MSOs May Give UltraViolet Early Traction

Brad Hunt, president, Digital Media Directions

Brad Hunt, president, Digital Media Directions

May 26, 2011 – New strategies taking shape among cable MSOs looking to benefit from the soon-to-launch UltraViolet platform could add much-needed marketing clout to the Hollywood-backed approach to selling movies electronically.

Operators aren’t speaking publicly about their intentions, but conversations with industry figures point to mounting conviction that UltraViolet represents a way for cable companies to include support for buying and accessing movies as a complement to an ever-more-buoyant VOD rental business and a boost to nascent TV Everywhere (TVE) strategies. “There’s a lot of discussion among UltraViolet stakeholders about the role of service providers,” says Brad Hunt, president, Digital Media Directions, LLC, a consulting firm with close ties to the Digital Entertainment Content Ecosystem consortium that’s spearheading UltraViolet.

UltraViolet provides an authentication service and account management system that allows consumers to access content from multiple registered devices over multiple service outlets operating on broadband and mobile networks. Once they have an UltraViolet account, consumers can purchase any content from an UltraViolet supplier with assurance they’ll be able to access it wherever they are.

As explained by Hunt and others, cable operators and other providers of subscription TV services will be able to acquire licenses from individual consortium members that allow them to stream movies and TV shows to subscribers who are authenticated as owners of that content in their accounts on the UltraViolet Digital Rights Locker. DECE is providing an open API (application programming interface) that allows any Web-enabled storefront or service to integrate access to the digital rights locker into its own consumer offering.

This would add to the convenience of ownership for cable subscribers, compared to UltraViolet members who don’t have access to such services. For the cable service subscribers there would be no requirement that end devices be equipped to work with the UltraViolet file format or UltraViolet-certified digital rights management (DRM) systems, so long as the operator’s conditional access or DRM system meets content suppliers’ protection requirements.

This opens a path for subscribers who don’t own Blu-ray players to access high-quality HD versions of their purchased content on their TV sets. And it would allow those subscribers to access content on devices served by the operator’s TVE platform, whether or not those devices were UltraViolet certified.

Moreover, the ability of cable subscribers to stream content they own that’s hosted on MSO servers overcomes the absence of a universal streaming profile within the UltraViolet format.  In the initial going the UltraViolet format will support progressive downloads to devices in a uniform manner but leaves it up to each distributor to stream in whatever streaming format is supported by the targeted device. Cable operators and other big distributors are equipping themselves to accommodate the chaotic streaming environment.

As with all concepts that look good conceptually, the question comes down to what the licensing terms will be. “We see some real upside for us,” says a senior cable executive, speaking on background. “But the benefits to the studios, given their need to push UltraViolet as the universal EST (electronic sell-through) platform, are potentially much greater when you look at where they’re at coming out of the starting gate. So it comes down to what’s our piece if we’re going to put our marketing muscle behind it?”

On the other hand, cable might need the UltraViolet tie-in more than some people realize, given the growing competition from Web-based movies services. Netflix is gaining access to earlier release content in deals with various providers. Amazon through its Instant Video service gives users multi-device streaming access to movies or TV shows they buy or rent. Google’s YouTube is reported by the Wall Street Journal to be negotiating with studios to expand its on-demand play with newer movies.

By helping to drive consumer adoption of the single-account concept and greatly expanding the convenience of cable subscribers’ access to their UltraViolet purchases, cable operators would be creating a value-add that raises the bar against these other players. The real question for all sides is just how much value will users see in the ability to buy content over EST outlets when rental release windows are getting ever shorter and no one knows whether the habit of building personal video libraries will transfer to the non-physical realm of a cloud-based library.

DECE, which has not announced a launch date for UltraViolet other than to say it will be midyear, will market UltraViolet-labeled movies and TV shows for purchase through affiliated retail outlets, Web sites and kiosks. The studios are counting on the single-account convenience and multi-device accessibility to cloud-stored content to reinvigorate digital sales in the wake of the slowdown in DVD purchases, which in 2010 grew at an anemic rate of 30 percent compared to 130 percent in 2008. And 2011 is looking worse with the Digital Entertainment Group reporting that first quarter sales of home entertainment packaged goods such as DVDs and CDs, at $2.08 billion, were down 20 percent from a year earlier.

Retailers, who hope to leverage UltraViolet to help breathe new life into Blu-ray player sales as well as to add incentives to connected device purchases, are seen as key to getting consumers engaged with the EST concept. One possibility would entail offerings of free movie disks tied to UltraViolet accounts with Blu-ray player purchases. The pitch will be that the buyer and up to five other family members who are part of the buyer’s household account can access the movies on any UltraViolet-certified device.

But because they’ll only be able to purchase and obtain the content for local storage from the cloud via progressive download, they won’t be able to purchase and download content on storage-deprived connected TVs, notes Albhy Galuten, vice president for digital media strategy at Sony Network Entertainment “Connected TVs work with streaming but not download,” Galuten says. “Smartphones, gaming platforms, PCs – they’re all capable of receiving UltraViolet content.” Of course, users will be able to stream the content to connected TVs once they have purchased the content in conjunction with a distributor providing cloud storage support.

But, whatever the device, the timing on when users can make direct purchases for downloads will depend on whether devices are equipped to adapt to the UltraViolet file format via software downloads or will have to be adjusted at the factory. “There are not a lot of devices that can play that file,” Hunt notes. That includes Blu-ray players.

The picture should start to change in 2012, says Wendy Aylsworth, senior vice president of technology at Warner Bros. “There’s a wide array of manufacturers who are getting ready to produce devices,” Aylsworth says, “Our hope is that by early next year they will start rolling out, but it will take some time.”

In trying to build the EST business studios have insisted that UltraViolet be a platform for purchases, not rentals, although, as previously reported (January, p. 1), rental models appear to be inevitable. “EST is only one model of many,” Galuten says. In fact, he notes, advertising and subscriptions as well as rentals should be seen as important revenue drivers for the platform. “As DECE rolls out it should be possible to increase its value, whether by advertising, rentals or subscription models,” he says.

But, with release windows into the electronic rental market shrinking, the studios have to be careful with any rental strategies on UltraViolet if they want to generate EST revenues, Aylsworth says. “Availability of content becomes a strategic notion,” she says. “You purchase content that’s not readily available because you care enough about it if that’s the only way to get it.”

There’s a lot of disagreement on that point. Many people argue that people frequently collect movies because they’ve had a chance to see them and want to own them. “I don’t think everything is going to move to streaming and that ownership and local storage goes away,” says Brad Hunt. But, he adds, it would make sense to support a “rent-to-own” model on UltraViolet.

“Rent to own is not being pursued right now,” Hunt says. “But maybe it’s something to think about. Studios have the challenge of getting people to buy. People are used to renting through VOD and Netflix.”

A rent-to-own model would leverage the electronic distribution for rental viewing at a price matched to the release window while encouraging people to purchase the disc for storage in their libraries, possibly at an incremental charge that would be lower than a straight purchase without the rental. UltraViolet would give buyers the opportunity to continue accessing the purchased movie through the cloud, but owning the actual disc is likely to be an important component to EST success.

“We need to get to encouraging collecting,” Hunt says. “The virtual world of files is not very satisfying next to owning a movie library. Rent-to-own might be one way to move people back to buying movies.”

With Disney, Apple and Amazon conspicuously absent from UlraViolet and each of the DECE studios mindful of their need to support other outlets such as Amazon and Netflix the time is ripe to get consumers acclimated to the advantages of UltraViolet. But the challenges to doing so quickly are obviously not trivial.

For example, getting streaming up and running would seem to be a logical thing to do, as noted by Galuten. “It hasn’t been publicly stated, but a reasonable person could suppose that DECE will be addressing the issues of streaming to a broad swath of devices,” he says.

But, says Hunt, it’s not a trivial step given the fact that streaming wasn’t accounted for in the initial format development effort. “It could pose problems,” he says.

The fact that streaming access can be enabled by partners like cable operators who obtain licenses to stream from their own platforms could be a major stopgap in the effort to gain greater penetration for UltraViolet. The same goes for the fact that, with VOD offering rental opportunities, cable operators could market a purchase option as a follow-up to rentals, overcoming the absence of a rent-to-buy option in the current UltraViolet business model. This could be an especially strong option for viewers of the Home Premium early-release service which cable operators will be rolling out in the months ahead.

Clearly, with Comcast, CableLabs and Cox among the 60 plus members of DECE, the stage is set for some measure of cable involvement. “We definitely see the advantages of the convenience we can provide our subscribers through UltraViolet,” says the cable executive quoted earlier.

Along with the immediate business benefits to operators, there’s a big technical gain to be had for their TVE strategies if the UltraViolet format gains traction in the device world. That eventuality would help operators overcome the costs and hassles of providing content protection in all the incompatible modes now required to serve different brands and generations of devices, says Marty Roberts, vice president of sales and marketing at thePlatform, the Comcast unit that’s deeply involved in supporting TVE service development.

“The hope on the horizon is what will happen if we see traction with UltraViolet,” he says. “They’ve mandated that everything move to a common file and encryption format. If everyone uses a common encryption format we’ll all get to a better place where DRMs are competing on their merits rather than on which devices they’re compatible with.”

The real measures people should be looking for in weighing DRMs are things like how many licenses they can offer per second, how they handle multiple tenant scenarios, their ability to cover points of unencrypted content exposure on different device architectures, how they take care of protecting metadata and subscriber authentication information that’s stored on devices, etc. “We’re really excited about the promise of UltraViolet,” Roberts says.