Disney plan could alter rules of biz

Hollywood’s homevideo divisions have their heads in the clouds.

With DVD sales declining and Blu-rays still trying to find a mass audience, studios are constantly searching for The Next Big Thing. The Mouse House thinks it may be Keychest, a system that will offer consumers access to movies anywhere, anytime.

The concept is not entirely new, but if it succeeds, it could mark fundamental shifts in the biz’s marketing, distribution and pricing of films and rival studios (many of which are working on a similar system) are carefully watching Disney’s progress.

The system allows consumers to “own” a film or TV title, but they don’t own anything physical at all. While studios currently sell downloads of movies and TV shows, they would instead sell subscriptions to access digital libraries.

Walt Disney Home Entertainment is working on technology that uses the “digital cloud” principle, which will let buyers pay one price for permanent access to movies or TV shows that are never downloaded — but are always accessible via a wide variety of devices, including cell phones, cable services, PCs and web-enabled Blu-ray players.

Consumers would access the content by purchasing a digital “key” or password.

The Mouse House hasn’t disclosed how whether the pay structure would involve per-transaction fees or a monthly fee that provides access to unlimited content. It also predicts that it won’t provide significant revenues until five years down the road.

However, as a possible clue to revenue potential, Disney has long touted the millions it makes from selling movies and TV shows through Apple’s iTunes as more profitable than the DVD biz because there’s nothing physical to produce.

Walt Disney Co. chief Robert Iger has a history of experimenting with distribution and pricing methods.

He had theater owners up in arms in 2005 when he introduced the idea of eliminating the window between theatrical and homevideo and wanting to sell DVDs in movie theater lobbies as the film is playing on the bigscreen.

“We are spending too much time chasing box office (dollars) and we are waiting too long to enter the next window,” Iger said at the time.

Over the years, he’s never given up on the idea of an ever-shrinking window, saying that releasing DVDs sooner will boost their appeal and “keep the DVD business vital.”

“Things in demand and viewed as successful and great can lose their luster quickly because so much more is released into the marketplace every day,” he said. “The press to move the DVD window up, be it physical or digital, will grow because of that phenomenon.”

During the company’s quarterly announcement in February, Iger said the studio would reduce the number of DVDs it releases and rethink how it markets and packages them because consumers were moving to other forms of home entertainment.

“When the economy rebounds, the ‘normal’ we see is not necessarily going to be the ‘normal’ we were used to,” he said after announcing a significant drop in DVD sales.

Consumers can currently only watch downloaded content on single devices. But when a consumer gets the Keychest password to “The Lion King,” for example, the viewer could start watching the film on his laptop, be able to switch over to a TV, then view the finale via a mobile phone.

While digital is seen as the future, it can’t yet compensate for the sharp drop in DVD sales. Analysts don’t expect that to change until digital pics are as easy for consumers to access and watch on devices as a DVD is today.

The new system could also alter the one-price-fits-all structure. When dealing with iTunes, Iger hasn’t been opposed to charging less than the DVD retail price because of the greater profit margins. He could charge more for classic animated toons, considering they have to be fully distribbed across digital storefronts. An April deal to buy a stake in Hulu and deliver content on the site did not include Disney’s older animated films.

Disney’s Keychest initiative comes nearly a year after other studios banded together for the Digital Entertainment Content Ecosystem, an effort to develop a digital standard so that consumers can play digital movies back on virtually any digital device. The difference with Keychest is that the media uses the formats already in place on websites, while DECE wants to introduce new formats and standards.

Disney is the only major studio not taking part in DECE. Apple, whose Steve Jobs is Disney’s largest shareholder, is not a DECE member either.

But Disney intends to make content available through a much broader range of devices.

An executive at one digital movie service said Keychest seems to be an attempt to address the same problems that DECE was created to solve, and could end up being a competing format, reminiscent of the HD DVD vs. Blu-ray format war.

But some services already offer more limited versions of Keychest. Amazon, for example, stores downloads through its Amazon Video on Demand service in a digital locker so that consumers watching on a PC never have to download a copy of a film or TV episode to their computer. CinemaNow has also said it plans to move to a cloud model.

Time Warner has been developing its own TV Everywhere business, where consumers subscribe to access movies and TV shows produced by its various divisions.

Iger has long felt that digital will play a major role in changing the way consumers watch movies and has kept an eye on ways to prepare for an age when they’re no longer interested in buying libraries of DVDs or Blu-rays.

In March, he cited a study mentioning how 80% of consumers aged 13 and 24 consider their computer more of an entertainment device than their television, and as a result, said Disney was considering creating a subscription-based movie and TV rental service that could be accessed via the mail, like Netflix, or through downloads.

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