Film Industry

At CES last week, I participated in a [Variety panel](http://www.variety.com/article/VR1118048501?refcatid=1009&printerfriendly=true) about digital distribution — what we used to call home video.

As I’ve discussed before, I’m skeptical of digital lockers like UltraViolet. I don’t think consumers understand the difference between ownership and rental of intangible goods. They just want to watch their movie with the least hassle possible.

But I could be wrong. Lori MacPherson, executive VP of global product management at Walt Disney Studios, made the single best argument I’ve heard for why lockers might work:

> The exciting thing for content in the cloud is any consumer who has used an ATM machine should intuitively understand what it is now.

Her point is that just like you can go to any ATM and get your money, you should be able to watch your movies from any device, without worrying about the technology or the infrastructure behind them.

It’s a promising analogy.

While my mom steadfastly refuses to use ATMs, most Americans are comfortable with them. Every ATM is a little bit different, just like every DVD player is a little bit different, but the workflow is consistent: you put this in, you get this out.

Of course, readers old enough to remember early ATMs will recall that it wasn’t all smooth sailing. There were some mechanical problems with early machines, but the bigger issues were structural. Certain ATMs would take your card, others wouldn’t. Some banks had longer PINs. Sorting this out took years — but it got sorted out.

In a strange way, this history helps validate the ATM analogy: UltraViolet and similar ideas should be expected to have problems that require iteration to fix *just like ATMs*, but will eventually work great. Right?

Unfortunately, movies aren’t much like money.

Money is completely fungible. You don’t care which $20 bill comes out of an ATM, or how it looks.

You do care about movies. You can’t substitute one for another.

Despite the similarities, [Friends with Benefits (Timberlake)](http://www.amazon.com/dp/B00650SSWG/?tag=johnaugustcom-20) is not the same as [Friends with Benefits (TV series)](http://www.amazon.com/dp/B005G6L1NI/?tag=johnaugustcom-20), nor is it interchangeable with [No Strings Attached](http://www.amazon.com/dp/B004RC8NUQ/?tag=johnaugustcom-20).

Each time you click “play,” you expect to get exactly the same movie you purchased — and you want it to play at a good resolution for your screen, with good sound.

Audio and video problems are largely solvable by standardizing around formats that can scale based on device and screen size. Technically challenging, but do-able. (Apple does it fairly well today with movies sold through iTunes.) Some good news: the turmoil surrounding HD-DVD and Blu-ray should convince all parties involved how important it is to agree on formats.

I suspect they’ll agree on pixels and waveforms and overlook other crucial elements.

Standard but different
—-

The main reason ATMs are so easy to use is that every ATM is basically the same. Put in your card, then type in your PIN. Hardware varies — sometimes the keypad has physical buttons, other times it’s on the touchscreen. Software varies, with some banks organizing their menus differently. But once you’ve used one ATM, you can use any ATM.

For customers, ATMs are *standardized.*

For banks, ATMs are *differentiated.*

Manufacturers create different models of ATMs for different locations and uses, at different price points. Their customers — the banks — can pick which machines they want, with which features. Some features are user-facing (touchscreens) while most are important only to the banks (cash capacity, video recording, data management).

On the Variety panel, each of the studio reps stressed the importance of product differentiation. Remember: They’re marketers. It’s in their DNA.

Studios don’t want to just sell you a movie. They want to sell you more: special features, director’s commentaries, tags that let you share your favorite moments with your friends. They have a lot of ideas, many of which sound great. These enhancements would allow the studio to price the movie at different levels for different consumers, much the way special-edition Blu-rays command higher prices.

Device makers — the Sonys and Samsungs and Toshibas — also want to differentiate their products. They need to give you features no one else does, or else they’re simply competing on price. (And once they’ve sold you one UltraViolet player, they need to find reasons to sell you another in a few years.)

Differentiation allows choice. Personally, I want to be able to buy the director’s commentary. My brother probably doesn’t. I may prefer one manufacturer’s interface to another’s, or choose to buy a combo unit that can do more than just play UltraViolet movies.

With UltraViolet and its kin, we choose between hardware and software options based on our needs. In the ATM analogy, we’re more like banks than bank customers.

Standardization is good. Standardization makes things easier for the buyer: any of these products will meet my needs.

Differentiation is good. Differentiation allows buyers to get exactly the features they want: this product is best for me.

But standardization and differentiation are *competing forces.* You can only differentiate your product by moving away from a standard.

Differentiation inevitably makes things more complex: Which version of this movie should I buy? If I buy it, will it play on my TV? Will it play on this new phone I’m considering buying?

Today’s problems vs. tomorrow’s problems
—-

UltraViolet and solutions like it are designed to take away these nagging doubts — “Don’t worry! It will work!” And it should, for a while. The first titles will adhere to a narrow spec, and should play just fine on the limited hardware available.

Once you move beyond the pixels of a movie, you’re really selling software. Software is complex and prone to breakage.

Let’s say Disney comes out with a version of The Muppets that lets you Muppet-ize your Facebook friends. It’s fun, and works great on all the 2012 players.

Two years later, that title breaks on Sony’s 2014 model.

Who’s responsibility is it to fix that, and what is their incentive?

1. Should Disney fix it? They’re busy working on 40 other movies, and might not be able to fix it anyway. In all likelihood, the Facebook Muppets feature was subcontracted to an outside firm, which may no longer exist.

2. Should Sony fix it? How many resources should they devote to a patch for a two-year-old title from one of their competitors?

If you’re the customer who bought The Muppets, this experience may have left you dissatisfied and less likely to trust either Disney or Sony.

To me, UltraViolet is a chimera. It attempts to fuse together the permanence of DVDs with the flexibility of digital through the magic of the cloud. It turns studios into software developers. This seems foolish; they barely know how to make movies.

Five years from now, I don’t think we’ll be talking about UltraViolet. I don’t think it will work.

And in my cynical moments, I suspect the studios know it won’t work. They see it as a value-add to DVDs and Blu-rays — “includes free UltraViolet Digital Copy” — encouraging shoppers to keep putting discs in their carts. That may help prop up home video sales for a few years, so speaking as someone who derives income from DVD sales, I guess that’s a good thing.

But I don’t think UltraViolet will catch on with consumers. The amount of time and energy the studios will spend trying to make it work would be better invested in other business models.

Disney easily has the brand power to create something like HBO’s Go. Other studios would be wise to aggregate their libraries by genre: a subscription-based outlet for all the comedies of the last 20 years would be worth a lot to many viewers.

And while the studios are reluctant to cede too much power to Apple, Amazon and Microsoft (XBox), that’s where consumers feel safe buying digital content. Getting a movie through any of these services is as easy as using an ATM. Trying to duplicate this experience through digital lockers feels misguided.