Silver screen sees violet; what does this mean for IFE?

April 4, 2012


Laptop violet cloud small Silver screen sees violet; what does this mean for IFE?One of the most obvious conclusions that can be drawn from the International Consumer Electronics Show (CES) in Las Vegas in January is that uppermost in the minds of Hollywood executives today is how to monetize digital distribution – the heir-apparent to packaged media – at a time when DVD and Blu-ray Disc sales are still important but consumer preferences are fragmented and unsettled.

The 2011 results show that DVD is down farther than Blu-ray Disc is up, electronic sell-through (EST) is catching on too slowly to offset the difference, and the bottom has fallen out of brick-and-mortar rentals.

What is Hollywood to do? CES offered ample evidence that the media industry plans to manage them all simultaneously as an ecosystem, and offer a value proposition that isn’t platform-dependent. Hollywood needs them all – and has now developed a value proposition that reflects that.

This approach is in contrast to that of Netflix – the juggernaut that ostensibly drove Blockbuster’s brick-and-mortar business into bankruptcy with a combination of discs-by-mail and digital delivery – which shot itself in the strategic foot in 2011 by attempting to split disc rentals and digital delivery into separate business units and separate markets.

Seeing digital delivery as the future, Netflix signaled that it was all too willing to turn its back on disc renters whose migration into digital delivery is far from complete, and its customers recoiled. UltraViolet – despite a few rollout glitches – intends to avoid the same mistake.


With US domestic theatrical attendance at its lowest point in 16 years – and with increasing ticket prices failing to offset the gap – Hollywood must come to grips with the fact that Blu-ray Disc sales, while growing, are not growing quickly enough to offset declining DVD sales.

In the meantime, the new forms of digital viewing markets that are emerging, including digital streaming and digital downloads, need to be carefully developed with appropriate windowing and price points, and underpinned by a multi-platform value proposition.

Trade group, DEG: The Digital Entertainment Group, released data during this year’s CES showing that Blu-ray Disc spending in the United States topped USD$2 billion in 2011 for the first time. But total US home entertainment spending still declined in 2011 to USD$18 billion – a two per cent decrease from 2010 – during the same year that also saw a nearly-five per cent drop in North American theatrical attendance.

The DEG report optimistically declared that the major studios’ home entertainment business “stabilized” in 2011, with high-margin products like Blu-ray Disc sell-through, EST and VOD all increasing. But for Hollywood, the home entertainment business is increasingly dependent upon an expanding plethora of platforms – some on the rise, some in decline – and with each one potentially impacting those nearest to it in the sequential release cycle called “windows of availability”.


A proposal advocated by media analyst Richard Greenfield of BTIG entails moving digital downloads forward in the sequence of availability windows to two to four weeks in advance of DVD/Blu-ray Disc availability – a window now almost exclusively occupied by IFE.

EST will eventually supplant the sale of packaged media, but in 2011 digital distribution remained something of a non-starter, up just nine per cent from 2010 with only USD$554 million in revenue in the US, and Greenfield’s proposed earlier window and USD$10 price point – sandwiched into the UltraViolet value proposition – is intended to help to monetize digital distribution without speeding the obsolescence of packaged media.

According to the Deloitte Touche Tohmatsu Limited’s sixth “State of the Media Democracy” report, released in January, the number of people who stream movies is approaching parity with those whose preferred form of viewing is DVD.

A total 42 per cent of those surveyed by Deloitte said they had streamed a movie in the last six months – up from 28 per cent in 2009 – while 51 per cent had watched a film on DVD, Blu-ray or VHS – down from 53 per cent in 2009. While only 14 per cent of the 12,991 consumers surveyed in seven countries cite streamed content delivery as their favorite way to watch a movie, the number is up from just four per cent in 2009 – signaling a trend toward significant shift in the way in which movie consumption takes place.

Consumers with DVD players who may be considering upgrading to Blu-ray Disc players may also be concerned about the market life of Blu-ray Discs and wonder whether they should invest in Blu-ray versus using digital delivery – and if the latter, should the choice be to rent and stream once or to buy and download for repeated use. The confused and conflicted consumer is looking for a better value proposition to incent buying to own – and Hollywood wants to accommodate them since buying generates more revenue than rentals.

Emerging from the activities of an entertainment and media consortium of more than 80 companies called the Digital Entertainment Content Ecosystem (DECE), the new service called UltraViolet is that ultimate value proposition. (SEE PAGE XXX [sidebar six])

The goal of UltraViolet, according to Jim Taylor, head of technology at DECE, is 1) to provide a digital rights locker system, 2) to enable purchasing of content from any participating retailer, 3) to permit sharing titles among household members, 4) to support download file portability across multiple devices and DRMs, and 5) to support online streaming access.

If you are an UltraViolet customer, you may register up to twelve devices on which the content may be shared and up to six account members in your household who may share it. The purchased content can be used on tablets, computers, televisions, HDTVs, Blu-ray players, set-top boxes, smart phones and games controllers.


According to Forrester Research, by 2016 the personal cloud services market will hit USD$12 billion and be used by 196 million consumers – yielding a new computing experience that is focused on seamless access to virtual libraries from across personal devices.

This trend to access digital movie, music, book, photo, and other collections, coupled with the growing demand for Internet-connected living room devices – which is expected to reach 540 million worldwide by 2014, according to research firm TDG – is opening new revenue opportunities for content owners and distributors.

UltraViolet supports five separate DRMs— Microsoft PlayReady, Widevine, Adobe Flash Access 2.0, CLMA-OMA V2, and Marlin DRM Open Standard – by providing a common encryption scheme that allows the DRMs to be used with a single file.

DECE operates the account system, according to Taylor, and uses a media entertainment registry and control (MERC) platform developed by Neustar Media. A number of content delivery networks (CDNs) can provide storage and edge caching for streaming, while retailers store the content and the keys. Each streaming service provider stores and streams files. UltraViolet provides true interoperability across retailers, devices and DRMs.

Unlike traditional white-label solutions, MERC allows retailers to retain full control and flexibility of their retail design and customer account database while providing secure, cloud-based access to content, devices, consumers and data analytics and metrics.

Santa Clara, California-based Rovi gave UltraViolet a boost with its CES announcement of a service that converts DVDs and Blu-ray Discs into digital collections that owners can access from the cloud with UltraViolet-registered devices.

Rovi says its copy technology will be integrated into PCs and other consumer electronics applications during the first quarter of 2012. Devices equipped with Rovi’s technology will recognize a movie on DVDs and Blu-Ray Discs, authenticate its origin, and grant access to a copy from UltraViolet’s Digital Library.

Web giant Amazon also announced during CES that it has signed a deal with one of the five major studios that are now supporting UltraViolet.

The only major studio not supporting UltraViolet is Disney – that has its own digital rights locker – and the most significant media holdout is Apple, which prefers its own iTunes approach.


What does this imply for inflight entertainment – other than the impact on the “early window” discussed in our previous article?

The IFE industry should not make the same strategic error as Netflix – that attempted to bifurcate packaged media and digital delivery – and begin the defenestration of embedded IFE just because passengers may want to bring their tablets and smart phones onboard.

At the APEX Wireless Panel at CES, Delta Air Lines VP of eCommerce Bob Kupbens welcomed the idea of integrating airline-provided screens and passengers’ own devices, saying, “I love the idea that you can be on the plane with access to four screens.”

The message that UltraViolet sends to IFE is that we must approach the market from an ecosystem perspective. Embedded IFE, airline-provided tablets, and passengers’ own tablets and PEDs can be supported via one ecosystem – one infrastructure.

UltraViolet tells the consumer that it supports content over multiple platforms at home; as a passenger, he/she will have the same expectation from IFE. Embedded IFE, airline-provided tablets, and consumers’ own devices can co-exist comfortably for some time to come.

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About Michael Childers

For 12 years, Michael was COO of the largest IFE distributor of independent films, and was President and CEO of LightStream Communications Group, a digital supply chain integrator. Chairman of APEX’s Digital Content Management Working Group for more than 10 years. Michael is currently contracted exclusively with a wireless systems supplier.

View all posts by Michael Childers

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