There is No Money in Online Movie Downloads

19 01 2007

OK, maybe the headline should rather be There is No (BIG) Money in Online Movie Downloads.

I’ve watched with rapt attention as there have been some rather big announcements as NetFlix introduced its WatchNow feature. TechCrunch thinks it’s a great move and sings its praises as competition to the current IPTV players. GigaOM illustrates the delusions of grandeur that the announcement conjures are not founded in the least. Its gotten quite its share of media play in the past few days.

Kudos for an impressive if not partially clunky offering that is free with subscription not withstanding, there are some major problems with the business model of online movie downloads. My apologies if some of these are repetitive to you:

  1. Movie studios do not have a major impetus or incentive to move significantly and swiftly to digital downloads. The DVD business is a lucrative business that has really changed the dynamics of the movie business. Movie piracy is a different beast than music piracy if only for the sheer size of the download. You can’t make a direct comparison between the two. Downloaded MS Office lately? The revolution has happened with open source software and web-based software, not huge multi-CD, multi-file downloads. Whether it’s a digital downloads for purchase or rent, you still face the studios’ resistance to a model with lower payoffs to them.
  2. Consumers are not willing to pay $15 to $20 to download a movie. Couple this with fact #1 and you’ve got a major problem. Michael Greeson points out that “less than 13% of consumers would respond positively to such an offering” based on field research.
  3. DRM. Complicated DRM schemes are just a mess that further lowers the implied value of a movie download.
  4. Competition between Apple, Amazon.com, NetFlix, Movielink, CinemaNow, cable providers, YouTube and more. Competition will cause pricing pressure on these providers. The studios will ultimately pocket more, but they’re ultimately going to be resistant for reason #1. Just like iTunes is reliant on iPod to produce profits for Apple, these movie providers will find their profits elsewhere – for Apple, they just need to sell more iPods/iPhones/AppleTVs. So far, there is no Purple Cow in this group of providers.

Who wins? Well, independent producers win, but we already know this with the phenomenal success of YouTube. I think whoever can produce a great VOD product can eke out wins, most likely this is on the cable companies. Consumers do win – they get more choices on how they want to get their content.

There’s a natural order that will sort these things out and eventually things will settle on a model that works. But it will take longer than expected and many will get burned (as GigaOM also points out).

Style, panache and service produces the value-add, the marketing punch and ultimately profits. It’s why classy independent video stores can survive and win and, honestly, it’s what we think can make iLetYou a destination site for movies with a dash of personality. There’s no profit in bits – whether those bits are delivered digitally or on disc.

What are your thoughts on online movie downloads?

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19 01 2007
The Rental Economy » Why an Independent Store Rules

[…] Independent Store rules because it provides more than bits (I’ve written a blog post on my personal blog about this as […]

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