Hollywood happy kids willing to pay for content

Young consumers helping boost digital revenue

These kids are all right.

There's a spreading sense of optimism in Hollywood regarding young consumers' willingness to pay for digital content: Although members of the so-called Napster generation might be lost forever to a collective addiction to pirated free content, their younger siblings offer digital distributors hope of a brighter business future.

"You have a whole generation whose attitude toward interactive content is completely different," said Patrick Russo, a principal at the Salter Group advisory firm. "That generation is growing up paying for content. It may be their parents who are actually paying for it right now, but they do recognize that they are paying for content instead of stealing it."

Thanks in part to these youngest consumers, consensus estimates put the download-to-own segment of film and TV content on track to grow by an average of 15% or more annually through 2015, and Rentrak data show a 30% uptick in digital revenue from 2008 to 2009. Such double-digit climbs are reminiscent of the early days of DVD, when even modest inroads among early adopters produced big spikes in revenue growth.

Electronic-distribution revenue remains relatively modest at about $2.1 billion from a total $20 billion spend last year on purchase or rental of film and TV titles, according to Rentrak data. But most agree it simply is a matter of time before the younger generation embraces digital distribution as their preferred means of enjoying entertainment.

"There's an entire generation that doesn't know a world without broadband," Russo said. "When they run to their laptops, they are watching content or downloading content."

Salter Group regularly values movie libraries for studios, and digital looms large in their longer-term projections. For studios, future revenue opportunities will be truly global, once the consumer march to digital reaches critical mass.

"Say you're an Italian-American who speaks Italian and you want to watch old Italian-language movies," Russo said. "Where are you going to find that? Not at Blockbuster, but you could potentially, [on] the Internet."

For now, studios are reluctant to rush content offerings online for fear of cannibalizing DVD and other packaged media. But moves including synching disc and VOD releases already are afoot, and it's only a matter of time before studios begin releasing to VOD or other digital platforms even more aggressively.

"You'll see more and more innovations of that type going forward," Warner Bros. digital distribution president Thomas Gewecke said.

But executives also note that more work must be done to advance consumers' ability to find entertainment online and navigate the array of services offering such content. A clutter of brands vying for traction in the digital space would seem to be a potential source of consumer confusion, though Gewecke said all that's needed are better tools for traversing the digital landscape.



"Consumers will continue to have lots of services to choose from, and that's good to have in the marketplace," he said. "We are already seeing growth in paid digital video across a broad swath of demographics. But it is true that the younger demographic is growing up at a time when transactional digital content is becoming a part of the everyday experience."

Not that digital piracy died with Napster, and industry efforts continue worldwide to combat content theft on the Internet and elsewhere. But the youngest consumers seem well on board the legit-digital bandwagon.

"We're seeing very positive results for younger skewing-content on digital," said Jamie McCabe, Fox's executive vp in charge of worldwide digital platforms. "There's a generation that's had legitimate digital services from an early age and are digital buyers."

Fox Home Entertainment's digital version of the recently release kids movie "Percy Jackson & the Olympians: The Lighting Thief" has "exceeded our expectations," McCabe said.

John Calkins, executive vp digital and commercial innovation at Sony, cited Youth Trends data suggesting that youthful attitudes toward downloading unlicensed content have "significantly improved" during recent years. A recent Youth Trends study found that nearly half of college-age respondents viewed piracy as unacceptable, compared with only 1 in 10 three years ago.

Such evidence comes as welcome news for Hollywood. But gauging consumer sentiment on specific digital pay schemes can be just so much guesswork until the services hit the market.

USC's Annenberg School for Communication & Journalism recently surveyed 1,900 consumers and couldn't find a single one who would pay to use the currently free Twitter messaging site. Yet 20% of Roger Ebert's followers on that same site said they would be willing to pay to use Twitter.

So much for scientific research.

As for marketplace trends, a progressive rise in the number of "interoperable viewing devices" in consumer households -- that's computers talking to TVs -- should help fuel the digital fire. And broadband services continue to snake into ever new global terrain.

Even the long-suffering music industry is seeing a significant opportunity from digital distribution.

Sales of albums via iTunes and MP3 still trail revenue generated from disc sales in most cases, but a consumer trend toward digitally distributed music is clear.

Reflecting that trend, Merge Records band Arcade Fire bowed its third album, "The Suburbs," with MP3 downloads specially priced at $3.99 via Amazon, and Warner Music gave away digital copies of Tom Petty and the Heartbreakers' recently debuted "Mojo" to purchasers of concert tickets.
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