UltraViolet: Analogue Conservatism Masquerading as Digital Innovation

When UltraViolet – the movie studios cloud locker play – was announced last year it rightly caused something of a stir.  Finally the uber cautious movie studios were taking a lead in digital content strategy.  However since then the project has faced a number of criticisms ranging from clunky implementation through to lukewarm consumer adoption (approximately 1 million users have registered to use the service since its October launch).  This week Ultraviolet got two welcome boosts, in the shape of Dreamworks signing up to the initiative and, more importantly, Walmart pushing ‘Disc to Digital’ – its implementation of UltraViolet – across US stores. But as encouraging as these developments are, UltraViolet remains doomed to failure unless it undergoes substantial change.  UltraViolet is an evolutionary, sustaining technology at a time when the movie industry needs transformational innovation. Disc-to-Digital is a Sustaining Innovation Designed to Protect Analogue Business Models With Disc-to-Digital consumers are expected to take their old DVDs and Blu-rays into Walmart so that they can then pay $2 per title for the privilege of being able to watch the movie again via Walmart’s VOD service.  DVD owners have to pay $5 if they want to view the HD version. In short, consumers are expected to pay an extra fee to watch an old movie they have already got and have already paid for.  If this ever takes off I will eat my hat….if I wore one. The problem with Disc-to-Digital is that it is a sustaining innovation designed by the movie studios to protect their traditional business while at the same time giving the gentlest of nods towards digital.  But as appealing an option as sustaining innovations can appear they typically leave traditional companies vulnerable to decimation by disruptive technologies that do a much better job of meeting consumers’ needs.  Recent history presents us with illustrative precedents: while the record labels locked downloads in DRM file sharing went global; while Nokia clung to keypads Apple and Android touch screen smartphones stole their market leadership.  Disc-to-Digital is no different.  The movie studios are missing a crucial opportunity to grow their market with transformational innovation. The Physical Video Product Transition Needs to Start Now Of course with transformational innovation comes disruption, but the price of doggedly clinging to modest incremental changes while consumer behaviour lurches forward in quantum leaps is to end up like the news or music industries, presiding over dramatic loss of revenue.  Movie studios have been partially cushioned from disruption by the unique experience that movie theatres continue to deliver even in the face of numerous digital alternatives.  Although the day-date release debate continues to rage, of more pressing need is overhauling physical sales strategy.  DVD and Blu-ray sales are crucial to studios and are often the way that movies actually end up turning a profit.  Blu-ray proved to be a mistimed and ill-judged last throw of the physical product dice.  Titles priced too high for marginal additional consumer benefit, at exactly the same time that consumers were being presented with a host of new ways to get video content into their living rooms, such as VoD, PPV, IPTV and PC streaming. The net result was that Blu-ray failed to drive the universal format replacement shift that DVD had done.  Many consumers will simply skip Blu-ray, ignoring the last chapter in physical video formats en route to on-demand alternatives. All of which underscores just how important it is for movie studios to play a proactive role in driving the digital transition of their customers, even if that comes at the cost of hastening the demise of the evolutionary dead-end that is Blu-ray.  If movie studios don’t hold their customers’ hands on this journey then consumers will make the move without them and a priceless opportunity to have some degree of control over the digital transition will be lost. This Narrowing Window of Opportunity is the Most Pressing Window Argument Forget the release window debate for a moment, this narrowing window of opportunity is the window that the movie studios should be occupying themselves with.  The book publishers have been uniquely fortunate to be able to help shape their industry’s digital transition by being intimately involved with the technology that triggered readers’ digital transition i.e. eReaders.  Although the digital cat is already out of the bag for video, the digital consumption journey for mainstream consumers is only just beginning and the movie studios have the opportunity play an influential role in that process in a manner that record labels and newspapers would bite their hand off for. UltraViolet could yet prove to be the vehicle – the importance of having most of the big studios pulling together should not be underestimated.   But charging your most loyal customers $2 for the privilege of watching an old movie they’ve already paid for is not a strategy.  The role of UltraViolet should be to deliver new, high quality, convenient digital experiences for customers, not to squeeze extra income out of them for products they have already paid for. Until that change is made though UltraViolet will remain a sustaining innovation aimed at protecting the old way of doing things and as such wholly inadequate for helping the movie studios transition their physical sales businesses.

For more on media product innovation strategy get my latest report ‘The Media Format Bill of Rights’.  Just sign up for email updates to this blog to receive your free copy.

The Media Format Bill Of Rights: A Manifesto for the Next Generation of Media Products

Today I have published the first Media Industry Blog report:

The Media Format Bill Of Rights: A Manifesto for the Next Generation of Media Products

The report is available free of charge to subscribers of Media Industry Blog (to subscribe simply submit your email address in the form on the top right of this page).

The Media Format Bill of Rights builds upon a series of concepts and frameworks first discussed in the report ‘The Music Format Bill of Rights’ (which can be downloaded here).  Although some principles translate cleanly across other media industries many others have a more complex story.  This report looks at just how diverse the challenges are, and makes the case for a media product innovation framework across multiple media industries.  Here are a few highlights.

The Future of Paid Content Is At Stake

With the notable exception of games, media industries have failed to translate the digitization of consumer media consumption into digitization of their revenues. Digital revenue shares will continue to either remain stuck in single digit percentages or help pull down total revenues for as long as the digital products they depend upon fail to fully embrace the capabilities of digital interactivity. Digital content products need dramatically reinventing for the digital age, to be built around four fundamental and inalienable principles of being Dynamic, Interactive, Social and Curated (D.I.S.C.).

This is the case for nothing less than an entirely new generation of media formats and products. Products that will be radically different from their predecessors and that will crucially be title-specific, not store or service specific. Rights owners will have to overcome some major licensing and commercial issues, but the stakes are high enough to warrant the effort. At risk is the entire future of paid content.

The Consumption Era Has Yet To Be Monetized

Ever since consumers started downloading from Napster and ripping DVDs and CDs the balance of power across all media industries shifted from media company to audience. The digitization of content consumption is firmly established, yet the same cannot be said of media business revenues.  Digitization is transforming consumers’ relationships with content and threatens 20th century media business practices with obsolescence and irrelevance. And yet, even though the PC and connected devices are stealing ever larger shares of media consumption, only the Games and Music industries have managed to convert more than 5% of their total revenues to digital products. And for the music industry it is hardly a success story, with overall revenues declining more quickly than digital can make up for. Underlying the cross-industry inability to successfully monetize the consumption era is a recurring theme: the lack of new products and formats tailor made for the digital age. The Games Industry got it right (witness the continued growth from mobile and social gaming, and the ability of consoles to flourish even as the retail channel perishes) but other media industries have yet to get there.  Three core factors underpin these challenges:

  • Content scarcity is gone
  • Concepts of ownership are fluid
  • Consumers consume more yet pay less

Piracy is Both Cause and Effect

Piracy is routinely held up as a root cause for media industry problems but is in fact as much symptom as it is condition.  Piracy has flourished in its many forms because it has moulded itself most closely to changing consumer demand.    The history of 20th century media businesses can be mapped by format milestones: vinyl, VHS, the DVD, cable TV, the CD. The download and the stream were the first tentative steps towards a new wave of formats and didn’t ever get out of first gear. They are transition technologies that failed to become the holistic format milestones for their age that predecessor formats were. Previous media formats shaped and dictated revenue growth, digital heralded decline. Why? Because the download and the stream are owned by audiences as much as they are by media companies.  And media companies haven’t yet realized that because these democratized quasi-formats are fantastic consumer tools they therefore need to ensure their products do more, much more. This is no longer a dubbed-cassette-copy-versus-original-CD arms race. Consumers can create digital content every bit as good as good as that of media companies.

The harsh reality is that convenience, portability and quality are the standards which consumers already get from free and illegal digital content products.  Paid content strategy must be founded on going above and beyond these digital basics.  Premium digital products and formats must deliver rich and interactive experiences that are:

  • Dynamic – always change and update with new content
  • Interactive – empower user participation and customization
  • Social – place social functionality and connectivity at the core
  • Curated – curate discovery and editorial

Embracing Disruption

It would be puerile to suggest that the D.I.S.C. principles apply uniformly across all media types. Applicability varies and of course implementation must be tailored, but the fundamental principles have vital relevance across all major media industries. The media industries are now at a juncture where embracing disruption can save them from perpetual decline and potential annihilation. The paradigm shifts in media industry business models and consumer behaviour have been happening more quickly in the last 15 years than ever before, but these changes are still only a small part of much bigger processes that have many years yet to play out and which will come to full fruition when the Digital Natives generation come of age. D.I.S.C. strategies need pursuing now, before the condition is incurable. Media companies can identify the size of the format innovation opportunity by combining the applicability of D.I.S.C. principles to their industries with the scale of industry-wide disruption they are experiencing (see figure). But acting now rather than later will be the difference between using D.I.S.C. as a catalyst for growth as opposed to an air bag to cushion the blow of a market crash. Timing is everything.

To read the full report, which includes industry-by-industry analysis, simply subscribe to Media Industry Blog using the email form at the top right of this page.  If you are already as subscriber but haven’t yet received your free copy please email musicindustryblog AT gmail DOT COM.

Full table of contents of ‘The Media Format Bill of Rights’

  • The 20,000 Foot View
  • Setting the Scene
  • The Media Consumption Pendulum Has Swung Sharply
  • (Apparently) The Revolution Will Not Be Digitized
  • It is Time to Jump Off The Treadmill
  • Digital Does Not Need to Mean the Death of Ownership
  • The Media Format Bill Of Rights
  • Applying the Laws of Ecosystems to Media Formats
  • Building the Future of Premium Media Products
  • Applying the Media Product Bill Of Rights Across all Media Industries
  • Embracing Disruption is Risk and Dangerous But a Necessity
  • We Are In the Per-Person Age, Not the Per-Device Age
  • Conclusion

Why Apple’s Impact on Media Companies Has Only Just Got Started

There was a sense of disappointment in some quarters yesterday as Apple announced the third generation iPod, largely because it looks pretty much like a better version of the iPad2 rather than a dramatic step change.  But it was the right move for Apple.  The history of Apple’s device business in the last decade and bit has been a highly effective blend of step change, and evolution.

An Evolutionary Update for iPad3 Was The Right Move

There was no need for Apple to revolutionize the iPad now.  It is the market leading device that is still the most eagerly sought after and is continuing to leave the competition in its wake (latest figures from Forrester suggest that no single competitor has more than 5% market share).  Just as the iPhone 4S was an incremental update that left some industry observers disappointed but actually went on to perform fantastically in terms of sales, so the iPad3 delivers enhancements without breaking the winning formula.  It also enables Apple to push down prices on the iPad2, effectively turning it into the entry level device for iPad customers – a smart strategy which Apple has used to great effect with the iPhone range.

What iPad Lacks in iPod’s Scale It Makes Up for In Momentum

To date Apple has sold 55.2 million iPads (see figure), no mean feat in less than 2 full years of sales.  But to put those figures in context, Apple has sold 334.5 million iPods.  Add that to the 183 million iPhones sold and it is clear that the majority of Apple’s iDevice customers do not have iPads.  iPods and iPhones remain Apple’s most pervasive impact on media consumption and yet the iPad appears to be the one having most dramatic impact on media business models.  There are three key reasons for this:

  • iPad owners are highly valuable, leading indicator customers. iPad owners are the cream of Apple’s already tech skewed audience.  They spend the most and value content the most.  The ROI on developing for this current installed base alone is enough to justify the pivoting of many major media companies’ content strategies.  But iPad owners also give us an indication of what future consumers will want.
  • Tablets are a tailor made for media experiences. As much as media companies wanted to embrace mobile, mobile phones always had the frustrating restriction of tiny screens, forcing media companies to crush down their carefully crafted content into artificially small chunks.  Tablets on the other hand present most of the benefits of mobile with the visual capabilities of PC but with the added benefit of touch.  Thus while mobile was always a case of cutting down to optimize, tablets actually enable media companies to deliver richer user experiences than ever before.
  • iPad growth is dramatic, and some.  It took Apple 7 quarters to reach 55 million iPad sales.  It took them nearly 5 years to reach the same milestone for iPods.  Of course there are numerous mitigating factors (the increased presence of Apple is just one) but the momentum is clearly with the iPad. 

The TV is Apple’s Way of Really Getting Into the Living Room

So the case for media companies’ obsession with the iPad has no small amount of justification (though of course it should be part of a blended device and platform and device strategy that matches the behaviors and needs of the target audience, not the personal device preference of senior management).  But at risk of sowing fear, uncertainty and doubt (FUD) into the minds of content strategists, beware, Apple has got its sights on a new market: the TV.  It seems increasingly likely that Apple will launch a fully-fledged TV product later this year.  Whether they do or not, this is Apple’s next new market.  Of course Apple has patiently plodded away with Apple TV for years, a product that still – uncharacteristically for Apple – lacks identity and if TV wasn’t so important for Apple would have gone the way of the Newton long ago.

TV matters for Apple because it needs a foothold in the living room:

  • Living room technology spend is all about the TV.  Consumers used to change their Hi-Fi just because the manufacturer changed the colour, now living room tech spend is firmly focused on the TV.  Having an iPod temporarily plugged into another company’s docking station is simply not enough for Apple.  Air Port Express and Apple TV aren’t enough either.  And though Apple shows little appetite for trying to reignite the Hi-Fi space – they can leave that battle to Sonos and Google – they do know that getting into the TV corner of the room opens up a whole new market for them in the way the iPhone did.
  • New markets accelerate growth.  Opening up new markets is important for Apple.  Unlike a company like Samsung,  Apple do not play for the whole market, they play for the upper part of it – not the top, as their entry level device strategy attests – but certainly from the upper mid upwards.  This means that each of their range of devices has a theoretical ceiling and Apple’s way of sustaining market momentum is to find a new market to address before growth in the former slows. (Note that hardly an eyebrow is raised at the fact that iPod growth has been in decline since 2010).  And though some might say TV feels like an unnatural fit for Apple, I remember first joining Apple analyst briefings soon after the iPod launched.  Everyone was asking questions about server and education strategy and gave me very bemused looks when I started asking questions about music strategy!  TV  is in actual fact a much better fit for Apple 2012 than iPod was for Apple 2001.
  • TV helps establish the iPad in the living room. The iPad has many great use cases, and the living room is certainly one of them. But Apple doesn’t want it to go the way of the laptop in the living room and just become a tertiary device for multitasking when you are bored with what’s on the TV.  Instead Apple wants the iPad to become our universal remote control – in the way that the iPhone once looked like it might.  And to do that, it really needs to have a great big piece of Apple – or Apple integrated – kit where the TV currently sits.

Apple’s TV Strategy Could Kill Off Connected TVs

When Apple does finally play its TV card – and there are many, many things it could do – expect it to transform the sector in the way it did the smartphone sector with the iPhone.  Yes, a whole market of TV manufacturers are rightly concerned. Not just because of the competitive threat but because Apple’s TV strategy could well leave their Connected TV strategies stillborn.  I’ve been a technology analyst for long enough to see a few false dawns for interactive TV.  While connected TVs are much better than what has come before, they deliver much inferior browsing and interactive experiences to PCs and tablets.  And therein lies the problem: TV companies are trying to squeeze the Internet into TV, which is a doomed to failure.  Because we know that TV (i.e. video) experiences already work great on the web. The TV is already in the Internet.  The missing piece is simply taking the TV that is in the Internet and placing it in the TV set in a seamless, elegant, convenient and highly interactive way.  And we all know which company builds those principles into its product DNA.  When Apple flicks the switch on its TV strategy it will instantly remove the distinction between TV and web.

Apple has spent the last decade transforming media businesses and content experiences.  But the media companies pay heed: the journey has only just begun.