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Studios’ digital dreams face marketplace realities

CES Daily Spotlight: UltraViolet

On Jan. 24, Paramount Home Entertainment will do something it has never done before.

The studio unit — which over the years has issued movies for the home market on physical media such as VHS, DVD and Blu-ray — will release the hit horror film “Paranormal Activity 3” not only as a Blu-ray/DVD combo, but also via the UltraViolet cloud-based digital library system.

This is Paramount’s first UltraViolet release, but it joins a slate of 28 similarly released entertainment properties from the homevid divisions of Warner Bros., Sony Pictures and Universal that have already been released or will be by mid-March.

The UltraViolet digital rights library system was created and championed by the Digital Entertainment Content Ecosystem (DECE), a consortium of more than 75 companies, including the four aforementioned major studios as well as consumer electronics manufacturers, big box retailers and technology and video service providers.

Warner Bros. released the first UltraViolet titles — “Horrible Bosses” and “Green Lantern” — in October, and DECE has announced the launch of UltraViolet in the U.K. with the Warner Bros.’ “Final Destination 5” as the first title for that market.

“We are at the very, very beginning (of UltraViolet),” says DECE president Mitch Singer, CTO of Sony Pictures, who notes that the only existing service for accessing UltraViolet content is Warner Bros.’ Flixster app for the PC and Mac platforms and devices. “You could almost consider this a beta launch.”

Plans for the coming year include the roll-out of UltraViolet in Canada and other still unidentified territories, as well as the introduction of a common file format for downloads, making functionality consistent across all UltraViolet retailers.

Rumors have swirled that Amazon may declare its support for UltraViolet at CES, with a plan to let consumers pay 99 cents to convert a DVD or Blu-ray they own into a digital copy stored online.

Many DECE members are tight-lipped about their UltraViolet announcements. “It’s a hyper-competitive market,” says DECE general manager Mark Teitell. “Of the 75 companies in the consortium, about half of them are keeping quiet. Companies launching UltraViolet in the near term will be pioneers.”

That sluggishness in getting on board is a chief obstacle to UltraViolet’s development: no manufacturer, retailer or provider of download and streaming services has yet unveiled plans to integrate UltraViolet.

For Screen Digest analyst Tom Adams, the near-term priority is to get Best Buy, Vudu, Blockbuster and any other DECE member that already have a relationship with the consumer to launch in 2012, so that by next Christmas the consumer sees that UltraViolet is real. “I can guarantee you the studios are pushing very hard for them to do just that, and pushing the holdouts that haven’t embraced the standard,” Adams says.

But there’s another issue that could trip up UltraViolet. For studios, UltraViolet is a way to add value to DVD and Blu-rays, with the hope that sales of packaged media will cease its downward spiral. But what UltraViolet offers so far — a digital copy — is something that consumers have shown little interest in.

Adams reports that redemption rates of “old-style digital copies” ran up to 25% for the biggest titles but averaged in the mid-teens — not compelling numbers. BTIG analyst Richard Greenfield adds that pricing of UltraViolet digital files vis-a-vis rental prices is key. “UltraViolet is all about the value of ownership,” he says. “You can reset interest in ownership if it costs $9 vs. $5 to rent. But if a Blu-ray disk or digital file costs $20, it’s a challenging proposition.”

DECE members also have to re-educate consumers who’ve had bad experiences with digital downloads.

“We thought digital direct-to-consumer would be a huge business, but it’s been relatively flat,” Singer says. “Consumers didn’t want to download content because they thought it would fill up their hard drive and crash it. They were concerned they wouldn’t be able to share content on different devices and there was no way to aggregate their libraries.”

To dispel fears and get the UltraViolet message across, participation of the big box stores and streaming services is crucial since they’ll be heavy lifters when it comes to consumer education. So far, they don’t appear to be rushing in. “It doesn’t seem that anyone is terribly interested,” says Greenfield.

Sony Pictures Home Entertainment exec VP John Calkins notes that studios will set UltraViolet prices and that, when it comes to marketing UltraViolet, Sony anticipates that “the retailers will look to the studios to refund some marketing costs and to help work with them on in-store collateral or programs that will get the right message across to the consumer.”

Building a so-called ecosystem and promoting it while it’s under construction is difficult. SNL Kagan analyst Wade Holden believes the idea of UltraViolet is headed in the right direction. “I can’t help but think that consumers will be excited about accessing content anywhere, on any device,” says Holden. “For the tech savvy people who are the head of this wave, UltraViolet is what they’ve been waiting for.”

The question is whether the studios can exert enough pressure on the other DECE members, and entice other key players to join in, so they can build the momentum necessary to create a truly cloud-based digital content library system.

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