DVD Sales: Threat or New Frontier?Published: June 29, 2005 in Knowledge@Emory
Until recently, movie distributors would let six months lapse between the time a movie opened in the theater and when it was released on video. Now that window is reportedly down to four months, and closing. Movie industry experts at Emory University and its Goizueta Business School say the shrinkage is just one sign of the growing importance of the DVD to the industry’s revenue.
Benn Konsynski, a chaired professor of decision and information analysis who studies the impact of digital changes to the entertainment industry, says that these days, the theatrical release is rapidly becoming a marketing tool for the DVD sales.
Now the producers of a new documentary on Enron have announced a radical new plan to abandon the staggered approach altogether and release their picture simultaneously across all media channels. In addition to planning a simultaneous, multi-channel release of The Smartest Guys in the Room, producers Mark Cuban and his partner Todd Wagner have also recently signed director Steve Soderbergh up with their production company, 2929 Entertainment of Houston, to make six low-budget movies that will also be released the same day in many formats.
Les Ottolenghi, CEO of Intent Media Works, an Atlanta-based startup that helps content producers deliver digital content, believes Cuban is right to view the current staggered distribution system as vulnerable. One case in point: the new Star Wars episode recently opened at midnight to fans who had waited hours for the chance to see it first. But other fans who went to sleep that night didn’t have long to wait for an alternative: by 6 a.m., 800 copies of the film were posted on the Internet, and by noon, pirate copies of the DVD were being sold on Canal Street in New York, according to Ottolenghi, an adjunct instructor at Goizueta and an MBA alum.
That might sound terrifying for an industry that lives on the sale of its intellectual property, but Ottolenghi and other digital entertainment experts look at the robustness of the piracy trade as less a threat to the film industry than a new opportunity.
“Whenever there is a legitimate demand and there is no legitimate means of satisfying it, illegitimate supply will creep up, and we have known this from the days of bootlegging,” explains Ramnath Chellappa, a professor at the University of Southern California’s Marshall School of Business who will be joining Goizueta’s Department of Decision and Information Analysis in the fall.
The need to satisfy the demand for instant media gratification is part of the reason some experts at Emory and elsewhere believe that the DVD may soon be on its way out. Although DVD sales climbed 33% last year, according to Motion Picture Association of America figures, and now amount to 1.46 billion units—more than twice what VHS video cassette sales were even back in 2000—Ottolenghi and Emory film experts don’t see the format’s good times lasting for long.
Ottolenghi’s take: the rapid growth of DVD sales is proving that people want their entertainment in a convenient and portable digital format. “They want to be able to take it with them on a plane, in a car, on a train—whatever, the Green Eggs and Ham scenario, I call it,” he says.
Already, consumer preferences are shifting dramatically in favor of digital entertainment. Between 2000 and 2004, media consumption based on hours per person grew by 31.3% for cable and satellite TV, from 769 hours to 1010 hours. At the same time, home video grew by 52.9%, from 51 hours to 78 hours. At the same time, broadcast TV declined 8.4% from 866 hours to 782 hours, and the box office gained only 12%, from 12 hours in 2000 to 13 in 2004. Video game use grew from 59 to 71 hours, a 20.3 % gain. Reading lost out—5.4%, from 180 to 165 hours, magazines lost 6.4%, from 135 to 118 hours.
Konsynski, who co-taught a course on the film technology last year, also believes that the DVD is only the beginning of a larger digital entertainment revolution. “I think certainly it’s a key catalyst in the change, but it’s the digitalization of content that is the biggest change. The DVDs are the current medium for recording and exchange, for both the legal and illegal copies, so in that sense it’s a prominent part of the transition but the DVD itself is not the transition,” he says.
That digital revolution is likely to lead to some even more dramatic changes, Emory film experts say, from a new kind of DVD that will be able to hold 10-20 times as much information as the current standard, to online movie delivery, to big-screen home theater systems, to whole new kinds of entertainment.
One of the first changes expected is a new kind of super-DVD, the Blu-Ray disk, a disk with up to 20-times the storage capacity designed as the DVD of the High-Definition TV age that’s expected to hit the market in the next few years.
Proponents say that Blu-Ray will have better protections against piracy than the DVD. However, says Chellappa, the industry shouldn’t just rely on technical solutions to protect its intellectual property. Instead, he says, a combination of strategies is needed.
One tactic to mitigate piracy Chellappa suggests is to create different versions of the same product. Rather than trying to sell a disk at the same price to both the world’s rich and poor markets, Chellappa advocates that the studios create a basic version and a version with more extras. Just as McGraw-Hill now markets low-cost versions of its textbooks in India through a partnership with the Tata Group, an Indian conglomerate, while marketing more expensively printed versions in Western markets, the entertainment industry could help meet legitimate demand for its products in poorer markets by producing a low-cost basic version as well as a more expensive edition with more extras.
But Blu-Ray may not equal the success of DVDs. Some see digital delivery ahead instead, with video becoming something that is downloaded the way music is being downloaded by millions of iPod users.
Ottolenghi believes that such a transition to pure digital delivery is likely to begin within two or three years. He says it is likely to lead to a competitive fight between such established rental and subscription distributors as Blockbuster and Netflix and the studios, who see in digital distribution an opportunity to do without middlemen for the first time. His bet on the outcome: the studios keep the biggest movies for themselves to sell directly on broadband while other services handle older titles and independent content.
Some Goizueta professors also see a complex future for entertainment. “It won’t be one model that will emerge,” Chellappa predicts. “There will be multiple pricing models, multiple strategies that will emerge, and they will all coexist for a long time before some equilibrium is reached.”
But David Cook, a professor of film at Emory, puts his money on the studios. “These guys have held on to a monopoly for 110 years and they’re not about to lose control of it, especially now that they’re part of multinational media outlets,” he says.
Another trend likely to encourage people to stay home: big-screen home theater systems will keep getting cheaper and better, offering movie buffs huge screens and booming sound without the trouble of getting up from the couch. Cook says that it’s now possible to rig up a projection system at home that can provide “crisp, wall-sized images” for under $1500 that would have cost $5000 just a few years ago, and he predicts the price will soon drop even further. “In a way it almost doesn’t make sense to go to the theater anymore, although there will always be that thrill.”
As entertainment as a whole is digitized, some professors say they believe that the boundaries of what now constitutes a movie will also blur. Down the line, Konsynski predicts more convergence between movies and other forms of entertainment.
Online multi-player games, for example, are now attracting a huge audience. “While it’s a novelty and a niche play right now, it’s a huge, growing niche,” he says. One of the leading games, Sony’s EverQuest, now has 500,000 players. Each player spends $14.99 a month to participate in a large and constantly growing world of dungeons, dragons, swords and sorcery, according to the website. While there are discounts for signing up for a year or two years, even at $10 a month, that’s $60 million in annual revenue.
Some things, however, won’t change. Konsynski says he believes blockbuster movies will still be made in this new era. However, he says, their importance is likely to diminish as a share of industry revenue as digitalization makes it profitable to reach a smaller audience.
And movie stars? Toy Story’s Buzz and Woody notwithstanding, Cook believes that people will always want to watch fellow human beings on screen, wherever that screen may be. “There’s all this talk about synthespians…but I don’t think that will ever satisfy audiences the way photographically represented human beings do,” Cook says.