Tuesday, December 4, 2012

Driving digital video ownership

I had the opportunity yesterday to share the stage with rockstar analysts Tom Adams (of IHS Screen Digest), Anne Arroyo of the NPD Group, and Larry Taman of GfK to discuss an industry outlook for home enterainment at the Forecast:Hollywood 2013 event presented by Variety and MESA today in LA.  Some interesting data points shared during the presentations:
  • UltraViolet now has 6m user accounts
  • an estimated 30% of U.S. households have tried an OTT streaming service
  • 31% of consumer households view their video entertainment on both physical and digital formats
  • a substantial number of subscription streaming households (Netflix, Hulu, Amazon Prime) also purchase and rent content on eiher Amazon or iTunes 

The real question in front of content creators in the home entertainment space today is how to maintain profitability.  Video consumption has never been higher in the U.S. household, but it is the mix of consumption that is hurting Hollywood studios.  
There has been substantial growth in digital subscription services (Netflix, Amazon Prime, Hulu, soon to be RedBox Instant by Verizon), physical rental kiosks (RedBox) and disc-by-mail subscription services (Netflix)--all of which earn about 1/3 of the profit per viewing of their "digital transaction" cousins (digital rental and sell-thru) and physical retail sell-thru.  To exacerbate the situation, there is no equivalent concept of "digital ownership" in the consumers' eyes, and as a result as consumers migrate to digital consumption models, they are rarely choosing to replace a physical purchase with a digital purchase, opting instead for digital rental (same margins, 25% the gross value) or digital subscription (1/3 the margin, 25% the gross value).  Keep in mind, we have discussed this several times before at conferences and in this blog.

What is a home entetainment executive to do?  To stick with Tom Adams' theme from yesterday, the required 1-2 punch here is:
  1. Drive down "premium title" availability in digital subscription services, and 
  2. Make UltraViolet ubiquitous.  
The good news is that content owners have turned the tide in the last year on premium title availability in digital subscription services (in effect, managing their windows better).  The charts below show the availability of titles in the IMDB top 100 title list (a measure of evergreen titles which have mainly been around a long time) and the Rentrak top 50 over the last 90 days (a measure of the most recently streeted Top 10 VoD, Rental and Sell-thru titles).  While consumers very likely don't understand it yet, the quality of titles available in their subscription OTT streaming services has degraded by more than half in the last 12 months and is likely to stay there now that Hollywood is managing its windowing for this service separately and with great attention to its impact on other windows.  This is evidenced by the near ubiquitous availability of digital rental and sell-thru titles in both charts (2nd on left) when compared to the pitiful availability in Amazon Prime and Netflix (far right).

The bad news is that UltraViolet, the hopeful savior for the industry's shrinking sell-thru proposition, is only coming in on availability in the 50-60% range in either chart, making it just another format for the already format beleaguered consumer.  So, in a town where being cooperation is often viewed as a weakness, ironically the path to success isn't just about making the majority of any one studio's titles available, but requires that nearly all of the studios make their titles available on UltraViolet.  So peer pressure, cajoling, horse trading and team work is required to build a catalog of titles that gives the consumer a serious value proposition for digital ownership through UltraViolet.  Keep in mind, this isn't a digital rights issue--digital title availability for rental and sell-thru on iTunes is nearly ubiquitous--this is a business decision to NOT support UltraViolet.  While there are other things that can and need to be fixed with UltraViolet (the UX for signing up and acquiring titles, better portability options, retail availbility at Amazon and iTunes, convincing Disney to join, etc), none of these will matter if the consumer does not believe they can build a catalog here with more value than any of the digital services where title availability is much, much higher.

Finally, the other counter intuitive approach to drive "digital ownership", which is supported by the data Anne presented from NPD: develop consumer value propositions in "universal search" that allow consumers to access their "purchased" content readily in a recommendation User eXperience in their favorite subscription service.  In other words, whether the consumer is in his favorite cable interface or on his very slick digital subscription service, reveal titles from the subscription service AND from the consumer's own UltraViolet catalog. In line with Anne's data, the consumers will ultimately buy more because they will benefit from the ownership in their recommendations and in their actual viewing choices.  If you don't believe this, spend an afternoon with NextGuide or BuddyTV--which are 3rd party second screen tablet/smartphone apps that allow the consumer to search Live TV (their subscription service) and Netflix, Hulu, iTunes, Vudu, Amazon, etc.  See how quickly they will change the way to search for content going forward because they allow you to choose the sources.  In the mood for a recently released blockbuster?  These apps will point you to the services that carry it.  Just want to watch something from a service you already paid for?  Just remove iTunes and Vudu from the search list and get the best available within your Live TV and OTT subscription services.

Interested in learning about digital title availability or second screen guide apps in more detail?  Come join us at the Wynn on January 7th @ CES.  www.2ndscreensummit.com 

See you in Vegas.


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