September 16, 2007
Streaming Cinema: Contemplating Hollywood and the New VOD

If the stories about Apple's recent talks with Hollywood studios around providing streaming video "rentals" are accurate, the industry seems to be taking another step toward models of temporary access over ownership of digital film. Does this signal an end (or abatement) of the digital distribution-related fears of the film industry? Will digital video-on-demand become a widespread reality, given the recent series of deals and acquisitions?

Beyond the much ballyhooed need to "do something" in digital distribution channels, particularly in streaming movies over the internet lately, it's already proven to be a profitable way to make money on films post-theatrical release. According to the Wall Street Journal, the DVD sale market is worth about $16B, but it is in decline. Meanwhile, margins on cable VOD are 60-70%, compared to 15-20% on video store rentals. If one assumes that going through iTunes carries a similar per unit cost, likewise without the unease about unauthorized copying, it seems like a very worthwhile route.

Unfortunately, consumers aren't necessarily as keen on online video as one may assume. I've seen very little solid data on how big the market is at the moment for long-form video downloads and streaming. That type of information becomes even more crucial with a film format, which would seem to lend itself more to watching in front of a television at home than for a short break or "background noise" at home or at work, the way we often use television and shorter video.

As Sam Ford wrote on the C3 blog, a recent report found that only about 20% of American consumers who downloaded a video would do it again. Granted, this was about downloading, not streaming. However, some of the reasons that downloading was problematic, such as slow Internet connections, could be a factor in turning people away from accessing film online as well. At the same time, VOD through cable has been profitable for the studio, suggesting that the best "hardware" for watching movies at home is still the television.

Perhaps the Apple brand its new sleek hardware with bigger and brighter screens, might be enough of a draw to consumers to ramp up demand for film through iTunes and make it worthwhile for the studios to risk cannibalizing of the "bricks and mortar" content market, which may be in decline, still involves lots of money and relationships with retailers. I don't think it will, at least not until the hardware facilitates people using the formats in a way that fits their lives and how they actually use film. The viewing experience is a more integral part of a film than with television content and shorter video; I don't think that iPods are the future means of consuming films. If Apple came up with a better product than Apple TV, however, that could be better integrated with the existing television viewing experience people are used to, the story would change a bit.

This is not the first time that the studios have tried to bypass the "middlemen." MovieLink, a joint venture by the studios to provide a 'one stop shop' for film online, and recently acquired by Blockbuster for as little as $20m after at least twice that had been invested in it by the studios. The official line for MovieLink's less than stellar performance is that the site was failing because the studios didn't put enough promotional muscle behind it. Possibly, but again, I think it may have more to do with consumer behavior than promotion.



I posted a comment to Ana about her piece on Grooveshark and Amie Street that it would be interesting to see if that model would work for television programming, movies, etc. After all, Apple took a system built for music and is increasingly adapting it for content, as you account for here. Where else might Apple try to extend this? Games? I know there has been some experimentation with this and have written about it before. Or what about text? Any thoughts?

On September 21, 2007 at 7:55 AM, Eleanor Baird said:

Sam, good questions. It would be tough to adapt that model to "mainstream" movies, games or TV content just because of how those are funded and produced. There are big sunk costs upfront, that make not recouping those costs early, particularly for a product that relies somewhat on its newness or freshness, a big gamble. If you did try that, you would have to charge something exorbitant and above what we expect to pay for a movie or TV program that would probably turn most people off.

Less costly video content, text and photography may indeed work with this model, as the upfront costs are generally lower and/or depend on a single author or a very few contributors, making a deferred payment scheme far less complicated and subject to dispute. Producers, authors, and photographers could also use it as a way to test new material or techniques, essentially put out a first draft or part of a piece and see what kind of interest is generated by it before investing in revising it or following it up.

So, yes, I think there are definitely are applications for other types of media.


Eleanor, I think that this system will help experimental content the most. As is the argument with new forms of marketing that use online social networks and the like, the return can be much less when the cost of promoting material is much less. For instance, I've seen movies that probably would have ended up in the black from DVD sales if they had never went to the theater, because the cost of promoting the movie in theaters ended up adding so much more to to the cost of making the movie, and the movie flopped at the theater...This may sometimes be the case for some B-level horror films or other niche content.