Jonathan Arber
Online DVD rental players face barriers in going digital
During a conference call with analysts on online DVD rental pioneer Netflix's Q1 results, CEO Reed Hastings provided an update on the launch of its much-hyped digital movie download service. He stated that the company will now outline a 'precise timeline' for the launch of its service by the end of 2006. Comment: While Netflix is a US company deriving most of its revenues from hardcopy DVD rental, and is not normally covered by EuroView, the issues facing it will also face many players seeking to launch digital movie download services in Europe, and so it's useful to look at what this pioneer in the online DVD rental space is doing.Netflix's download service has long been anticipated, and certainly seems like a logical next move from the US market leader in online hardcopy rental. However, it initially planned to launch a limited digital download service by the end of 2005, but was forced to rethink due to licensing problems. The fact that it has now pushed back any launch further, effectively until 2007, would seem to indicate that these issues are far from resolved. Indeed, Hastings apparently told Reuters 'The constraints to large-scale licensing ... are still in effect and hold back Comcast's video on demand, Movielink and Netflix from carrying the vast selection that consumers are clearly interested in.'Why are the studios reportedly making things difficult for those seeking to license their content? In the past, this has often been attributed to the fact that the movie studios didn't understand the digital market, and were concerned about piracy and eroding DVD revenues (a key revenue generator for many of them). However, many studios are now starting to embrace digital distribution, and are launching their own services; for example, Warner's In2Movies service in Germany, and Universal's partnership with LoveFilm in the UK (see EuroView Daily 31 January and 24 March). Is it possible that the studios are giving priority to establishing their own download services, before licensing their content out to independent players? If so, this would be a mistake - consumers want choice, and a service that only offers movies from one studio plays against this. While their download services may be a nice secondary revenue stream for the studios, studios may be missing a trick if they ignore the current online movie rental leaders. These players' expertise in online movie services and existing large customer bases present a far better opportunity in the long term. There are currently rumours that online retail giant Amazon is preparing a movie download service, and the expectation is that players such as Blockbuster will also make a play for the digital space. However, they are likely to run into exactly the same licensing problems as Netflix. And until these issues are fully resolved, download services will struggle to find a mass-market audience. Content is king when it comes to consumer services such as this. Consumers won't download just for the sake of it - if they can't find the movies they want, they'll simply stick with DVD. We will shortly be publishing a report examining many of the above issues in further detail in our BroadbandContent@Ovum service.
