UltraViolet to Launch Midyear With Rentals now on Roadmap

Mark Teitell, GM & executive director, Digital Entertainment Content Ecosystem

Mark Teitell, GM & executive director, Digital Entertainment Content Ecosystem

January 10, 2011 – Hollywood studios are intent on breathing new life into electronic sales of movies to the public through the new UltraViolet platform when it launches this year, but to the extent the cloud-based purchasing and distribution system succeeds at drawing mass market participation, it could be a disruptive force in media rentals as well.

Studio and other executives representing companies that are members of the fast-growing Digital Entertainment Content Ecosystem (DECE) consortium made clear at a Consumer Electronics Show news conference in early January that their focus is on using UltraViolet to reverse the falloff in DVD sales via electronic sell through. While individual studio efforts along these lines initially showed promise, the inconvenience of the current mode of download-to-own requiring consumers to deal with multiple accounts and multiple formats prevented digital distribution from catching fire with the public, noted Mitch Singer, DECE president and CTO of Sony Pictures Entertainment.

Sales through digital distribution rose by 130 percent in 2008 when early adopters were driving the market, but the gains fell to 40 percent in 2009 and 30 percent last year, Singer said. “We realized we had to take another approach,” he added.

With growing urgency over the need for a digital solution that would resonate with consumers, DECE in 2010 stepped up efforts to build a system that allows consumers to set up a single account to buy media from all member companies and to access purchased content anytime anywhere from consumer-owned or cloud-based storage. Now, with completion of the technical specifications, licensing terms, accounting system and other core components essential to commercial launch, UltraViolet is ready for prime time, said Mark Teitell, general manager and executive director of DECE.

“By mid 2011 for the first time consumers will see UltraViolet content for sale online and off line,” Teitell said. In this first phase, devices that can readily access the content in the UltraViolet format, including PCs, smartphones and tablets, will be able to download purchased content or stream it from the cloud. “By early 2012 some types of devices like connected Blu-ray players and TVs that require firmware adjustments to use the platform will work with UltraViolet out of the box,” he added.

The system at this point has been set up to accommodate just the buy-to-own model, but in future iterations the accounting capabilities will be expanded to allow members to offer pay-per-view or other rental modes, Teitell said in an interview following the press conference. “You need both models,” he said. “Rental can encourage purchases, because people who really like something they rent say, ‘I want to own that.’ By giving them access to rentals and ownership through their UltraViolet account, we can make the transition from rental to purchase much more convenient for consumers, which should benefit both sides of the business.”

Whether or not studios themselves will come to see things this way remains to be seen. When asked in an interview whether the rental model was of interest to studios, Peter Levinsohn, president for new media and digital distribution at Fox Filmed Entertainment, replied, “No. Ownership needs to be distinguished from rentals. For us, UltraViolet is meant to support sales of movies to consumers. This is the business we want to build up through digital distribution. We support rentals through VOD and various online services, and we intend to keep that separate.”

But, as Steve Oetegenn, chief sales and marketing officer for DECE member Verimatrix observed, “The whole world is going to the unicast model of content delivery. When things go fully unicast, UltraViolet will have to change from download to own to support for on-demand as well.”

If, indeed, UltraViolet succeeds in building a mass market base for electronic sell-through as an alternative to DVD purchases, the implications of a move to making rentals available on the platform could be far reaching. The efficiencies associated with having a set content format and security options that conform to the rigorous premium content protection requirements established by DECE, not to mention universally adopted authentication and transaction recording mechanisms, could be game changers for providers of TV Everywhere and VOD services – for good or ill, depending on their ability to add value and differentiate their offerings from all the other players offering content through UltraViolet.

With digital sales at just $683 million compared to $1.8 billion in VOD revenues, press conference moderator Dawn Chmielewski, a reporter with the Los Angeles Times, noted the electronic sell-through market has a long way to go to catch up with electronic rentals. While studio executives left no doubt they are determined to drive digital sales, they were reticent about timing, pricing and other aspects of their offerings.

Asked how UltraViolet would turn the DVD sales slump around, Sony Pictures Home Entertainment executive vice president John Calkins replied, “UltraViolet gives us the ability to make purchasing content a better experience than what consumers have today with rentals.”

Added J.B. Perrette, NBC Universal president for digital and affiliate distribution: “There’s a massive desire to purchase movies, but the capacity to store them is constrained in people’s homes.” Access to purchased content in the cloud will expand the market, he said.

While the membership in DECE has risen to over 60 companies, including six of the top seven studios, the absence of Walt Disney Co. and Apple from the mix has prompted skepticism in some quarters that the platform can achieve universal appeal. But, where Disney is concerned, despite a considerable investment in its Keychest sell-through platform, it’s hard to imagine now that DECE has achieved industry-wide acceptance that Disney will want to remain an “out rider,” Perrette said. “You have one versus everybody else, and I like this side of the bet. I think they will come on board at some point.”

As for Apple, the firm’s absence from the DECE party won’t impact people’s ability to access UltraViolet content on Apple devices, Perrette noted. “On the hardware side, there are no impediments to someone with an UltraViolet account buying and accessing content on all sorts of Apple devices,” he said. “On the service side, Apple has been incredibly successful with digital music. But in the same way we’ve struggled with selling video content, they’ve also struggled.”

Industry strategists view the ability to provide multi-device access to content purchased with consumer electronics gear at retail stores as a potential sales tool for manufacturers and retailers. Through access to the UltraViolet cloud storage, buyers will be able to experience the content on their new devices at the point of sale, noted Chris Homeister, senior vice president and general manager for Best Buy’s home entertainment group. “It works before they leave the store,” he said.

At CES, Akamai, a member of DECE, demonstrated a prototype of the mode of distribution to be used with UltraViolet with emphasis on how its CDN (content delivery network) services will benefit retailers. “One key facet of UltraViolet’s open-specs design is the ability for world-class infrastructure and B2B service providers like Akamai to accelerate retailers’ deployments with premium-quality enablement and delivery on a cost-efficient basis,” Teitell said.

The cloud-based authentication service and account management hub that supports consumer rights access to their digital entertainment will be provided by Neustar, which supplies domain name server solutions for the Internet and provides authoritative databases for virtually all telephone numbers and area codes for the U.S. and Canada. The Neustar service will authenticate rights to view content from multiple services with multiple devices as well as manage content and registration of devices in consumer accounts, said Neustar president and CEO Lisa Hook.

“Our technology sits under all providers,” Hook said. “It’s the central repository that provides the infrastructure to allow consumers to access content whenever they want to.” DECE will provide an open API (application programming interface) that allows any Web-enabled storefront, service or device to integrate access to the digital rights locker into its own consumer offering.

Another core component that sets UltraViolet apart from previous modes of digital distribution is the common file format, which will allow content providers to encode and encrypt one file type in portable, standard and high definition for multiple vendors. CDNs will not have to store different file types to accommodate retailers’ varying needs, Teitell noted. “A content file accessed by a consumer on Wi-Fi, for example, whether from home storage or the cloud, will be delivered to whatever device is in use,” he said.

As for the security component, so far DECE has certified five DRM suppliers for provision of the premium-level content protection required for digital distribution of films and other early window content in HDTV 1080p and other resolutions. These include Adobe Flash Access, CMLA-OMA V2, the Marlin DRM Open Standard, Microsoft PlayReady and Widevine, which was recently purchased by Google. Other suppliers are in queue for approval. Compatibility with multiple DRMs will ensure that content can be played back via streaming or download on a wide variety of services and devices, officials said.

The inclusion of Marlin marks another step in the efforts of that standard’s founders, including Panasonic, Philips, Samsung Electronics, Sony and Intertrust Technologies, to encourage wider use by manufacturers and content providers. Marlin recently gained new traction with the decision of the U.K. Canvas Project to use the technology as the common protection mode for all content distributed through the group’s new YouView video store. YouView will aggregate and deliver on-demand content from the BBC, Five, ITV, Channel 4, BT, Arqiva and TalkTalk to connected TVs running the BBC iPlayer client software.

“We’re probably the first DRM/conditional access supplier to modularize with Marlin,” says Verimatrix’s Oetegenn. “We felt we needed to support it, because it is drawing fairly widespread interest in markets outside North America.”