HOLLYWOOD came late to the internet. Protected for years from digital piracy by huge file sizes, it was not forced to develop an online retail model, as the music business was. Nor, having watched newspapers struggle on the internet, did it much want to try. This week it finally stepped forward, touting two systems for selling films and television shows online. The initiatives are well thought-out, reflecting the lessons learned from watching others’ mistakes. But they may also be too late.
Legal film downloads in America accounted for just $250m last year, according to Adams Media Research. In many countries there is no legitimate market. That would not worry anybody, except that sales of DVDs, the silver discs that rebuilt Hollywood’s fortunes over the past decade, are faltering. They have fallen from $12 billion in 2004 to $8.7 billion in 2009 (see chart). It seems that consumers have rediscovered renting—which is less lucrative for Hollywood—through the post and the rapidly-proliferating kiosks owned by Redbox.
Hence the eagerness to sell online. This week the Digital Entertainment Content Ecosystem (DECE), a consortium that includes five of the six big studios as well as technology firms and retailers, agreed a format for digital films and named a single outfit to keep track of purchases. Consumers will be able to buy a film once and then play it on different gadgets. As it will be held on a remote server, they will not have to transfer it from device to device. Disney, the studio shunning the consortium, has a similar initiative called Keychest.
DECE’s initiative aims to stop a company doing to film what Apple has done to music and Amazon threatens to do to electronic books. By taking a huge lead in the market, and by tying content to their own devices, the iPod and the Kindle, these firms have been able to dictate terms to media firms. Instead of a closed system, Mitch Singer, the head of DECE and a Sony employee, wants to create something more like the CD or the DVD—an open format that will encourage competition and innovation.
One problem with the new scheme is that Apple is not on board. It already offers film and television downloads through its iTunes store. Another difficulty may be convincing consumers to pay for something “in the cloud” that they cannot touch. Set the price for online films too low, and the studios will revolt against a threat to DVDs. Set it too high, and people will probably go on renting, or downloading films illegally.
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