UltraViolet Made Headway In ’12, but Jury Is Still Out

Chuck Parker, VP, Intersection Research

Chuck Parker, VP, Intersection Research

By Todd Marcelle

January 10, 2013 – The cloud of uncertainty surrounding UltraViolet persists going into 2013, with momentum building but the goal of ubiquitous usage tied to access to all the mainstream movies and TV programs consumers might want to own still well out of reach.

The Digital Entertainment Content Ecosystem (DECE) consortium of five of the six major movie studios, Disney being the exception, made major strides with its UltraViolet media storage platform in 2012, including expansion to over seven million registered accounts from just a few hundred thousand at the start of the year and an ever-growing list of participants, including Walmart, Best Buy, Barnes & Noble Seagate, the BBC and many others. But key steps remain to be taken, including a much larger selection of titles beyond the 7,200 or so now on offer from participating studios and TV networks.

In an analysis of the challenges confronting UltraViolet Chuck Parker, president of Intersection Research and frequent blog contributor to the Media & Entertainment Services Alliance website, notes that when it comes to availability of content most desired by consumers, as measured by the Internet Media Database (IMBd) top 100 evergreen titles and the Rentrak top 50 recently released titles, titles available for sale on the UltraViolet platform represent only 50 to 60 percent of the titles on either list. “This isn’t a digital rights issue,” Parker says in a recent blog. “Digital title availability for rental and sell-through on iTunes is nearly ubiquitous. This is a business decision [of the studios] not to support UltraViolet.”

That may seem harsh in light of the fact that Sony Pictures, Warner, Fox, Universal, Paramount, Lionsgate and DreamWorks Animation have all embraced UltraViolet through pre-street date digital releases of select titles via Sony Pictures Store, Best Buy’s CinemaNow, Walmart’s Vudu.com, PlayStation Store and Google Play. But the hit-or-miss electronic availability of DVD and Blu-ray releases on UltraViolet leaves the consumer in need of alternative sources, undermining the purpose of UltraViolet, which is to compensate for the falloff in hard copy sales by encouraging electronic sell-through through the convenience of a universal cloud storage platform.

Notwithstanding the limited penetration of UltraViolet, electronic sell-through sales in general as well as rentals are growing rapidly, according to the Digital Entertainment Group, which serves as the marketing arm for UltraViolet. Overall disc sales in the third quarter were down by four percent, even as Blu-ray disc sales were up by 13 percent compared to Q3 2011. Disc rentals were off by 50 percent.
By contrast, electronic sell-through sales were up by 37.7 percent. VOD spending climbed more than 8.4 percent while subscription revenues from Internet streaming services grew by 127 percent, DEG said. But the total sales value of hard copy rentals, subscriptions and sales, totaling about $4 billion in Q3, far outdistanced electronic sell-through, rentals and subscription revenues, which totaled about $811 million.

The upshot is that Hollywood continues to have a big problem meeting ROI goals on motion pictures, especially in light of how weak the profit levels are in the area of fastest growth, namely, online subscriptions. Digital subscription services, including Netflix, Amazon Prime, Hulu and, soon, RedBox Instant by Verizon, physical rental kiosks and the Netflix disc-by-mail subscription service aearn about one third of the profit per viewing compared to VOD, digital sell through and physical sales. “Video consumption has never been higher in the U.S. household, but it is the mix of consumption that is hurting Hollywood studios,” Parker says.

UltraViolet officials say a heavier marketing effort beyond the “organic” approach taken so far is in the offing for 2013. And they say the long-delayed adaptation of UltraViolet distributors to the Common File Format will soon allow UltraViolet titles to be downloaded without users having to work with different file formats from each retailer.

At a Digital Hollywood session in October, UltraViolet GM Mark Teitell said the CFF was in business-to-business testing with consumer testing to follow. But he acknowledged DECE still has work to do to facilitate use of CFF in the cloud environment.

Teitell also reported UltraViolet, now available in the U.K. and Canada as well as the U.S., is slated to launch in Australia, New Zealand, Ireland, France and Germany in 2013. But the question remains whether the platform is going to crack through to mainstream adoption in the U.S.

“It is difficult to crow about having retailers signed up when the largest DVD/Blu-ray sales retailer (Amazon), the largest digital video retailer (iTunes), and the largest digital ‘rentailer’ (Xbox) have not signed up for the program,” Roberts says. “No matter how you slice up the markets where the consumers you want to attract are currently buying or renting, each one of these companies represents the lion’s share of them, and I would venture to say you cannot create mass adoption without them.”