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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HD Movie Downloads Face Challenges

The high definition format war was never HD DVD vs. Blu-ray. This month a series of news stories seems to be bearing this out. Most recently, Reuters posted that Blockbuster let go rumors that it will be partnering with some "undisclosed" manufacturer to bring a set top box to homes of consumers in order to facilitate movie rentals.

Netflix isn't sitting on its laurels either. Despite that fact that rumors have been flying since 2006, it now appears that specific plans for a set top box are underway with LG Electronics and should be announced by the time CEDIA rolls around in September.

In this new era of high definition TV and high speed Internet, it's almost ludicrous to think that in the coming years people will be content to wait for a physical disc to show up in the mail.

Still, here are some challenges to the world of HD movie downloads and what is happening to meet those challenges:

• Getting Downloads to Your HDTV without the Need for a PC - This was the bane of the original Apple TV and largely the reason it never really took off. Apple's second go at the Apple TV made good on the direct-to-HDTV promise and is the model by which these types of products would really work. Microsoft's Xbox 360 is another good example of a box that allows HD downloads without the need for connection to your home PC. Cable and satellite boxes also, of course, model an adept solution to this problem. Should Blockbuster get into the game, they'll need an equally-compelling solution that allows user-friendly movie browsing and quick downloads. What will Playstation 3 be able to offer with Blu-Ray Movie Downloads?
  

• Quality Counts - If you think quality doesn't matter - just wait until all the systems are compared. In addition to cost and features, there are going to be lots of Internet threads comparing the quality of the various set top boxes. If Blockbuster is entering this market it had better pay attention to the quality and not deliver a sub-par HD image to consumers, lest they be almost instantly rendered inferior.
  

• Surround Sound and High Resolution Audio - One of the greatest assets to Blu-ray is the presence of Dolby TrueHD, dts-HD and even Dolby Digital Plus. For a set top box to not include the ability to play back these new lossless high resolution audio formats - especially when they are present on their disc-based cousins. Currently NOT ONE set top box supports these new HD audio formats. Blockbuster could really take control here if it incorporated a way to stream and decode this audio for consumers.
  

• Instant Start vs. Delayed Download - The decision many manufacturers need to make is whether to allow near-instant viewing of rental movies, similar to Netflix' Watch Now functionality, or utilize a download-then-view model similar to Xbox 360 and the new 2nd generation AppleTV. My preference would be a smart caching system that could begin viewing as soon as enough of the download was completed to allow seamless play. This ensures the highest download quality and also the ability to play the feature in a more expedient manner. All in all, however, waiting for a high speed download will take much less time than either driving to Blockbuster or waiting for a movie to arrive in the mail.
  

• Studio Support - For this concept to fully take off, movie studios need to embrace a singel (or multiple) technology solution. We'd just as soon see them all license the ability to stream movies to everyone - that way a competitive marketplace ensures a good value to consumers.
  

• Simple and Reasonable Pricing - This is perhaps my biggest pet peeve. Currently Xbox 360 and Apple TV are treating movie downloads like cableTV companies treat pay per view. With the advent of Netflix and Blockbuster Online, movie rentals have migrated to a subscription model. In addition, this model includes an almost limitless amount of rentals with a "X at a time" model for receiving DVDs. An online model should follow this as closely as possible, perhaps limiting the total number of rentals per month instead fo the "X at a time" model - since obviously there is no physical media to load up or ship back. So far, however, the set top box market for HD rentals seems to be pricing each movie - and the pricing seems to be very old-school. It's simply too high at $3.99 per library movie and $4.99 for new releases. Compare that the the $17.99/month model of Netflix which nets me over 10 Blu-ray or DVD rentals easy.
  

So what's next?
Well, we're watching closely to see what shakes out in the set top box market. It hasn't caught onto the mainstream just yet but we blame that solely on a combination of movie industry support and pricing structure. Should Blockbuster or Netflix allow for online downloads to your television and simply charge for the set top box - they are in for a windfall like you can't imagine. If they instead choose to nickel and dime - then consumers will simply wait.

Vizumi Movie Downloads are offering HD Film Downloads so will they expand upon this service - time will tell.

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HungryFlix Pushes HD Movies to Apple and iTunes

HungryFlix, the Internet?s first distributor of premium, independent video content specifically formatted for portable devices, is continuing to drive innovation in the movie download space by announcing that content providers can now upload movies of up to 1GB in size. This increased storage capacity will allow for high quality movies to be delivered to Macs, PCs and especially Apple TV.

HungryFlix was the pioneer in providing indie films for portable media players such as the Apple iPod, iPhone and Sony PSP. The web startup is also offering support for the new class of home media servers such as Apple TV and slingmedia?s slingbox. In order to support growing demands for high definition video, HungryFlix has deployed Amazon Simple Storage Service (Amazon S3), a component of Amazon Web Services.

Amazon S3 provides a web services interface that can be used to store and retrieve any amount of data from anywhere on the web. S3 provides the same highly scalable, reliable, fast, inexpensive data storage infrastructure that Amazon uses to run its own global network of web sites. This infrastructure will provide HungryFlix with greater capacity while reducing costs.

?We are seeing more and more independent productions adopting HD,? says HungryFlix.com CEO Brian Andrews. ?In the portable device space, HD hasn?t been a concern due to the obvious issues of small lower resolutions screens and limited storage space. But, when we look at continuing to expand to Apple TV users, where we see great growth is in the ability to deliver HD or near HD quality video. The demand is coming from both the producers and consumers.?

HungryFlix content is delivered as MPEG4 files that look and sound great on PCs, handhelds and now large screen TVs. All files are DRM-free so that users can also view movies on their computer, iPod or any other compatible device, provided that the film was encoded to support each device.

The web startup is drawing video content providers from across a wide range of genres. The site accepts feature films, short films, documentaries, animation, how-to videos, sports video, music video and more. The goal of HungryFlix is to become another means of distribution for the vast amount of incredible indie content being produced today.

?One of our main goals is to help independent filmmakers and video producers get their content out to the world,? continued Andrews.

?When you look at the movie watching experience, especially for feature length films, many people still want to watch movies in the family room. By supporting Apple TV, we can push video from the web down to the home computer and then the last 100 feet to the family room. When we reach the family room we want be able to provide a higher quality experience. Increasing our file sizes will enable providers to deliver much higher quality video than was previously possible.?

From the movie fan?s perspective, HungryFlix?s goal is to give the people what they want - the widest array of compatible video content free from restrictions so that consumers can watch when and where they wish. The site offers paid movie downloads which means users will own the rights to view movies as often as they would like, on as many devices as possible. Membership is free and downloads start at just $0.99.

Article published on Techmedia on 6th March 2008