transitioning from physical to electronic content delivery

Copyright ® 2011 Rovi Corporation

Jim Taylor

Chief Technologist, Rovi Corporation

MEDIA-TECH Las Vegas, March 2011

Transitioning from Physical to Electronic Content Delivery


The Evolution of Home Content Delivery


Video Audio

From VHS tapes and vinyl LPs…


Video Audio

...to CDs, DVDs, and BDs…


Video Audio

…to bits over the Internet.


From shelves …


…to kiosks and mail order…


…to virtual storefronts.


Trends


Consumer Spending

Source: Screen Digest


Digital Content Spending

• Among US consumers spending money on mobile music or books, digital content is closing in on 50%

- Music downloads: $13.31

- CDs: $17.94

- E-book downloads: $15.34

- Paperbacks: $20.23

― Source: Bango TNS Omnibus Survey, January 2011


Mobile Video traffic

• Mobile video traffic will exceed 50 percent for the first time in 2011.

• 2015 global mobile data traffic (75 exabytes) will be equal to 19 billion DVDs.

– Cisco Systems


Web-Connected TVs

• Worldwide broadband-enabled TV households will grow from 130 million in 2009 to over 360 million in 2014.

• Active connected TV households will grow from 40 million (30%) in 2009 to 170 million (44%) in 2014.

– TDG


Streaming TV

• 180 million users (85% of all US Internet consumers) watch online video each month

- 200 videos per person and around 13 hours per month.

- Why watch TV on Internet? • 70% - missed TV episode

• 57% - convenience

• 56% - watch old episodes

• 42% - less advertising — Comscore

• Number of people streaming a TV program increased to 41% in Q4 2010, up 3% from the same period in 2009

— Interpret


Streaming Movies

• Netflix hit 20M subscribers in Jan 2011 and is passing Comcast (23M) to become the #1 video subscription service in the US

- One third of new subscribers choose $7.99/month streaming-only plan

- Netflix’s share of movies downloaded or streamed reached 61% between January and February 2011, followed by Comcast at 8%, and a three-way tie for third at 4% among DirecTV, Time Warner Cable, and Apple

• For comparison, Pandora has 75 million listeners

—NPD


Will Packaged Media Die?

• Yes …

• … but not nearly as soon as pundits say.

• Music downloading began around 1995, and it has taken 15 years for it to account for half the revenue of CDs


Bits on Discs Bits in Clouds

1980 1990 2000 2010 2020 2030

CD

DVD

BD

Online music

Online movies


Online Video is Hot

• But…

• It still represents a fraction of home video revenue

• Few companies are making money on it

• Electronic sell-through (EST) and rental (replacements for DVD and BD) lag far behind subscription

- Although low subscription prices may be unsustainable


Barriers to Success of EST

• Fragmented and incompatible solutions - iTunes, Xbox, PlayStation Network, CinemaNow, Vudu, etc.

• Reliability and ease of use vary wildly

• Consumer perception of high prices

• No disc-like experience -Menus, chapters, extras, subtitles, audio tracks, interactivity


Packaged media is still king. What can steal the crown?


The Digital Locker

Buy Anywhere. Play Anywhere.


DECE/UltraViolet

• Global brand for digital content, similar to DVD and Blu-ray

• Centralized rights locker for multi-user accounts to purchase content from many retailers for download and streaming to many devices, plus physical media options

• Standards to facilitate participation of content providers, retailers, DSPs, DRMs, and devices

• 70+ member companies


Comparison

Blu-ray UltraViolet

Author Encode, author, AACS

($/title)

Encode, package, encrypt

($/title)

Produce Replicate ($/disc) N/A

Distribute Ship, warehouse, return Files to DSPs

“Shelf space” Shrinking Unlimited

Purchase Disc in store or by mail “Rights” in store or online

Rent Disc in store or by mail Not yet

Watch instantly Not possible Stream or download

Watch (offline) Blu-ray player UV player; must download first

Quality HD, multichannel audio HD, multichannel audio

Extras Extensive Not yet

Online updates BD-Live Not yet

3D <100 titles Not yet


Delivery Chain

Produce Distribute Sell Play

Packag

ed


Delivery Chain

Produce Distribute Sell Play

Packag

ed

O

nlin

e


Delivery Chain

Packag

ed

O

nlin

e

Multi-format authoring

DVD/DVD conversion

Manufacture on

demand (MOD) eCopy


Delivery Chain

Packag

ed

Manage Assets

Encode

Author

Master

Replicate

Duplicate

Distribute

Warehouse

Return

Display

Package


Delivery Chain

Packag

ed

O

nlin

e

Manage Assets

Encode

Author

Master

Replicate

Duplicate

Distribute

Warehouse

Return

Display

Package

Manage Assets

Encode

Author

“Master”

Distribute

Display New formats

CDN

(direct to consumer)

Virtual storefonts


Conclusion

• It will take more than a decade to shift mainstream from physical media to online

• Technology transitions take much longer than most people think

• Consumers are crossing the same bridge -DVD and BD players won’t disappear (consider in-car DVD)

• Online delivery is growing fast but is still a niche


Change Happens

• Embrace or be extinguished -Consider the effect of laser printers on printing business

• The industry will change, but content will still flow

• Physical and online will co-exist

• Plan for a tough transition -Survive at the top of old businesses

-Ramp up new businesses

-Become a co-dependence enabler

transitioning from physical to electronic content delivery

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