Summary of Digital Distribution Panel Oct 27th
One Wednesday October 27th, the Media and Entertainment club hosted a panel entitled “The Digital Revolution: Are We There Yet” featuring Marcel Garaud, VP of Technology Sony/BMG and John Penney, VP of Business Development, HBO. The discussion was moderated by Randy Lake from Booz Allen.
So much attention has been paid recently to the digital distribution of entertainment, whether it is the success of Apple’s iTunes store or the recent Microsoft announcements regarding the home entertainment media center. Yet even in the music industry, digital distribution represents such a small percentage of the revenue currently being generated (roughly 3%).
The panelists shared much insight into the struggle that entertainment, technology and consumer device companies have endured in trying to grow the digital market. In discussing what has gotten the industry to this point, it was clear that the growth in P2P usage played a huge role. Marcel spoke about how record labels were faced with their own demise and had to react. It was Apple that came up with a novel solution that provided record labels with the security they were looking for and the consumer with the ease of use and freedom that they wanted.
On the flip side, John indicated that the fact that the movie and television industry hasn’t gone through this same crisis has been a major factor in its reluctance to fully embrace the digital channel. Revenue from the sale of DVDs continues to be a huge boom for studios and they don’t have the same fear that the record labels had (and still do) that drove the need to find ways to move towards digital distribution.
In spite of the recent developments, there remain several challenges ahead for digital entertainment industry. The legal aspects of the entertainment industry still lag way behind the technology. John spoke of complicated agreements with the various talent agencies and their restraint on a studio’s ability to explore new distribution strategies. Marcel spoke of the continued problem with trying to limit P2P usage and indicated that as long as consumers can get music for free, legal services will never thrive regardless of the consumer offer.
Both John and Marcel seemed dubious of the industry’s attempts to add one more physical format before the transition to digital. While the dual disc (CD on one side, DVD on the other) might offer an exciting opportunity, Marcel felt it would not revolutionize the industry in the way that the CD did. Marcel said that the days of consumers re-buying their library in another new format are over. However, he did express that moving to more secure formats such as DVD Audio and encrypted CDs would help reduce the amount of files traded on P2P networks.
John was much more skeptical of the growing debate over the Blu-Ray vs. HD-DVD formats. He felt that neither format was a big leap over the capabilities of the current DVD standard and that this new development was also being driven forward by the studios’ desire to move to a more secure format in terms of consumers’ ability to make unauthorized copies of DVDs.
When asked about the concept of the fully comprehensive digital entertainment experience, both panelists seemed very enthusiastic about the possibilities. They both discussed how this business would eventually move away from the concept of entertainment tethered to a device to entertainment tethered to a person. Your library of music and videos would follow you whether you were in the house, office, car, plane or a hotel in a different country. However, both panelists were also wary of what needed to happen for these possibilities to become a reality. Consumers’ are not as accepting of technical problems once you move off of the desktop. In addition, the standards war that is taking place between companies such as Apple, MS, Sony and RealNetworks would have to end in order for consumers to experience a seamless entertainment experience in moving from one environment to the other.
In terms of which company would dominate this new environment, neither panelist felt that there was an obvious winner but believed that the battle between Sony and Microsoft would be the main event. Both indicated that Microsoft was an obvious choice, both because of its huge cash horde and its desire to touch the consumer at so many different points. Marcel seemed to indicate that the company that could find a way to make this system as seamless and easy to use as possible would be the winner. John on the other hand felt that there was a huge opportunity for those companies willing to provide customer service throughout the entire system. As he indicated, many of the companies in the space (especially consumer hardware companies) have such thin margins that providing such a high level of consumer support might not be feasibly possible. Because of this, he indicated that software companies with their high margins represented by the best opportunity.
When asked about the structure of entertainment companies going forward, Marcel and John seemed to indicate that there was no right choice. The marriage of hardware and content has not always served Sony well while Time Warner (parent company of HBO) has certainly struggled in combining content and distribution assets. Marcel made an interesting point in that in spite of the all of the online music activity, radio and MTV would still determine the success of an album.
John indicated that studios would shift from being organized into silos centered around the different products (theatrical, home video, syndication, etc) into silos differentiated by function such that all the creative people would be under one roof, all the people focusing on distribution (regardless of format) would be under a separate roof. He indicated that there needs to be a separation between the creative process and the process in adapting the finished product to the various platforms and distribution systems.