Video on Demand
By Pete Lester, Sr.
January 24, 2008
This is a second post on this blog dealing with the rapid changes taking place in the entertainment industry. I will try to focus on other issues (although the death of Heath Ledger - aside from being tragic and a loss of an actor I genuinely enjoy, may be an interesting topic to explore - more for a marketing class I guess). . . or better yet - we will discuss it in class. . .
By Pete Lester, Sr.
January 24, 2008
This is a second post on this blog dealing with the rapid changes taking place in the entertainment industry. I will try to focus on other issues (although the death of Heath Ledger - aside from being tragic and a loss of an actor I genuinely enjoy, may be an interesting topic to explore - more for a marketing class I guess). . . or better yet - we will discuss it in class. . .
For economists and consumers alike – it is a terrific opportunity for us to watch the free market in action. In a very short time frame, this industry is going to be totally changed. Technology is going to change how and where we watch and listen to content; and companies at the forefront of this change are going to drive delivery – where we go to obtain it… or better yet, where we don’t go. Entire businesses - sitting on some pretty decent real estate, will either change what they or doing dramatically or go the way of the dinosaurs.
Recently at the Apple Mac-World convention two things of note occurred. First, Steven Jobs introduced a full-size lap top that is so thin, he pulled it out of a manila envelope (in fact, I just saw the commercial for the first time - it is pretty dramatic). Second, devotees had hoped the company would announce a deal with one or two movie studios that would allow Apple users to download movies from the company’s iTunes site to their iPods, iPhones, Mac Computers, and/or Apple TVs. Instead, the company announced agreements with 9: Disney, Fox, Lion’s Gate, MGM, Miramax, Paramount, Sony, Touchstone, and Universal. Did they miss anyone?
While it is entirely too early to state that the DVD industry is dead and it would be even more premature to announce the demise of companies like Hollywood Video, Blockbuster and Netflix, it is the case (I'll say it one more time) that the way those companies do business is changing dramatically.
Let’s be clear here. I am not stating that the demand for movies has increased. I am stating that the demand in the way people want to receive the product is changing. Just as we saw vinyl records virtually disappear (I am the only one still hanging on to a collection of the good ol’ stuff) giving way to cassette tapes. Tapes gave way to Compact Discs; and Compact discs are now giving ground to digital-on-demand. We are seeing a similar transformation in video.
For the visual media industry, this has been coming slightly more slowly than in the music industry. Interestingly, it was the adult video industry that lead the way encouraging the development of on-line access to video content. With the recent announcement from Apple, it seems the main-line industries involved (digital device manufacturers, software developers and content owners) have come to an agreement.
What is Digital-on-Demand? Quite simply – it gives the consumer the choice to have what they want, when they want it, delivered to the device of their choice. It means you do not have to go down to the local store to rent the movie and then pay late fees because you forgot to return it.
Now the scramble is on. The companies with access to consumers (Comcast with its internet and cable TV subscribers; AT&T with its phone and internet subscribers; Apple with its devoted following of i-gadget users; Microsoft and others) will now compete for video content demand.
Lastly, I do find it interesting that these changes do not seem to have severely stunted our desire to go to see a movie in a theater. When VHS Cassettes (and Beta – don’t forget that casualty) first came out, many predicted that those products where harbingers announcing the end of the Movie Theater Industry. The Hollywood Reporter disclosed that in 2007 ticket prices rose 2%. One bearish industry analyst, William Kidd of Wedbush Morgan Securities, thinks attendance in 2008 will fall from 2007 – but the main reason for the fall is that the Titles due for release are less compelling. He is predicting 2008 Revenue will fall 4.6% from 2007 to $9.4 billion and attendance could be down 7.7%.
Recently at the Apple Mac-World convention two things of note occurred. First, Steven Jobs introduced a full-size lap top that is so thin, he pulled it out of a manila envelope (in fact, I just saw the commercial for the first time - it is pretty dramatic). Second, devotees had hoped the company would announce a deal with one or two movie studios that would allow Apple users to download movies from the company’s iTunes site to their iPods, iPhones, Mac Computers, and/or Apple TVs. Instead, the company announced agreements with 9: Disney, Fox, Lion’s Gate, MGM, Miramax, Paramount, Sony, Touchstone, and Universal. Did they miss anyone?
While it is entirely too early to state that the DVD industry is dead and it would be even more premature to announce the demise of companies like Hollywood Video, Blockbuster and Netflix, it is the case (I'll say it one more time) that the way those companies do business is changing dramatically.
Let’s be clear here. I am not stating that the demand for movies has increased. I am stating that the demand in the way people want to receive the product is changing. Just as we saw vinyl records virtually disappear (I am the only one still hanging on to a collection of the good ol’ stuff) giving way to cassette tapes. Tapes gave way to Compact Discs; and Compact discs are now giving ground to digital-on-demand. We are seeing a similar transformation in video.
For the visual media industry, this has been coming slightly more slowly than in the music industry. Interestingly, it was the adult video industry that lead the way encouraging the development of on-line access to video content. With the recent announcement from Apple, it seems the main-line industries involved (digital device manufacturers, software developers and content owners) have come to an agreement.
What is Digital-on-Demand? Quite simply – it gives the consumer the choice to have what they want, when they want it, delivered to the device of their choice. It means you do not have to go down to the local store to rent the movie and then pay late fees because you forgot to return it.
Now the scramble is on. The companies with access to consumers (Comcast with its internet and cable TV subscribers; AT&T with its phone and internet subscribers; Apple with its devoted following of i-gadget users; Microsoft and others) will now compete for video content demand.
Lastly, I do find it interesting that these changes do not seem to have severely stunted our desire to go to see a movie in a theater. When VHS Cassettes (and Beta – don’t forget that casualty) first came out, many predicted that those products where harbingers announcing the end of the Movie Theater Industry. The Hollywood Reporter disclosed that in 2007 ticket prices rose 2%. One bearish industry analyst, William Kidd of Wedbush Morgan Securities, thinks attendance in 2008 will fall from 2007 – but the main reason for the fall is that the Titles due for release are less compelling. He is predicting 2008 Revenue will fall 4.6% from 2007 to $9.4 billion and attendance could be down 7.7%.
QUESTIONS for STUDENTS of ECONOMICS:
- How do you see technology in this industry impacting you as a consumer?
- If you were an industry insider, how would technology impact you? Would you release the DVDs before or after you release the same title on the Internet? How long after a Title’s “run” in theaters would you wait to release the movie in other forms?
- If its easier for you to obtain the content (not that renting movies was difficult), would you rent more often? What increases your satisfaction in this instance - ease, cost, mobility, etc.?
- Would you release it exclusively to one vender (an Apple) or would you release it more widely? How might this (how widely you release soemthing/the number of or channels of distributions) impact demand?
- As I understand the current writer’s strike, much of the argument is over revenue generated from Sales of DVDs and digital downloads. Do you think writer’s should share in this revenue? What is a writer's choice if he wants to receive more revenue?
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