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Hollywood and DVD:
The vast majority of marketable movie titles are controlled by a handful of movie
studios, collectively known as Hollywood. Naturally, getting Hollywood's support for
a new movie distribution format is a necessity, and Hollywood has been deeply
involved in the creation of the DVD standard.
The introduction of DVD has many implications for Hollywood: DVD has the potential
to change the balance between the rental and sell-through revenue streams, there are
copy protection and distribution control issues, and DVD offers some interesting new
mechanisms for charging consumers for the movies they watch.
Video Rentals and Sell-Through
Hollywood earns billions of dollars more from home video than it does from theatrical
ticket sales, so the Home Video divisions of the studios wield considerable influence in
Hollywood.
A few years ago, the standard wisdom was that consumers would rather rent than buy
movies, and the studios set the prices of films high as a result. Disney, however, has
proved that consumers will buy well-liked films if priced appropriately, and other
studios have followed suit. Today, movies priced for sell-though (consumers) retail for
about $20; movies priced for rental sell for between $80 and $90.
Hollywood would like to expand its sell-through business, but the market for
sell-through is extremely price elastic: a film that simply gathers dust on the shelf at $25
may fly off the shelves at $18. Since the cost of duplicating and distributing a VHS
tape is fairly high ($3.50), a movie must be a guaranteed block-buster before a studio
will price it for sell-through, because if a studio was forced to lower the price of a
movie to encourage sales, their margins would drop to unacceptable levels.
By lowering the cost of duplication and distribution to about $1, DVD can substantially
affect the sell-through model by giving the studios more price flexibility, without
lowering margins to unacceptable levels.
Pay-per-View
While DVD promises to lower costs, its digital nature offers options for generating
revenue that analog distribution formats cannot. The problem with VHS tape and laser
disc is that it is impossible to control who watches them or how often, whereas the
data on a DVD can be encrypted or scrambled, allowing the distributor to control
viewing.
For example, in a pay-per-view model, a consumer buys a DVD at a nominal cost,
perhaps less than $10. His DVD player is equipped with a modem and connected to a
telephone line. When the consumer plays the movie, the DVD player calls the
distributor of the movie, and the consumer's account is charged $2
There are several possible variations on this theme. Since a DVD can hold up to four
feature-length movies, it is possible to have the entire Indiana Jones or Star Wars
trilogy on a single disc. The consumer could buy the first movie of the series outright,
and then buy the other two via credit card from home.
It would also be possible to store other kinds of digital data on the disc with the movie;
for example, a movie-inspired computer game. Like the sequels discussed above, this
game would be encrypted. To play it, the consumer would call the distributor with a
credit card number and receive a decryption code in return.
Copy Protection
Because the video quality of DVD is very high, movie content owners are concerned
that counterfeiters will be able to either use DVD movies as masters for VHS tape or
simply copy the data on to another disc using a computer. By encrypting or
"scrambling" a movie when it is mastered and putting a decryption circuit in consumer
DVD players, digital copying can be prevented. In addition, DVD players can be
designed with a copy protection feature that prevents a movie from being copied on to
video tape without a severe degradation in quality. This feature does not interfere with
playback to a TV monitor. |
