HD VOD could add $5 billion to home entertainment pie

Report: Consumers willing to pay more for High Definition VOD

Shutting the window between DVD and VOD (video-on-demand) and raising the price on high-definition VOD movies could boost consumer home video spending by $5 billion or more annually, according to a new study from international strategy consulting firm Oliver Wyman.

In a survey of 2,000 U.S. consumers for the report ?At the Digital Crossroads: The Future of Home Video,? the firm found that consumers would be willing to pay $7 to $9 for an high-def movie on demand or a high-def rental download released in the DVD window. That?s roughly double the $4 they pay today for mostly standard-definition films that debut a month or more after their DVD release.

The higher price would not only optimize VOD revenue, but could also mean a 40% reduction in any cannibalization of DVD sales that come from offering VOD movies in the same window, researchers say.

Oliver Wyman predicts the increased VOD price paired with day-and-date offerings could entice consumers to watch three more movies a year on average, generating an additional $5 billion to $10 billion in consumer spending by 2010.

At the same time, researchers predict Blu-ray sales will increase, leading to a 6% rise in spending on packaged media. DVD retailers also could raise the price by $2 on releases that include an e-copy for transfer to a computer or portable device without consumer repercussions.
It?s worth noting that the company is more optimistic about DVD and packaged media spending than others, estimating 2007 spending of $28.7 billion. Video Business research pegged consumer spending at $22.9 billion.

?This research reveals a clear opportunity for the industry to introduce new offerings that tap unmet consumer demand, while fitting well with existing movie distribution channels,? said Mark Teitell, a partner in Oliver Wyman?s Media & Entertainment practice. ?Ultimately, the consumer will benefit the most?and be willing to pay for those benefits?from the additional choice and consumption options.?

The report comes as studios test day-and-date releases with leading cable companies Comcast and Time Warner. Last summer, Warner Bros. said that early results showed a 50% increase in VOD purchases in test markets where movies debuted simultaneously. DVD sales also saw a 10% uptick, according to Warner, but DVD rentals were off 2%.

Warner has begun releasing more films day and date nationally following those tests, with six movies in the first quarter getting a simultaneous release. Other studios have been more reluctant to shut the window.

The movie downloads business also would benefit from a closed window and higher pricing for high-definition rentals, researchers say. The study predicts that spending for Internet-downloaded rentals and sales will grow to $2.5 billion by 2009.

Consumers surveyed prefer renting a movie online to buying a digital download because they don?t believe owning a digital copy is the same as owning a DVD. However, if digital downloads worked on more devices and consumers could burn a copy to DVD and have a backup copy kept in an online storage locker, consumers said they?d be willing to pay $5 more to buy a digital download.

Currently, digital downloads are severely limited in playback by digital rights management technology. Film downloads bought through iTunes can be played on any computer with iTunes software, on iPods and the Apple TV. Film downloads bought through other Internet download companies that use Microsoft DRM can only be viewed on a PC or a Windows-compatible portable player.

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Movie downloads – an interesting debate

Apple CEO Steve Jobs dropped a bombshell on HD DVD, Blu-ray, Blockbuster, Arts Alliance Media (Love Film and Vizumi movie downloads) any everybody else in the movie download business this week.

Steve Jobs announced at Macworld that iTunes will now rent out movies. Users will be able to download movies and watch them on iPods, iPhones, Apple TV or home computers. Inevitably, Apple has the support from all the major movie studios.

So will history repeat itself and Apple repeat what they did to the music industry with iTunes and change the way we watch movies with iMovies?

An interesting battle to come out of this news will be the battle of HD. Movie lovers will have more options than ever on how they prefer to enjoy their movies and no doubts that digital downloads are the future but not overnight. Average Joe isn?t going to immediately throw out DVD player tomorrow to buy an Apple TV.

In the same instance, Blu-ray may never reach mass usage before digital downloads become mainstream. However, physical media will not vanish because many consumers like to own something they can touch and feel so DVDs will still be in demand for the short term. Another thing to support this is that the market is full of DVD players and only in recent year has seen the VHS video disappear from the shelves. And, when up-scaled, many regular DVDs look surprisingly impressive on HD TVs.

One thing against DVD collections is they take up so much room and that is where digital downloads has an advantage. Conversely, you will need a device big enough to store all these downloads and also Broadband that allows you unlimited downloads.

Before Apple announced their movie download plans, many digital movie rental services already have existed. Websites such as Netflix, Cinema Now and Vizumi Movie Downloads allow movie streaming for its users, offering legal movie downloads to own and rent, and importantly backed by film studios.

HD video-on-demand is available from certain cable TV providers. You can download HD movies from Xbox Live but the choice of movies is limited. Downloads can take forever. Quality can be poor and this is frustrating having taken so long to download and although iTunes presence will help movie download rentals forward, home-theater geeks will complain that Apple's HD video quality is only 720p and audio is only Dolby Digital 5.1 which is good enough for the general user.

So what are Apple charging for movie downloads? This is where the battle for movie downloads could we won or lost. Apple is currently offering $4.99 to download a HD movie. Users then have 30 days to watch it and 24 hours after you start watching to finish it. It will be very interesting to see what Microsoft does which already has 18 million Xbox 360s in homes worldwide and also Sony with the recent success of Playstation 3 and also PSP.

Subscription plans are not yet available and users will demand watching HD movies as often as they like with no restrictions.

As for the electronic market, there will be big demand for a combo HD DVR/HD-movie-library downloading unit. One solution would be to merge HD channels, regular TV channels and HD movie-rental services into one subscription package for a monthly fee.

The writing's on the walls of video rental stores such as Blockbuster and I expect they will jump on the band wagon of movie downloads also. Why waste petrol driving to Blockbuster if you can download it from the comfort of your home? Even Netflix seems like a hassle in comparison because who exactly wants to wait hours upon hours for a Blu-ray movie to show up in the mailbox?

One thing is for sure, the movie download market is going to get very competitive which is great for us the consumer as it will bring the best products and lower prices.

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Warner Bros dumps HD DVD for Blu-ray

Warner Bros., the only major movie studio to release titles on both of the rival high-definition video disc formats, has decided to drop HD DVD and exclusively back Blu-ray Disc, it said Friday.

The move could prove decisive in determining which of the two formats becomes the de facto DVD replacement for high-definition content. Currently, both formats are battling to secure a lead but neither has managed to obtain a meaningful market share due to consumer indifference as a consequence of the battle. As a result, the market for high-definition movies has seen its growth stunted and companies like Warner have lost potential sales.

Warner said the decision was made in part as a response to this situation.

?A two-format landscape has led to consumer confusion and indifference toward high definition, which has kept the technology from reaching mass adoption and becoming the important revenue stream that it can be for the industry,? said Kevin Tsujihara, president of Warner?s home entertainment group in a statement.

The move comes on the eve of the Consumer Electronics Show, which kicks off on Monday in Las Vegas, and is sure to light a fire under the HD DVD camp, which is chiefly backed by Toshiba and also includes Paramount, Universal, HBO Video, Microsoft and Intel. The HD DVD Promotion Group has a previously scheduled news conference on Sunday and the rival Blu-ray Disc group is scheduled to speak the following day.

Companies from both sides of the format battle are expected to show their latest players and talk-up their own formats during CES.

Last year?s CES saw the unveiling by Warner of a hybrid disc called Total HD. The disc attempted to break the format deadlock by offering one side compatible with HD DVD and the other side compatible with Blu-ray Disc. However, the disc never made it to market and Warner gave up on the hybrid format later in 2007.