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Studios Embrace Download-to-Own: Should Retailers Worry?

Product Type: Market Research Report
Published by: Yankee Group
Published: September 2006
Product Code: R388-2259
Description
If content is king, then the royal coach is in need of a major makeover. With theatrical revenue in decline, DVD revenue flattening, piracy on the rise and the prospects for high-definition video uncertain (other than the fact that there will be a bruising format war between HD DVD and Blu-ray), movie studios are beginning to embrace download-to-own (DTO) through content service providers such as Movielink, CinemaNow and GUBA.

A near-DVD-quality new release is priced around $24.99, while older and niche content is available for $8.99 to $14.99. These prices are comparable to retail even though DTO movies typically don’t have all the extras available on a DVD. Movies are downloaded to users’ hard drive, with each download taking 1 to 4 hours on average. With progressive downloads, users can begin watching after the first 15 to 20 minutes have been downloaded. DTO movies typically are released in the video-on-demand (VoD)/pay-per-view (PPV) window that follows the home video release window. However, studios are experimenting with releasing some DTO movies simultaneously with home video.

Movie studios maintain strict control over permissible uses. Restrictions imposed by the movie studios generally limit playback to the PC on which a movie has been downloaded or burnt to a DVD for backup. If a PC is connected to a TV, movies can be viewed on the TV. Some studios, such as Sony Pictures Entertainment, allow playback on up to three PCs. DTO movies are encoded using Windows Media Video (WMV) format and protected with Windows Media DRM (i.e., Janus); so until recently, they couldn’t be played on a regular DVD player. Currently, about 3% of DTO movies have that functionality.

Overall, movies generated nearly $36 billion in revenue in 2004 (see Exhibit 1). Of this, sellthrough (i.e., the purchase of video content on DVD or VHS) accounted for 45% of revenue or $16.06 billion. Content providers are targeting this segment of the market with DTO movies.
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