Hollywood has its head in the clouds as studios try to figure out a way to future-proof one of their richest revenue streams: homevideo. Ironically, their answer is for consumers to own nothing physical at all, eventually eliminating the need to buy DVDs or Blu-ray discs.

While that isn’t expected to happen for another decade, studios say, Sony and Disney are leading separate charges to make sure the films and TV shows consumers buy on discs today can be played on any device they choose: DVD and Blu-ray players, videogame consoles, iPhones, iPads and other tablets, Web-enabled TVs and computers.

Titles would be saved and stored in a “digital locker” that can be accessed from any platform, creating a “cloudlike” scenario in which entertainment is available to stream or download anywhere.

To this end, Sony heads a consortium of studios, electronics-makers and retailers known as the Digital Entertainment Content Ecosystem (DECE) that will launch its UltraViolet system next year. Meanwhile, Disney is focusing on rolling out its inhouse technology KeyChest under the name Disney Studio All Access.

There are signs that another nasty format war could be heating up — one that could rival past battles such as Blu-ray vs. HD DVD and VHS vs. Betamax.

Both groups are quick to raise the flag of truce, however, with executives eager to stress the interoperability of their systems. Still, even if a new format war does not erupt, there remains a major challenge to overcome: making sure consumers aren’t confused by two digital storage offerings.

To overly simple terms, UltraViolet and Disney Studio All Access will essentially manage the various antipiracy technologies used by studios, device manufacturers and retailers, and make movies accessible across nearly every platform. A pic plays as a download or stream when a single agreed-upon key is used to unlock it.

Libraries of purchased movies would be stored online so that their digital file formats don’t become obsolete should a new technology be introduced. The files would just be converted to play on a new device that’s registered with the system.

In the past, various formats and digital rights management software made that virtually impossible, frustrating customers when a movie bought on Best Buy’s CinemaNow wouldn’t play on an iPod, for example.

UltraViolet’s designers said their system had to be flexible to make all of their partners happy and enable them to keep the digital rights management (DRM) they’re comfortable with.

“We didn’t want to force device manufacturers to put a single solution in their devices,” said Mitch Singer, president of UltraViolet and chief technology officer of Sony Pictures Entertainment. But for the consumer, “DRM has to be invisible (for this) to be successful.”

On the UltraViolet website, customers will be able to manage playback of their purchases and control the devices on which they play. At launch, UltraViolet will store only purchased movies, but there are plans to offer rentals as well. Music, ebooks and other entertainment content will eventually be added to the system.

Major omissions

Confusion is inevitable. It’s tough to talk about UltraViolet without bringing up the fact that Disney and Apple are not among the 60 companies that back the service — which many have said indicates lack of confidence in UltraViolet, given Disney’s strong brand identity and Apple’s dominance of the digital entertainment biz.

But Disney isn’t trying to be dismissive in its decision to go rogue; it’s just business. The company’s bottom line is dependent on the image the Disney name represents among its core customer base of families.

Keeping that in mind, Mouse House chief Robert Iger has been aggressive in aligning all the company’s divisions — from the film studio and TV networks to theme parks, gaming group and consumer products — to collectively target that audience with each high-profile property produced.

That includes homevideo. Disney Studio All Access will serve as a virtual library to store the digital copies of movies that come with the company’s DVD and Blu-rays, stream movies from VOD service Disney Movies Online and distribute films through the point-based Disney Movie Rewards program.

The Mouse House hopes that offering such a service will keep consumers from looking for illegal downloads of a single film to watch on a particular device.

“It’s an incentive to buy Disney content,” said Bob Chapek, president of distribution at Walt Disney Studios. “In an environment where you don’t have interoperability, the consumer is incentivized to get the content for free. If you have six devices, you’re not going to buy the movie six times. We’re creating an ecosystem where we’re encouraging consumers to purchase content legitimately rather than from a pirated site.”

The system will get a major promotional push next year, eliminating the KeyChest moniker.

Disney already has been quietly rolling out Disney Studio All Access and already counts 1.6 million entitlements — or films that individuals have set up to access digitally, mostly through their DVDs — but it has the capacity to expand to 20 million accounts “very rapidly,” Chapek said.

“Everybody who has been logging onto Disney Movie Rewards for the last five years (also) has a vault stored in the cloud,” he said.

Once the system is promoted, membership should increase significantly, especially as more people access their digital copies on discs. Nearly 20% of DVD and Blu-ray owners currently do so, Chapek said.

All Access did receive an early promo with the recent homevid release of “Toy Story 3,” which enabled buyers to stream the film on Walmart’s Vudu service and download the pic via the mega-retailer’s website.

Choice and freedom

Of course, UltraViolet was also designed to boost homevid sales.

“What we have found is that what’s keeping consumers out of the market today is that existing services are not giving them adequate choice and freedom to play the content on,” Singer said. “Consumers still want to collect and buy, but they’re uncomfortable with buying into a single platform. The consumer just wants to buy content and know that they can enjoy it in the future on any device that comes out.”

The Mouse House knows it needs to keep All Access open to every potential partner to keep customers happy.

“We’re big believers in offering interoperability, which is what KeyChest was designed to do,” said Iger during Disney’s fourth-quarter earnings call last week.

“When people buy a file in some form, if you give the ability to play that file on multiple devices or multiple locations, you’re creating more value for them, and I think lack of interoperability is a barrier or an impediment to growing digital media. We are not inclined to or expect to enter a format war over this.”

Iger has even said, “There’s actually a way that KeyChest can work with the UltraViolet platform.” For now, it doesn’t.

Said Bob Lambert, president of Technology and Strategy Associates and a former Disney exec: “The main, compelling reason for consumers to adopt UltraViolet is that it works everywhere. But that is not true at this point, because the Apple content — iTunes — doesn’t work that way, and Disney content doesn’t work that way. Until they can resolve that issue, they have a bit of a conundrum in terms of how to position this to consumers.”

Disney moved forward with KeyChest when it believed it could develop a system faster on its own rather than deal with the potential headache of having to work with 60 companies to come up with an agreed-upon venture.

“We all know what happens when you get 60 people in a room and try to get them to agree on anything,” Chapek said. “We didn’t have to get anyone to agree on anything. (KeyChest) is agnostic to business models, DRMs.”

Despite its large membership, DECE still has managed to build UltraViolet in less than two years.

“Everything we said we would accomplish this year, we’ve done,” Singer said, which includes agreeing on a company to build out its digital rights locker, specifications on how it would work and coming up with a single file format.

UltraViolet hasn’t discussed launch plans beyond saying it will be sometime next year. The service is conducting tests now.

“We set up DECE to be able to get past the logjams that have plagued other standard-setting activities that came before us,” Singer said.

Either way, the creation of a digital locker for movies was inevitable given how audiences are quickly getting used to accessing their entertainment on multiple screens.

“It’s a natural evolution of video distribution,” Singer said. “It’s a path forward to give consumers more flexibility and choice.”

Digital lockers were the hot topic this month at the Society of Motion Picture and Television Engineers’ annual conference in Hollywood, where James Baldwin, chief technology officer of Microsoft’s media platforms business, said: “If I can’t get the media I want on my iPad or TV in the home, I tend to frown on it now. We have to start thinking about entertainment being delivered to many devices.”

DECE’s members aren’t concerned that Disney and Apple aren’t yet officially on their side.

While Apple’s product lineup of iTunes, iPods, iPhones, iPad and Apple TV has established the company as the leader in digital distribution and mobile platforms, digital distribution represents only 4% of the entire home entertainment biz, Singer said. In order for it to grow, “we have to do something different,” he added.

“While Apple is very important, they’re the market leader of a very small percentage of the entire home entertainment market, and we have a lot of room to grow,” Singer said.

It’s only a matter of time before UltraViolet content winds up on Apple’s devices, considering that services like Netflix are appearing on Apple TV.

“It is starting to open up,” Singer said. “I think you can expect to see an UltraViolet app on the Apple platform.”

UltraViolet is also confident in how it’s been able to attract not only Sony, but the support of heavyweights Warner Bros., Paramount, NBC Universal, Fox, Lionsgate, Microsoft, Intel, Cisco, Motorola, Comcast, Cox Communications, Netflix and Best Buy; and hardware-makers like Motorola, Panasonic, Samsung and Toshiba.

“No matter who leads the charge, what Disney has done with KeyChest is fantastic,” Singer said. “And the work that the other studios are doing is exactly what consumers are looking for. The idea that all the studios are going down the path to provide ease-of-use is something we should be proud of. No one can call the studios Luddites anymore.”