Keen: Hardware driving movie downloads

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LONDON -- The adoption of user-friendly players will be the main driver for the digital distribution of movies, Screen Digest chief analyst Ben Keen said Friday at the British Film Institute.

The U.K.-based research specialists believe it is the sale of hardware that is driving the movie download business.

"If consumers buy the device, then our research shows they buy the content to put on it afterwards," Keen told delegates at the morning seminar.

Keen's overview, which examined Hollywood strategies for online movie distribution and potential revenue streams, also highlighted the best case equation facing studios looking to generate new revenue streams.

"The best case scenario is that every studio supports an open Web strategy, with a device manufacturer or manufacturers on board," Keen said. "If all the studios are delivering through attractive devices, then maybe you will start to get attractive market traction."

He pointed to the Walt Disney Co. as being a leader in revenue generation from online movie downloads because of its deal with iTunes in the U.S.

"Disney has sold over 25 million movies through iTunes by the end of June 2007," Keen said. He also noted that Time Warner has been doing "extremely well" with its association with the X-Box platform.

"It's not much compared to the huge units sold, say, in DVD terms. But it is more than all the other studios put together trying to sell the new HD formats," Keen added.

Screen Digest predicts that the movie download market will be worth some $1.3 billion by 2011 across the U.S. and Western Europe. Of that figure, $720 million will come from the U.S. while $573 million will come from Western Europe.

Keen says that the majority of the predicted revenue by 2011 ($530 million in the States and $405 million in Western Europe) will go to the studios and content owners, while service and solutions providers battle for the remainder.

"It's a decent business for the studios because they get a good chunk of the revenues spent by the consumer," Keen said. "We think that market could be a lot more though as it is pretty fragmented space right now."

Comparing the present situation with the way the studios all banded together behind the DVD format highlights just how "fragmented it has become," Keen said.

But he said the studios are wary of dealmaking with online operators and how those deals are perceived by such traditional retail outlets as Walmart in the U.S.

"They have to tread carefully because they don't want to upset existing business lines," Keen suggested.

The online digital movies segment will make up 3% of all home entertainment revenues both in Western Europe and the U.S., according to Screen Digest. But while that seems a small percentage, analysts say it is a significant market for "incremental revenue to the movie business as DVD growth falls away."

Keen also reminded everyone that the market for devices to deliver online movies is "a very dynamic one," with AppleTV, TiVO, X-Box and PlayStation3 all seeing swift adoption and new devices emerging every day.

"Studios are worried about damaging existent revenue streams, the cannibalization issue," Keen said. "We think the focus should be on the delivery of content to primary screens in a simple and compelling way. It really is evolution not revolution, this process."

The event was hosted and opened by Screen Digest chairman and veteran U.K. television executive David Elstein and included presentations on digital music and television delivery.

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