked, and with your primary cash cow (CDs) dying it was time to invest in something new or go the way of the dodo.

Movies and TV shows are increasingly faced with the same dilemma, and no one is quite sure of what to do next. This hesitancy– someone else make the first move– is a sure way to destroy your chances of a truly successful future. There is no chance that Movies and TV shows will just go away, after all people always want to be entertained. But an unwillingness or fear of embracing change will antagonize consumers into finding better ways of enjoying the content that’s intended for them.

Take the example of recent start-up Zediva. The company’s business model is a type of Streaming-over-the-Internet DVD rental store. Registered users pay $2 to rent a DVD (legally purchased by Zediva), which is then put in a dedicated DVD player in Zediva’s warehouse, and has its audio/video piped through the Internet to the user’s home. It’s like renting a DVD from a store, hitting play in a single DVD player/TV at the store, then watching it through a SUPER-LONG telescope from home. Zediva’s CEO said that he created the company because he was unhappy with the excessive release delays he faced when trying to enjoying content, especially given the cost of earlier windows. In other words, he didn’t want to pay $10-20 to watch a certain movie in theaters, buy it on DVD for $20 to just watch once, or wait weeks or months more to watch it as a digital streaming option on Netflix or from iTunes (albeit at a higher premium). He just wanted to watch it as soon, and as legal, as possible. But the film studios that realized this loophole are having none of it, and are eager to see Zediva get shutdown so as to preserve their business model.

A similar fear existed in the mid-1980s when Sony released its Betamax player (the precursor to VHS) and spooked content owners with the thought of consumers being able to record and copy Movies and TV shows at their own leisure. Cooler heads prevailed once the ensuing lawsuit reached all the way up to the Supreme Court and the judges ruled in Sony’s favor, citing that private use of the technology was fair game. Funny enough, the “defeat” led to a massive victory for the film studios as the Home Entertainment industry was born out of the decision–spawning billions of dollars in sales of VHS, DVD, and Blu-Ray content (and to a much lesser extent the forgotten Betamax, Laserdisc, and HD-DVD).

Just to clarify, I’m not a proponent of completely free content distribution. I don’t believe that the hard work, investments, and efforts of millions of individuals should go unrewarded. The protection of intellectual property is a valued mission, and one that really does apply to everyone in the world. However, the means by which we value such content and its distribution methods are what I strongly propose be reimagined. In short, most Movies and TV shows aren’t very good and to ask they be valued the same as a good or great piece of work is unrealistic, uneconomical, and just plain crazy. When you go to a restaurant the more popular dishes generally cost more than the average ones because they’ve been rewarded by their popularity amongst consumers.

The same can be said of the timing and means of getting content to users. The big film studios made a positive step towards more seamless content distribution by recent proposing the notion of Premium On-Demand at home for many future theatrical releases. Although antagonizing the National Association of Theater Owners (the other NATO), who haven’t done anything to increase the appeal of the movie-going experience with any new offerings in the last 50+ years, the new proposal intends to make a handful of films available for a $30 rental fee at home just 60-days after theatrical release. The logic is quite sound, in that a generally movie makes over 90% of its total revenues within the first 60 days of its release (exceptions like Titanic or Avatar are quite rare) so having a rent-at-home option priced higher would make it a consumer decision to split the home rental with a few friends (for economic reasons) if they’re willing to wait. Warner Bros.’ beginning to rent out movies via Facebook (starting with The Dark Knight and several Harry Potter films, high valued content to be sure although older titles by now) is another step in terms of progress. With over 600 million users (and counting) on Facebook by drawing even 1% of those users for a $4 movie rental that’s potentially $24 million additional dollars for a title that would otherwise be towards the end of its value earning cycle. More and more people are re-evaluating a trip to the movie theater or the commitment to watching TV shows at set times or higher-paid premiums. That’s not to say there isn’t a future there, there is. It just needs to be carefully crafted to account for the future of digital distribution.

One practice that Apple has routinely done with their technology (crucified for in the short term, praised for in long term) has been to create the future, not adjust to it. Meaning, when a certain technology has just crested in its lifetime usefulness Apple then kills its integration, stating that its lack of usefulness in the near future necessitates its demise in the present. Apple was the first company to excise the floppy disk drive with its new iMacs in the late 1990s when the floppy disk drive was still more widely used than CDs. People cried out but Apple held firm, and shortly people adjusted to CDs as the new data medium. Apple did it again with DVD drives and had the same results. And again with losing the CD/DVD drive with the Macbook Air. And now getting there with USB drives, pushing WiFi network transfers via their AirPlay technology. When there was no good MP3 player device for all the ripped Music files they created it. When Sci-Fi movies reflected a future with touchscreen communicators and flat panel computer devices Apple said “screw it” and made the iPhone, iPod Touch, and iPad themselves. They didn’t wait for the future, they invented it.

This opportunity is in front of Movie and TV shows’ content owners, if they choose to jump in with both feet instead of carefully wading in as they’ve been doing for the last decade. Consumers, frustrated with the speed and lower costs with which they can enjoy content have taken to piracy through peer-to-peer (P2P) networks like BitTorrent and eDonkey, searching for files uploaded to file hosting sites like RapidShare and FileServe (and being PAID for downloads of their uploaded files, to entice even MORE illegal distribution), and only occasionally said “naw, I’ll just wait until it’s Streamable in my Netflix Watch Instantly TWO YEARS FROM NOW.”

Instead of fighting the future its time to embrace it wholeheartedly. Kill the DVD instead of prolonging its life support. Pledge your allegiance to your consumers and their wants (digital distribution), even if you think you know better than them because you probably don’t. Shorten windows of select titles to encourage greater paid consumption of big releases on later channels and small releases on earlier channels (I’ll explain in a moment). Since the inception of the film industry the business of Movies has been a massive gamble; invest in a few hundred movies a year, accept 70% as failures, hope for 20% to do okay, and pray for 10% to be successful. It’s a business model that’s rooted in deep lunacy and one that few other industries bank on to do well. Here’s a relative film release model that may start crafting the future in a more favorable light to consumers, lessen piracy from convertable users (there will always be some percentage of users than will never give up pirating), and demonstrate a more forward thinking business instead of one catering heavily to the old guard:

  1. Theatrical Release:
    30 days for Indie releases, 45 days for General releases, 60 days for Blockbusters
  2. On-Demand Rentals/Digital Purchase (DirectTV, iTunes, Netflix Premium, Hulu Plus, Facebook):
    60 days for Indie releases, 90 days for General releases, 120 days for Blockbusters
  3. On-Demand A La Carte Library Streaming (Netflix Watch Instantly, Hulu General):
    91st day onward for Indie releases, 136th day onward for General releases, 181st day onward for Blockbusters

Does the concept of having a Blockbuster film release like Captain America: The First Avenger or X-Men: First Class going from theatrical release to being in an “access anytime at a monthly rate” library sound scary? Sure it does. But it also makes the most sense in prolonging the ongoing value of a property during a stable lifetime instead of rebuilding hype and steam with each new release cycle wave. People get tired of having to remember when a film is coming to DVD, or being surprised that “oh wow, that movie is FINALLY available in my Netflix Watch Instantly queue?” Seldom few properties like Star Wars or The Lord of the Rings movies can generate much excitement with several releases, but in the long term user exhaustion sets in and breeds malcontent.

The same can be said of TV shows, which are different in that they produce new episodes regularly, put them online in limited quantities and then delete their older offerings as they start to lose value to consumers and the content owners. TV has done much more to embrace digital viewing pattens and in return has gained more notable consumer approval. Although the delays in which past seasons are made available are bothersome, most consumers are willing to accept them so long as they become available for rental or in a la carte streaming libraries within a season back of shows’ newer seasons (such as with Mad Men having seasons 1-4 available on Netflix Watch Instantly come Summer 2011 to help ramp up excitement for Season 5 by early 2012).

Movies still have a ways to go to really kill and present and save the future. Instead of rewarding consumers with new and exciting properties made available at reasonable intervals so as to draw from their perceived interest in a title (willing to pay more and sooner for a more desirable title, and vice versa with a less desirable title), the frequent re-issuing of past movie properties and long-drawn out nature of the current business model sends the message that content owners don’t respect consumers by catering to their wants and desires. Consumers are the greatest resource of information as indicated by their behavior, excitement, frustration, willingness to pay, or willingness to withhold. Apple taught the Music industry a lesson by creating an ecosystem (iTunes & the iPod) which users flocked to when the industry refused to move in that direction.

While film and TV content owners have done much to avoid being held hostage by Apple or Netflix’s “dragging into the future” methods, creating and/or supporting more digital distribution channels than their music industry counterparts, there is still much to be done to ensure a bright and successful future. Theater owners will riot and in all honestly, content owners should let them. The theaters have done nothing to earn their voice at the table in the past half century but offer overpriced popcorn and terrible snack selections. When they create or partner with Groupon-like filmgoing incentive programs to lure more consumer then reconsider giving them longer windows. This is a “what have you done for me lately” business world and they are not measuring up with middling 3D or IMAX ticket sales.

In the meanwhile, kill the DVD, embrace digital, and restructure windows to enhance the value of digital content offerings. Don’t kick the blossoming golden goose to the curb like a stray dog. Piracy and technocentrists may be calling for content owners’ heads, but by heeding their calls and taking the initiative– being the true market leaders like content owners should rightfully be– will the film and TV industries truly lay the groundwork for a more financially and commercially-successful future.

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One comment

  1. dinakaranonline

    Great post ! Loved reading it . I agree with you. Delayed digital distribution is resulting in an increase of online piracy since people can’t wait to watch it .

    I’m from India and most TV shows being telecast here are a season or two seasons old. So it is natural for people to watch new seasons as and when it is getting telecast , else someone in their friends circle who is in the US of A will let that crucial spoiler out.

    The more time distribution companies take to release the digital content , piracy will be the order of day and consumers would get used to it .By the time content owners decide to bring new shows quickly online ,no one would want to pay for them .Hope content owners be aware of this industry and how quickly it changes age old practices by a whisker !

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