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Digital HD proves key brand in selling more movies to consumers who never built up digital collections before

When Hollywood paired up with the consumer electronics industry and retailers to introduce UltraViolet two years ago, the digital storage locker was meant to encourage consumers to buy rather than rent movies online.

UltraViolet may still be signing up new subscribers, but studio home video divisions have thrown their weight being a new brand name — Digital HD — to grow their pot of digital dollars.

Every major screen and set top box on display at the Consumer Electronics Show in Las Vegas this week features the real estate for apps that can sell Digital HD titles at the click of a button.

Twentieth Century Fox, which came up with the name and has been pushing it hard with each new tentpole release, was able to rally studios around the concept of releasing digital versions of films for purchase two weeks before their DVD or Blu-ray hits retail shelves.

“The screen has become so valuable as a platform to sell movies,” said Mike Dunn, president of Twentieth Century Fox Home Entertainment and the only studio president on the Consumer Electronics Assn.’s Board of Industry leaders.

Consumers have found the titles attractive because of their price (usually around $15), early availability two weeks before a movie’s DVD or Blu-ray is released, access through most digital retailers, and easy playability on TVs, cable boxes and mobile devices.

While Fox has found that Digital HD is beating comparable titles by over 100% (“The Wolverine” is its biggest seller on the format to date), and overall industry electronic sell-thru sales rose 49% through the end of the third quarter to $764 million, according to the Digital Entertainment Group, the more noteworthy number is who studios are reaching with the titles.

After years of declines, “the business has flattened out over the last two years,” Dunn said. “The progress we’ve made in the last year has been dramatic. We’re at a point of a new kind of digital renaissance right now. Digital HD is already meaningful; it’s the real deal.”

Around 35% of Digital HD customers have never purchased a digital version of a film before, Fox said, with the studio estimating that there are 40 million consumers who are digitally active but have never started a digital collection of films.

There are signs they’re now starting to make the move to digital. At last count, digital sell-through of films grew around 50% over the past two quarters for Fox, with other studios seeing similar results.

That’s only good news for divisions at studios that have long lamented the decline of the once powerful DVD, and as a result, a major moneymaker. And Fox and its counterparts are only optimistic looking forward given the amount of digital devices consumers have embraced at home and on the road.

But Hollywood still has more work to do.

Each Digital HD title still needs to be marketed, and while studios are saving money with campaigns that live mostly online (where the target buyers are), the efforts must still capture consumers’ attention.

“The Wolverine’s” Digital HD release was pushed across the Internet and on every social media platform, but also at McDonald’s and on Microsoft’s Xbox One, as part of a contest.

SEE ALSO: ‘The Wolverine’ Helps Hype Digital HD at McDonald’s, on Xbox One

“The challenge is to make the marketing effective and deliver the results on the day that you need to get people out there,” Dunn said. “ITunes, Amazon, Target Ticket, Comcast, they have the same metrics as a movie theater would. If the movie performs, they get behind it even more. If it doesn’t perform, (the title) is moved to the side.”

That’s not to say studios have given up on UltraViolet.

“It takes time for consumers to understand the digital ecosystem,” Dunn said. “They start to collect more movies as it becomes a no-brainer for them.”

Wrapping their minds around what UltraViolet actually does for them was hard, however. The name doesn’t explain much of its functionality. There also have been technical issues, and the lack of support from Amazon, Apple and Disney only has held its growth back further.

“UltraViolet is a benefit to a consumer that has a robust collection of films,” Dunn said. “The majority of our consumers have two to four movies in the cloud. As their collections get more robust UltraViolet will be more relevant to them.”

Dunn admits that UltraViolet may have launched too early and likely won’t be a major factor in increasing home video sales until 25 million or more accounts have been set up. There are now around 15 million registered households, with the average account storing 4.5 movies, UltraViolet’s managers say.

“The industry set expectations that this would revolutionize the world in a year,” Dunn said, “but you have to remember that everything needs to start with the consumer. Sometimes you get a little ahead of the consumer.”

But Dunn adds, “there’s no harm in making sure that you’ve built the infrastructure to satisfy an expert consumer.”

Still Digital HD is where many studios see growth ahead.

First, however, they need to convert more subscribers of streaming services to buyers of digital titles.

Nearly 80% of the content that is watched through streaming services like Netflix is done through a television, Fox found, making the viewing experience comfortable.

For Digital HD, however, a majority of the films purchased are viewed on mobile devices, given that the retailers selling them are typically used on tablets, like Apple’s iTunes.

The trick is getting more cable providers to sell Digital HD titles the way Comcast saw significant sales for “Despicable Me 2″ during the fall when it made the toon available early. Comcast stores purchases in the cloud, similar to UltraViolet, and enables films to be accessed on mobile devices.

“Those sales numbers have been extremely positive,” Dunn said.

Apple TV also has promoted Digital HD through its set-top box, Target has launched its Target Ticket service, and new app-filled video game consoles from Microsoft and Sony do the same. The consoles had been used to sell movies before, but “early sales were positioned to a gamer,” Dunn said. What the devices are now entertainment hubs “that will be a big boost to our business.”

“As more over-the-top apps like Vudu and Amazon are placed on smart TVs, you’re going to see more content delivered to the television,” Dunn said. “That will be a huge leap forward in this business model.”

The introduction of more family titles has increased demand among a new demo of buyer.

“The family titles have started to penetrate,” Dunn said. “Once you start to get the family business going you have mom involved. That’s historyically been the critical gatekeeper and driver of major purchases for libraries. Once mom sees the benefits, you’re in good shape.”

Adding more interactive features has also been key and is seen as critical in differentiating the purchases from a rented file.

Digital HD also has more room to grow overseas, where just 30% of Digital HD transactions take place. That’s expected to change as Apple’s iTunes promotes Digital HD titles overseas, and Amazon sets up shop in more foreign markets. Local service providers also are starting to promote the format, with Fox having recently enlisted local online retailers and cable providers in Switzerland, for example, to embrace Digital HD.

“When you see local guys get in, it will change the landscape dramatically,” Dunn said.

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