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» Don’t blame the Studios for trying to save the DVD…blame them (and the Music Labels) for falling off the wagon and partnering with ad supported models

February 25, 2008

Don’t blame the Studios for trying to save the DVD…blame them (and the Music Labels) for falling off the wagon and partnering with ad supported models

Filed under: Social Networks, DRM, Video/Film, Music — Administrator @ 7:05 pm

Today’s New York Times ran an article titled “Studios Try to Save the DVD” which mirrors an earlier post we filed titled “Why Warner Bros. did Toshiba a massive favor by going with Blu-ray (Rock Lobster)” after Toshiba bowed out of the HD format race in early Jan ‘08. The Times article reads:

But the victory of Sony’s new Blu-ray high-definition disc over a rival format, Toshiba’s HD DVD, masks a problem facing the studios: the overall decline of the DVD market. [US] Domestic DVD sales fell 3.2 percent last year to $15.9 billion, according to Adams Media Research, the first annual drop in the medium’s history. Adams projects another decline in 2008, to $15.4 billion, and a similar dip for 2009.

We suspect the decline in DVD sales will accelerate in 2008 falling more than 11% to about US$14.3 billion in the US (need we even talk about China?) on the back of the proliferation and growing acceptance of the Internet based ad supported digital content model (free stuff), lower bandwidth costs and fatter pipes. Indeed, five years from now DVD sales will be 50% lower (conservatively) then where they are now.

Why the doom and gloom?! I mean, won’t the Studios come up with cool new interactive features that will pull consumers into their DVD web?! Not going to happen.

Okay, so what about all those ad supported models, you know those ones that give streams away for free yet charge for digital download or physical DVDs? This must be the answer the industry is looking for…right?! Hey, we’ve got all those social networks to monetize. Those dudes totally want our stuff. Hoorah! Hoorah! Hoorah! We’re saved…

Well, boys…you might want to sit down with Google and ask them about their ability to make money off social networking. Better yet…let’s chat with Google’s CFO George Reyes about 4Q 07 revenues. Hey Reyes, what’s up with Google’s US$900 million deal to supply ads to Myspace? According to a recent BusinessWeek article Reyes states:

“…[in 2007] social networking inventory is not monetizing as well as expected…”

Anyway you look at it…this whole selling content (both online and offline) is a genuine mess. Mark our words: 99% of all ad supported content models are doomed for failure. Why? For so many reasons, such as: (1) Because once a content provider does a deal with Google why would you go anywhere else to consume the same content? and (2) Ad revenues are going to polarize around “non-trendy, Web1.0 sites”, such as CNN.com where consumers are accustom to seeing advertising; and as a result of this polarization we’re going to get a lot of very unhappy dissatisfied studios, labels and artists hoodwinked by flashy sites promising sacks of cash. Whatever!

Moving forward, we think on-line ad supported content models will be the main catalyst (second only to online piracy) behind the continuing eyeball popping deflationary pressure on content for the foreseeable future. And no one will make any money (sans one or two sites) to boot. Talk about a pissed off world looking for CHANGE!

There is light at the end of the tunnel (cue soapbox) but a lot still needs to be done: The answer is blanket licensing at the ISP level…full stop. This is the only way to to properly compensate content providers and ensure some amount of recurring income those companies aggregating and distributing content on-line.

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