Why the Video Download Market Is Still Years Away

[Woochifer]

David Pogue, the tech blogger for the NY Times, wrote a pretty good article that compares several of the major video downloading options currently available. He draws the conclusion that downloads are still years away from challenging even the current dominance of the DVD format (not to mention high def Blu-ray) for several reasons, as outlined below.

http://www.nytimes.com/2008/02/21/te...fcf&ei=5087%0A

In fact, though, the Internet movie download era is more distant than pundits think, for four colossal reasons.

First, downloadable movies require high-speed Internet connections - and only about half of American households have them. That number won't change much for years.

Second, downloaded movies don't include the director's commentaries, deleted scenes, alternate endings, alternate language soundtracks or other DVD goodies. It's just not as rich an experience.

Third, movie downloads don't deliver the audio and video quality of DVD discs - even standard-def ones. Internet movies are compressed to download faster, which affects picture quality, and offer older, more compressed audio soundtracks than modern DVDs. (Check out the astounding quality-comparison photos at http://tinyurl.com/3e488m for details.)

Finally, today's movie-download services bear the greasy policy fingerprints of the movie studio executives - and when it comes to the new age of digital movies, these people are not, ahem, known for their vision.

For example, no matter which movie-download service you choose, you'll find yourself facing the same confusing, ridiculous time limits for viewing. You have to start watching the movie you've rented within 30 days, and once you start, you have to finish it within 24 hours.

Where's the logic? They've got your money, so why should they care if you start watching on the 30th day or the 31st?

Then there is the 24-hour limit. Suppose you typically do not start a movie until 7:30 p.m., after dinner and the homework have been put away. If you do not have time to finish the movie in one sitting, you cannot resume at 7:30 tomorrow night; at that point, the download will have self-destructed.

I would add that there's also a level of complexity involved in these services that I just don't see the average Joe6p being able to comprehend, at least until his kids grow up!

It's interesting that a lot of HD-DVD's former defenders on this and other boards began taking up the downloading angle once it became clear that Blu-ray would win the format war. I don't think that Blu-ray's biggest rival is downloading at all, rather I think the biggest challenge that will make or break Blu-ray is whether it can successfully supplant or at least draw significant market share away from the DVD. The answer to that question will be decided long before downloading ever begin to make any kind of significant market impact. I mean, just look at the music industry -- for all the talk about downloading, the dowdy old CD format still constitutes the majority of revenue generated by the music industry.

[filecat13]

just look at the music industry -- for all the talk about downloading, the dowdy old CD format still constitutes the majority of revenue generated by the music industry.

What happens when we add in the number of illegal music downloads and focus solely on music distribution rather than music industry revenues? Seems to me that's the real size of the consumer market, and the industry is too stodgy and entrenched in its habits to construct a business plan that will recapture the nonpaying portion of the market. I mean besides suing people, or course.

http://hbswk.hbs.edu/item/4206.html

I enjoy reading David Pogue, but often see his vision as not in tune with the marketplace. The only of his four points that I would grant is the quality issue (point three), and even that is not nearly enough of a big deal to most people as it is to some of the rest of us. I believe price and convenience trump it in the larger market.

He sees high speed penetration half-empty. I see it half full.

He sees DVD extras as a big deal and potential sticking point. I see them as inconsequential to the market as a whole, especially compared to price and convenience.

I agree with his comment on the movie studio executives and their unreasonable demands, but not on his conclusion. Those very people will be the ones who force the download market to explode outside their control. Rather than stifle the move to downloads, I believe these ill-conceived ideas will force innovation to break down the controls and put a big, heavy boot on the neck of the man.

Anyway, though I've never been interested in either BluRay or HD DVD, good luck to BluRay. At least it supports standards we can all get behind.

Good starting post.

[pixelthis]

I read an article today (which I have misplaced) that talks about the upcoming battle between phone, cable, and other providers to get market share.
One company is investing 23 BILLION in infrastructure.
Thats just one company, Fios I beleive.
And two movies at least have been advertised as "same day" as dvd release,
Micheal clayton and no reservations, on the on demand section of my cable service.
As for the 24 hr period, I recently rented "gone baby gone", on DVD, it was a one day rental,
So whats the diff?
Getting your content over a wire , at least for casual rentals, is coming, most likely the dominant version will be pay-per-view.
And its closer than a lot think

[Sir Terrence the Terrible]

I read an article today (which I have misplaced) that talks about the upcoming battle between phone, cable, and other providers to get market share.
One company is investing 23 BILLION in infrastructure.
Thats just one company, Fios I beleive.
And two movies at least have been advertised as "same day" as dvd release,
Micheal clayton and no reservations, on the on demand section of my cable service.
As for the 24 hr period, I recently rented "gone baby gone", on DVD, it was a one day rental,
So whats the diff?
Getting your content over a wire , at least for casual rentals, is coming, most likely the dominant version will be pay-per-view.
And its closer than a lot think

Well what does 23 billion dollars buy? That is about enough to partially do California, and that is about it. They also said this 1 year ago, not yesterday. And after one year of making the announcement, they are behind schedule in implementation.

To make a proclaimation in isolation without context and scope, is about as helpful as eating raw fish left in the sun for twenty days.

Difference between a 24hour DVD rental, and a 24 hour download rental. That would be quality, something you probably cannot realize from a 37" vizio panel that barely passes 720p, and from eyes that can barely see past your nose.

[pixelthis]

Well what does 23 billion dollars buy? That is about enough to partially do California, and that is about it. They also said this 1 year ago, not yesterday. And after one year of making the announcement, they are behind schedule in implementation.

To make a proclaimation in isolation without context and scope, is about as helpful as eating raw fish left in the sun for twenty days.

Difference between a 24hour DVD rental, and a 24 hour download rental. That would be quality, something you probably cannot realize from a 37" vizio panel that barely passes 720p, and from eyes that can barely see past your nose.

I read it in the sunday paper, quite an extensive article about the coming wars between cable, phone, and sat.
Thats what they are spending THIS YEAR, and probably next.
And half of California? They are picking and choosing.
I would like to quote more from the article but it got thrown away

[Sir Terrence the Terrible]

What happens when we add in the number of illegal music downloads and focus solely on music distribution rather than music industry revenues? Seems to me that's the real size of the consumer market, and the industry is too stodgy and entrenched in its habits to construct a business plan that will recapture the nonpaying portion of the market. I mean besides suing people, or course.

http://hbswk.hbs.edu/item/4206.html

First there is no evidence at all the support the RIAA stance that illegal downloading is sapping away profits. Study after study has shown the exact opposite. Illegal downloading has had either no effect on sales, or it has actually increased sales of some albums. In all reality, the music industry did finally address illegal downloading by offering songs one at a time, instead of a bundle album to places like Apple Itunes, and Amazons unbox. Since revenue is what interests EVERYONE, it is impossible to exclude revenue out of any equation unless you are strictly talking about illegal downloads.

I enjoy reading David Pogue, but often see his vision as not in tune with the marketplace. The only of his four points that I would grant is the quality issue (point three), and even that is not nearly enough of a big deal to most people as it is to some of the rest of us. I believe price and convenience trump it in the larger market.

Well actually it is in tune with the CURRENT marketplace. You are just a little ahead of the curve. Quality is a huge issue to the folks that really have the purchasing power to make music downloads huge. The audiophile spends four times as much for music media than the average joesixpack. Until the quality improves, you will not get the audiophile. If the downloading industry skips the audiophile and heads straight for the joesixpack, downloading music will grow very slowly over the years, and will never take off like CD or DVD has.

He sees high speed penetration half-empty. I see it half full.

I cannot see how either is wrong. Yes music downloading is growing(half full) however it represents less than 4% of overall revenue, and that has not change all that much over last year(half empty). Both perspectives represent a 50% view.

He sees DVD extras as a big deal and potential sticking point. I see them as inconsequential to the market as a whole, especially compared to price and convenience.

Unfortunately your perspective is not in line with any studio survey conducted in the last 5-7 years. DVD extras are expensive to produce, and the only reason they are still found on any DVD is because the consumer demands it. And apparently there is a huge demand for extras, and it has a much louder voice than those of us who just want a high quality copy of the movie itself. You cannot offer something, and then switch to a new distribution format and take something away. The consumer will perceive it as a low quality copy of DVD. The market is not going backwards, its going forward. Larger, higher resolutions displays will demand that the downloaded product at least equal to DVD for standard definition sources, and bluray for HD sources. The quality genie is out of the bag, and you cannot stuff it back in.

I agree with his comment on the movie studio executives and their unreasonable demands, but not on his conclusion. Those very people will be the ones who force the download market to explode outside their control. Rather than stifle the move to downloads, I believe these ill-conceived ideas will force innovation to break down the controls and put a big, heavy boot on the neck of the man.

Downloads cannot explode outside of their control when they make the movies, and decide who get to distribute what. The movie industry is not the music industry. While it was easy for music to get traded P2P, and the pent up demand for single songs instead of albums was there, there is no pent up demand for low quality movies with no extras. If the studio stop offering movies to downloading services tomorrow, their bottom lines would hardly be effected. The studio I work for has stated that if offering movies to downloading services results in more piracy, it would have no problem cancelling contracts, and refusing movies to those services. They would wait for another secure format(post bluray) to release to before allowing more piracy via the internet. That is the reason the studios want to get away from the DVD format.

Anyway, though I've never been interested in either BluRay or HD DVD, good luck to BluRay. At least it supports standards we can all get behind.

Good starting post.

This is a very mature statement. I have always said that if you are not interested in bluray, that is fine. But do not piss all over it because YOU do not care for it. Somebody else might.

[Woochifer]

What happens when we add in the number of illegal music downloads and focus solely on music distribution rather than music industry revenues? Seems to me that's the real size of the consumer market, and the industry is too stodgy and entrenched in its habits to construct a business plan that will recapture the nonpaying portion of the market. I mean besides suing people, or course.

http://hbswk.hbs.edu/item/4206.html

First off, I don't think illegal downloads are the life-or-death issue that the RIAA makes it out to be. The rise of Napster, Gnutella, Kazaa, et al coincided with the rise of the DVD and gigantic growth in the video game industry. If you look at how consumers actually spend money, you'd see that the drop off in revenue by the music industry is compensated by an equal (if not greater) growth component in home video and video game sales. IMO, the music industry was hurt more by a shift in consumer entertainment preferences than whatever effect illegal downloading has.

And over the past decade, median incomes have actually remained relatively stagnant, which means that the amount of disposable income that goes towards entertainment probably did not grow very much except with higher income households. And with limited growth in overall entertainment spending, that means that the growth of the DVD format and video game sales had to take revenue away from some other forms of entertainment. Music sales would logically suffer the most, since the current situation is nothing more than a repeat of what occurred during the early-80s when coin-op and home console video games (remember the Atari 2600?) and video tape rentals first came onto the market. Back then, the RIAA also tried to play the piracy card, blaming sales declines on taping.

The RIAA is trying to imply that every illegal download equals a lost sale, an assumption that anyone who's ever been a starving college student knows is pure nonsense. Just because college students have been stuffing their hard drives full of illegal downloads, does not mean that they would have purchased all of that music had peer-to-peer programs not existed.

Terrence already covered the rest of the points, so I'll leave it here at the risk of repeating myself!

[filecat13]

I can't reply at once to all the interesting and compelling points already made. Perhaps, I'll try to tackle a few at a time. Don't want the ol' noggin to explode, you know.

Part of the difficulty in discussing this is that the media is not the real property here. Media is the package the property comes in. Thus, I can't make an analogy to manufacturing spoons, or candles, or other commodity items.

So, let's say I wrote a book--a great book. First it's published in hard cover, then in paperback, then I get to read it on cassette, and finally it's offered through iTunes via Audible.com. It's my intellectual property, yet publishers, distributors, and others are getting a piece of the revenue due to the structuring of the publishing industry. That's the way business is, so if I want the book out there, I'm married in a sense to the system.

However, during the course of the sales of the book, I find out that rather than paying full price for the hard cover or waiting until the less expensive paperback comes out or buying it off iTunes, some college kids go to the library, take the book out, and then do three things.

1) They scan it and start producing folio copies of it that they sell on campus for the cost of production, because ideas are free and belong to the people, not to the literary elite and their middleman stooges.
2) They scan it and take the copies to the college radio station where they read a chapter over the air every night for two weeks. They record these readings and burn them to CDs to give out at cost, and they also post the readings as files on their blogs, social sites, and torrent feeds, because it's a great book and it sounds even cooler when trendy college students read it.
3) They scan it, OCR it, convert it into Word files and post them online for download, because the 'Net is the place where ideas flow freely and out of control of the people who tried to lock them down.

I would look at every single person who got a copy of my book through these illegal distributions as a part of the market that my book reached. Even if some of them then went out and bought the real thing, I wouldn't be so narrow as to say only the paying people should count. If I had any business sense at all, I would not simply accept that 30% or 40% of the people who have my book paid nothing for it; therefore, it's irrelevant to consider them as part of the distribution. As I make plans on how to lessen this from happening the next time around, I probably need to innovate to capture more of this market into paying customers.

Sure, how much money I made is a big deal. IMO, how many copies I got paid for out of all the copies of my intellectual property that are out there is a bigger deal. If all or most of those "illegal" copies came in one or two formats, then I'd be very interested in seeing how I could channel that interest, even if it's only 3% or 5%, into some actual revenue by expanding my presence in those distribution formats rather than excluding them and pretending they do not (or could not) exist on the balance sheet.

The link I provided very clearly supports the idea that illegal downloads are not the threat the industry imagines. We all see that. But it's also clear that the industry's response to this nonthreat still does not have the ring of opportunity to it. Even the agreements with iTunes and Amazon are defensive and controlling rather than entrepreneurial and growth-oriented.

I think maybe you guys are missing my overly simple point, which is that CD sales may still prop up the profit side of music distribution, but they represent a less significant portion of total distribution numbers for all music, legal and illegal. Missed money is still missed money, even if revenues are stable or rising. Saying something is "not hurting" is a long way from saying something "is helping."

Downloads almost certainly are not hurting, but they definitely are not helping to the extent possible if the industry would build a business plan for the future instead for the preservation of the past. To do this will require seeing the profit potential (rather than the profit loss) of the entire downloading phenomenon.

Maybe you guys are right that some of this is ahead of the curve, but it's irksome that the leadership and vision is so lacking in the industry. No one has more of a vested interest in capitalizing the future of media than the content providers.

[kexodusc]

. Missed money is still missed money, even if revenues are stable or rising. Saying something is "not hurting" is a long way from saying something "is helping."

But you guys are having a way to interesting conversation for me to stay on the sidelines.

I have to ask, in reference to the above quote, is it really missed money? The RIAA has failed to prove that all downloaded music would have otherwise been purchased. The vast majority of music I've downloaded are things I was curious about, but certainly wouldn't not buy without hearing first. I'm probably being generous if I say 2% of all the music I've downloaded is music I would actually have paid money for. And when it's good, I rush out and buy it every single time. When it's not, I might keep it on my hard drive, but I'm sure glad I didn't waste $15.

If anything, I use illegal downloading like the auto industry uses "test drives".
For me the decision was download, or don't listen to it at all, as I suspect it is with the vast majority of consumers.

All this to say downloading spreads music, but doesn't always "steal" from sales, certainly not on a 1 for 1 basis. It's probably a mere fraction. Not zero for sure, there's obviously some loss, but hardly the industry shaking doomsday the RIAA claims it to be.
So, while your distribution market might be 30% greater because of illegal downloads, your retail market might not grow at all simply because those downloaders would not ever have purchased your music. They never had intention of buying your music, hence there was no sale lost.

Wooch brought up an extremely interesting point about the correlation of home video and video game sales increases with music sales decreases. That to me is a far more believable, observable cause and effect relationship. Any good studies or papers on that scenario?

[filecat13]

I have to ask, in reference to the above quote, is it really missed money? The RIAA has failed to prove that all downloaded music would have otherwise been purchased. The vast majority of music I've downloaded are things I was curious about, but certainly wouldn't not buy without hearing first. I'm probably being generous if I say 2% of all the music I've downloaded is music I would actually have paid money for. And when it's good, I rush out and buy it every single time. When it's not, I might keep it on my hard drive, but I'm sure glad I didn't waste $15.


All this to say downloading spreads music, but doesn't always "steal" from sales, certainly not on a 1 for 1 basis. It's probably a mere fraction. Not zero for sure, there's obviously some loss, but hardly the industry shaking doomsday the RIAA claims it to be.
So, while your distribution market might be 30% greater because of illegal downloads, your retail market might not grow at all simply because those downloaders would not ever have purchased your music. They never had intention of buying your music, hence there was no sale lost.

Short reply: that's why I used the figures 3% to 5%. I'm assuming it's not 1 to 1 either. Some people will steal just because they can. Others will steal because they feel they must. And some will steal because they feel to pay the going rate is a rip off. (There are other reasons, of course.) I think you can make money off the last two groups.

Short example: $15 is too much for music that you do want, let alone music you only kind of like or want to "test drive." I think 99 cents a song is too much as well, though I do occasional buy music off iTunes at that price. I'm much more comfortable with the 33 cents I'm paying per track on eMusic, and I buy a lot of stuff I'd otherwise never buy because I see both the moral and economic sense of it. A lot of my acquaintances love the eMusic ecosystem, but complain there's "no good music on it" (meaning popular stuff, I guess), so they just download it from P2P sites.

Now, if the industry would have the sense to put its major artists and catalogs into an eMusic-equivalent value proposition, I'd probably take a chance on a lot more of the stuff it's pushing, especially if the downloads were faster and more reliable than P2P and the bit rate was higher. But I'm definitely not going to pay $15 for the CD or 99 cents per song for it.

[Woochifer]

Wooch brought up an extremely interesting point about the correlation of home video and video game sales increases with music sales decreases. That to me is a far more believable, observable cause and effect relationship. Any good studies or papers on that scenario?

I haven't seen anything to that effect, but it's pretty easy to see how it all stacks up when you overlay the sales trends. I looked up this data a few years ago because I was curious about the RIAA's doomsday downloading claims, and found that the revenue declines in the recording industry correlated with the rise in home video and gaming revenues. That correlation also meshes with what I've noticed from the Bureau of Labor Statistics' Consumer Expenditure Survey data (which BLS collects to calculate the Consumer Price Index). In that data, the amount that consumers spend on music and audio has been declining, while spending on video products has been increasing.

I think that the RIAA has done little to provide better value to CD purchases, and maximize revenue from digital downloads. Consumers flocked over to the DVD because it provided more in the way of entertainment value. The DVD's a multimedia format that delivers a wider range of content than the audio-only CD, and it typically costs ~$5 more than a CD. The CD has delivered the same type of content since 1982, and came in at a premium price from the outset. Yet, the recording companies have continued to raise prices on CDs, and done little to offset the greater value that consumers perceive with DVDs and now video games.