Is Digital Delivery Destroying Other Parts of the Movie Ecosystem?

Reality typically is more complex than any forecast about reality. Consider the movie business and downstream ecosystem. Digital entertainment was supposed to destroy the movie theater business, but evidence is contradictory on that score.

It might be more accurate to say that the digital entertainment business is hitting "physical media" sales more than anything else. In the first half of 2009, ticket sales grew 17.5 percent, according to Media by Numbers, a box-office tracking company. You might argue that is the result of higher ticket prices or a desire to momentarily escape recession woes.

As it turns out, neither of those factors seem to be driving the trend. Attendance jumped by nearly 16 percent in the first half of 2009. If those rates hold for the whole year, it would be the biggest box-office surge in at least two decades.

There likely is some truth to the adage that "people go to movies more frequently in a recession." But the evidence is mixed on that score. The last time Hollywood enjoyed a double-digit jump in attendance was 1989, when the unemployment rate was at a comfortable 5.4 percent. That year, the number of moviegoers shot up 16.4 percent, according to Box Office Mojo.

In 1982, theater attendance jumped 10.1 percent to about 1.18 billion as unemployment rose sharply past 10 percent. Then admissions fell nearly 12 percent, an unusually sharp drop, in 1985, as the economy picked up.

The economy's effect is a bit unclear, in other words. As always is the case, though, movie attendance is higher when film-makers create movies lots of people want to see, and that likely is a part of the story.

The film industry over the last year or two has released movies that are happier, scarier or just less depressing than what came before, some might argue.

Still, the point is that digital delivery has not adversely affected theater attendance of late.

DVD sales are another matter. In 2008, movie ticket sales surpassed DVD revenue, according to Adams Media Research. Where 2009 box office receipts grew 10 percent $9.87 billion, DVD sales fell 13 percent to $8.73 billion.

For whatever reason, consumers are spending less money buying DVDs than they had been for most of the past 10 years, and a reasonable guess would be that video on demand and other streaming services finally are starting to have an impact. The other angle is that Netflix has kept growing as well, despite predictions by many that growth would falter as Internet delivery and VOD became more established behaviors.

Consumers may also have realized that they will not watch most movies more than once. That will shift behavior towards rental services and VOD.

The prevailing wisdom is that the DVD business is in a permanent decline. A few years ago many analysts wrongly predicted that theater sales would drop every year, as well. One should never underestimate the impact business decisions by the movie ecosystem can have.

Making movies people want to see plays a huge role, for example. Pricing and distribution decisions made in the DVD sales and rental channel also can have a huge and unforseen impact. Netflix disrupted the retail rental store business, for example.

Also, Blu-ray HDTV appliance adoption might be playing a role as well. Though the installed base of DVD players still represent the lion's share of device usage, Blu-ray obviously is growing. That could have consumers holding back on purchases of physical media they believe will someday go the way of casette tapes.

Don't Worry about Blu-ray

There has been some speculation that the Sony victory in the high-definition digital video recorder war is somewhat "Pyhric", to the extent that content is moving to digital distribution, and away from physical media.

That might be premature,if a recent survey of U.K. consumers is any indication. The survey suggests Blu-ray DVRs will have the highest growth of any digital entertainment activity in 2008, according to Russell Hart, Chief Executive of Entertainment Media Research.

The survey asked about usage of 49 digital and entertainment activities. Around 24 percent of consumers surveyed reported they will start watching movies in the Blu-ray format in the next six months. "This is at least double the intention rate of any other entertainment activity," Hart says.

The other issue is that consumers are happy to watch on-demand programming as long as it is free. There's high interest in new movie releases (84 percent are interested and 48 percent say they are definitely interested.

Live music concerts are attractive to 72 percent of respondents. So is comedy, interesting to 79 percent of respondents.

When confronted with three options--subscription with unlimited content, PPV and free ad-supported models--the free model wins. About 70 percent of respondents would rather put up with the ads than pay for the content.

Still, 48 percent of respondents say they are "definitely interested" in new release movies and 53 percent are willing to pay to watch them.

Almost Safe for Consumers to Buy HD DVDs

Some suppliers might like format wars, at least to the extent it allows them to gain some business advantage in licensing streams. Consumers generally lose when they buy devices and software built around the losing standard.

Just days ago Warner Bros. threw its weight behind the Blu-ray standard. Now Daily Variety says Universal's commitment to backing HD DVD exclusively also has ended.

Paramount, one of the few remaining majors to release content in the rival HD DVD format, apparently has an escape clause in its HD DVD contract allowing it to release content on Blu-ray now that Warner Bros. has decided to back that format exclusively.

Retailers such as Best Buy and Blockbuster Video now will contribute to the Blu-ray trend. If retailers think Blu-ray is the future, they aren't likely to devote much shelf space to HD DVD players or content.

Even Apple will be shipping Macs with Blu-ray drives. So the good news for buyers of DVD players is that it is just about drop-dead safe to go buy a high-definition player.

You can do your own survey. Visit a Blockbuster and compare the space devoted to content in Blu-ray rather than HD DVD.

Has Blu-Ray Won the Format War?

The format war between Blu-ray and HD DVD might be over. Warner Bros. Entertainment had decided to back the Blu-ray standard exclusively, beginning June 1. That means roughly 70 percent of available content will be in that format.

Blu-ray for Macs?

Apple Inc. is expected soon to announce concrete support for Sony Corp's Blu-ray DVD format as opposed to Toshiba's HD-DVD, according to AppleInsider.

American Technology Research analyst Shaw Wu says his sources say Apple will start shipping Blu-ray-equipped Macintosh computers. At some point, every PC manufacturer shipping DVD drives will have to make similar choices.

Disney, for which Apple chief executive Steve Jobs is a Director, is a firm supporter of Blu-ray, while rival Microsoft Corp. has placed most of its eggs in the HD-DVD basket.

Still, there is "a smaller chance Apple may use a combo Blu-ray/HD-DVD drive to ensure full compatibility and not get involved in the format wars, AppleInsider notes.

HD-DVD Format Wars Continue, Prices Drop

The good news for consumers is that high-definition DVD prices are falling. The bad news is that the format war still isn't over. As was the case with BetaMax and VHS in videotape recorders, consumers now have to choose between incompatible formats. Personally, I'm just going to wait until the war is over. I've been through enough of these technology standard battles to instinctively avoid buying "eight track," "BetaMax," or just about anything proprietary in the consumer electronics space. Of course, I don't care enough about video to adopt early, in any case, so I might be odd in that regard.

Sony's "Blue-ray" players are selling for under $300, while Toshiba's "HD-DVD" player is available for $200.

The edge right now seems to be on Blu-ray's side. since Thanksgiving in the U.S., Blu-ray discs account for 72 percent of the high-definition discs sold, while HD-DVD has 27.4percent of the share over that same time period. So maybe Sony can win a major format war for once.

Right now, Walt Disney, 20th Century Fox and Metro Goldwyn Mayer support Blu-ray DVDs, while Universal (GE) has sided with HD-DVD. Warner Bros. supports both players.

Studios obviously hope the new format will spark higher DVD sales, which are highly profitable, but whose sales have started to slide.

We shall see. The download market and on-demand video streaming have to be taken into account, this time around. And with users opting for increased mobile or PC screen video, it isn't an absolute certainty how big the market might be for high-definition DVDs. It's great for big screen displays. But lots of viewing now takes place on all sorts of screens where the advantage is small, if much of an advantage at all. For downloaded video, in fact, less information, which means faster downloads, probably is more important.