Friday, February 22, 2013

Can second screen drive renewed growth in home entertainment?

On Tuesday, we will gather with industry peers to learn the latest developments and engage with thought leaders in a discussion around 2nd screen’s impact on how we interact with our home entertainment consumer.  To begin the dialogue we’d like to emphasize the opportunity Second Screen presents to you and your business to help revitalize the home entertainment industry by giving the consumers an experience that is worth buying (vs. renting or subscription).  We are also suggesting that we unite to create a visual marker that tells the consumer both the movie or TV title and the app will deliver an enhanced companion experience that promotes the proliferation of a 2nd screen ecosystem that is available to the consumer when they buy an UltraViolet enabled title digitally or on Blu-ray Disc.  The premium experience we collectively create is a reason to buy, helping to promote UltraViolet in the process and ensuring the success of a feature rich ecosystem with the distribution power of today's physical and digital retailers.

A Conspiracy Theory?  It was almost a year ago that Morgan Stanley presented data on what was ailing the pre-recorded movie and episodic TV market (home entertainment).  Essentially, in their "Press Pause - Hollywood Reaches for the Clouds" paper, they outlined the market forces that had conspired to reduce movie / TV series household buy rates from a height of 14 per year down to the current (and anemic) 7 per year: the physical rental-by-mail (Netflix) and kiosk (RedBox) business was hurting rental margins and reducing sell-through; digital SVOD offerings (Netflix, Amazon Prime) were seriously eroding margins per title viewed and helping to reduce sell-through; and as the consumer shifted from physical to digital, the notion of digital ownership was confusing at best (and constrained by device specific ecosystems).  It was a bold but accurate assessment that shook the home entertainment industry to the core.  

Déjà Vu (All Over Again?)We’ve seen this before in other content mediums but how do we collectively reverse the trend and get buy rates up from 7 to 10?  The home entertainment industry answer: UltraViolet.  In theory, UltraViolet solves the device ecosystem problem by allowing consumers to "own" a digital title across multiple devices.  But what if we solved the current major UltraViolet hurdles such as widespread industry adoption (Amazon, Microsoft Xbox, iTunes, Disney are still absent) and ubiquitous title availability, would that alone be enough?  Certainly, the SVOD battle is a considerable challenge (with content conglomerates choosing to do bigger, exclusive deals).  But back in 2005 when DVD was at its peak, why did consumers buy so many? Sure, part of it was impulse buy and check-out aisle purchases replacing the in-store DVD rental experience (with similar price points), but beyond children's titles (which get played hundreds of times), consumers were buying either because they were "super fans" or because they were gifting (most likely to someone they perceived as a "super fan").  Then in 2007 the HD DVD vs. Blu-ray battle promoted higher definition movies and MORE “value added materials”.  The product was differentiated in at least 3 SKUs: rental (no bonus materials), sell-through (a little bonus material), and the super fan pack (2-disc or more sets). Content holders charged a premium for this “collector’s edition” and profit margins were great.

Ubiquity is Essential. With UltraViolet, we are promoting the concept of digital ownership, but what is the current equivalent of the super-fan/collector’s edition?  If you have seen Warner's the Dark Knight Rises, Fox’s Prometheus or Sony's The Amazing Spider-Man and their excellent second screen experiences, you’ve seen where the industry might be headed.  But at the same time these titles came out, the “digital ecosystem” battle seriously heated up.  Xbox launched SmartGlass, providing a platform for the Dark Knight Rises to have a premium sell-through-only second screen experience through their device, but their platform also provides a basic experience for ALL MOVIES.  Microsoft believes in creating consumer utility through experience ubiquity--meaning that because there is a consistent experience for every title, the consumer will engage more often and assign value to that premium experience.

Exacerbating the problem is the current one-title-at-a-time strategy playing out in Home Entertainment (requiring consumers to download a new app each time they want an experience—essentially a recipe for inertia).  The other industry players (Netflix, Google, Amazon, iTunes) are moving quickly to create second screen ecosystems of their own (have you heard of DIAL?) because they see the value and stickiness the consumer exhibits when engaged in a worthy second screen experience.  What does the value proposition for ownership look like in a world where the super-fan experience is available (for free) in subscription or rental?  Bleak.

Moving forward.  Our Society’s call to action  is simple.  The industry needs to quickly find a way to encourage third parties to create a second screen ecosystem for Home Entertainment.  One that provides a premium companion experience for Blu-ray OR UltraViolet titles and provides a basic experience for all titles regardless of the distribution system (DVD, Blu-ray, SVOD, rental, etc.).  One that has a simple SDK that allows the content creator to publish the experience using the same assets for their bespoke Blu-ray app experiences and SmartGlass experiences. One the provides remote control features, auto-recognition of Blu-ray or UltraViolet playback devices, easy discovery of other premium title experiences, time-anchored social feeds, and integration with the consumer’s cloud-based digital locker.  One with a logo that tells the consumer what they can expect--and that it is only available for purchased content, or separately through monetized micro-transactions.

The “F” Word.  Does all of this sound familiar?  Isn’t this the next “format” the industry needs to unite behind and collaborate around (both content holders and technology providers together and separately) to grow our market and strengthen the relationship with home entertainment consumers?  DIAL might even be the right protocol to enable this ecosystem, but unless it is a digital ownership value proposition (UltraViolet or Blu-ray) supported by a ubiquitous 2nd screen ecosystem, the other digital players are going to quickly out maneuver the legacy retail model and capture the consumer forever.  Home Entertainment content then becomes a commodity for those digital players to drive either subscriptions or device sales, devaluing a relationship based on over 35 years of delivering content and a great user experience into the consumer’s living room.

The decision lies collectively with ourselves.  We can continue on the path where perceived competitive advantage continues to fragment our consumers—or we can learn from the home entertainment industry’s considerable history that through our collective strengths we will achieve greater scale, greater engagement and customer loyalty.  Let the collaboration begin.

Join us Tuesday at the Beverly Hilton 1.30-6pm to engage in this lively conversation.

Chuck Parker, Chairman, 2nd Screen Society, @ChuckParkerTech
Guy Finley, Executive Director, 2nd Screen Society and MESA, @S32Day

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