The home entertainment market has been shrinking at dizzying speed, but Hollywood thinks that it may have finally found a way to stop the trend before irrevocable harm.
The answer, studios believe, is in the cloud.
In coming months, most major studios will launch UltraViolet, a system designed to let consumers stream and store movies and TV shows they purchase on multiple devices. It’s the next step beyond Apple and Amazon's digital cloud services, which allow users to access music and eBooks on multiple devices.
The hope is that UltraViolet will tilt the equation back in favor of owning movies and TV shows rather than renting them through Netflix or Redbox. With the crucial fourth-quarter disc selling season around the corner, UltraViolet can’t launch soon enough for certain studio execs.
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“Rental models have innovated and have become more exciting and convenient, but the ownership model hasn’t innovated as fast,” said Mark Teitell, Executive Director of DECE, the consortium behind UltraViolet. “UltraViolet represents a big leap forward in innovation and could help restore the value of ownership.”
Getting there has brought all of the major studios except Disney around the same table, along with retailers such as Best Buy and tech giants like Microsoft and Panasonic. Together the group agreed upon a universal file format and sketched the outlines for an open digital ecosystem that will allow users to stream or store the movies they buy from participating retailers on multiple devices.
The research and development phase for the product has ended and most studios expect to begin releasing UltraViolet compatible discs as early as this Fall, Teitell told TheWrap. Initially, consumers will only be able to play content from their cloud-based account by downloading UltraViolet apps for PCs, game consoles and smart mobile devices. In early 2012, the first electronic devices designed specifically for UltraViolet will come to market.
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The consortium’s studio members are also working to untangle paid television deals with cable channels that might infringe on their ability to offer movies across so many different platforms. To sweeten UltraViolet’s appeal, studios are examining the possibility of allowing users to add movies they have previously purchased to their digital rights locker for some additional fee.
"This new format addresses what we know are the biggest impediments to digital content ownership, specifically, consumers’ need for access from multiple, interoperable devices, remote storage and the comfort that their digital content will not be lost," John Calkins, Sony Pictures Entertainment's executive vice president of global digital and commercial innovation, told TheWrap.
The only wrinkle is that Apple, which controls more than 60 percent of the digital download market, hasn’t signed on to the consortium.
“UltraViolet is envisioned as the nirvana, if you will. It would create for digital ownership the same ease of portability, the ability to move from one device to another, that DVD did,” a home entertainment executive told TheWrap. “But UltraViolet without Apple can’t really achieve that goal.”
In the short term, UltraViolet’s backers says that users can get around that hurdle by streaming movies through a participating service such as Netflix onto their iPads or iPods.
Reinvigorating the sell-through model is critically important because studios make roughly $15 on every movie they sell versus a few dollars on each one they rent. The studios expected Blu-ray to do that but the phenomenal success of Netflix and Redbox, both of which have made streaming or renting movies easier than ever, has cut into the sell-through business.
Last year, for example, the DVD market fell 44 percent and wholesale revenues plunged 10.8 percent to $11.86 billion in 2010 as more movie watchers shifted to video-on-demand and subscription services, according to the research firm SNL Kagan. There has been modest growth in the Blu-ray sector, with year-over-year sales of set-top Blu-ray player units increasing by 16 percent, but the rate of adoption has not been fast enough to replace revenues lost by the fading DVD market.
To that end, UltraViolet is being spoken of by entertainment executives as the best way to simultaneously increase the value of physical discs while easing customers into the digital future.
“We’ve increased the friction on digital sell-through by locking it to a specific device,” Mitch Singer, DECE president and chief technology officer of Sony Pictures Entertainment, told TheWrap. “This reverses the friction by allowing members to play movies and shows across any device. Right now users aren’t collecting movies as much as we’d like them to collect them.”
For their part, analysts are taking a wait-and-see approach.
“It’s a game affecter. It’s not clear it’s going to be a game changer,” Tom Adams, principal analyst and director of U.S. media for IHS Screen Digest, told TheWrap. “It will take a bit of a consumer learning curve, because it’s kind of a complicated concept.”
Because cloud technology is difficult to grasp, some analysts question whether launching UltraViolet in the middle of retail’s busy holiday season is the best time to educate customers about the virtues of digital rights lockers.
Studios maintain that UltraViolet is designed to be used with Blu-ray discs, which consumers are already used to, and will therefore require less of a learning process.
“I’m less concerned about the timing, and I’m more concerned about offering consumers the ability to better control the content they own,” Singer told TheWrap.
The way the DVD market is collapsing, time is one luxury Hollywood can’t afford.