Seeing Gold In Video Downloads

Hollywood studios had tied themselves up in a Gordian knot of digital rights management (DRM) issues, delaying the distribution of popular movies and television episodes via broadband downloads.

Meanwhile, the horse was clearly leaving the barn. According to the Motion Picture Association of America, of the $6.1 billion their studios lost to piracy last year, $2.3 billion were illegal Internet downloads.

Once the success of iTunes video proved consumers would pay for content, the tipping point soon followed. Earlier this year, MovieLink announced "Brokeback Mountain," would be available for Internet download the same day as the DVD release—an industry first. With most studios and Internet downloading services now following suit, the digital revolution has finally arrived in Tinseltown.

"It is a huge move for the studios," says Aki Kishore, director of the Media and Entertainment Strategies Decision Service at the Yankee Group. "They have built an entire business on time-based exclusivity and a set of staggered release windows that generate more revenue."

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Though broadband video downloads are in the early adopter phase, it has long been thought that consumer adaptation of the digital home might be come via the entertainment channel, in turn helping home integrators generate sales of flat screen displays, DLP projectors, screens, surround sound systems, broadband connections, system security systems and storage to consumers. Now that the floodgates have opened through sites like iTunes, Movielink, CinemaNow, Akimbo and many others, integrators have an opportunity to revisit the digital home with their clients.

Opportunity is not without its considerations, however. There will soon be more products claiming to easily transfer Internet content to TV sets, while the "battle" between PC and set-top control of the living room heats ups. One thing is certain, ease of use will be critical. Also, studios need to allow more personal usage of downloaded video throughout the home and elsewhere for mass market adaptation. Another key concern for integrators is how to successfully incorporate the IT customer service required by networked homes into their business plans.

"If the general buying public sees integrators as their built-in consultants and problem solvers for their communication and entertainment needs, that's good," says Marc Leidig, president of Ambiance Systems, a traditional integrator of home entertainment and automation systems in the Albany, New York area.

While he installs a lot of high end systems, Leidig said he does not believe in pushing a bleeding-edge technology, preferring instead to wait for proven solutions. "So many new technologies don't make it, so we wait and see what the fallout is going to be," he said. "Clients are not nearly as forgiving about buying technology that goes the way of the dinosaur unless it is a cheap throwaway. They want long term."

Gordon van Zuiden, president of CyberManor, which provides Internet-empowered home networking solutions in Los Gatos, California, said although he has always adopted an IT-friendly approach toward technologies solutions, he too has been "burned in the past" by the latest technology. "The Internet is not 100 percent reliable and that's where things can fall down a bit." He does feel, however, the sudden mother lode of Internet content is a great opportunity for integrators to educate clients. "So much of what is compelling to them is our understanding not only of today's technology but where things are headed," he said.

One place to start is with the content providers. Movielink CEO Jim Ramo says his company's mission is "to give people a reason to get broadband into the living room to open up all kinds of uses for the connected TV". Movielink users pay a $2 to $5 rental fee to download a movie but then have to watch it within 30 days over a 24 hour period.

Today's "download to own" option costs about $20 for top titles. Though pricey, Ramo believes consumers will utilize this model more. "People were not willing to set [up video downloading] for a 24 hour rental, but now if you can download a movie that is available on the same date as the DVD and you can keep it forever, it is worth building a library," he says.

It is still not the same thing as a DVD library, however. There are no bonus features and depending on the broadband connection, video downloads can take an hour for a two-hour film and the quality is somewhere between standard definition and DVD. Also, Hollywood has not let the reins go completely. Right now, you can store the movie on your hard drive, watch it on a television via a Media Center PC or other device, but you cannot view it on more than three PCs in the home (hence, no portability other than your laptop) or burn it to a DVD. Not yet at least.

Sean Casey, executive vice president of Digital Distribution and Product Acquisition at Sony Pictures Entertainment, agrees that allowing Internet downloads within the DVD window is a big step for content providers. But he feels the next phase to consumer adaptation is "to be able to take that digital copy that you purchases at these services and burn a copy to a DVD and play in a DVD player. That is part of the evolution along with portability," he said. Sony and other studios are currently addressing these issues.

Meanwhile, it's Sony's intention, Casey said, to eventually provide all releases for Internet download at the same time as the DVD, and views this distribution method as a compliment to traditional release windows. He also predicts no negative impact on the number of films released to theaters. As far as digital home products and services, he says that any method which provides an easy and consumer friendly way of viewing digital content "is a win for the business."

Bruce Eisen, president of CinemaNow uses his Media Center PC to download movies from CinemaNow and watch on his TV. But he says a number of devices in the set top box form factor will soon come to market and that mass market adaptation will begin with an easy hookup from Internet TV. After that, the pricing must be more attractive. Downloading a new release from CinemaNow can cost $20. "Pricing needs to drop to the $10 to $15 range" before there will be widespread mass market embrace, Eisen said.

Lily Lin, spokesperson for BitTorrent, an open source file sharing protocol with 65 million users worldwide, agrees. "For $20, consumers are saying, hey, my hands are in my pockets." She said BitTorrent has a new partnership with Warner Brothers Home Entertainment Group allowing content downloads day-and-date with DVD releases, and are "evaluating" price points prior to the Warners launch.Akimbo currently has a foot in both PC and set-top box camps. It is an online content provider offering users access to an eclectic 10,000 title library through either Media Center PCs or the Akimbo Player, a set top box with a direct connection between broadband and the TV. Jim Funk, vice president of marketing at Akimbo said while the Media Center PC is "an interesting evolution and [PCs] have their place, in the end, there will be a separation of devices with the PC not the center of all your entertainment. I think even Microsoft will be the first to tell you that." Akimbo, which last month received $15.5 million in funding from Cisco and AT&T, plans to release an 80 gigabyte upgraded set-top box, co-branded with RCA, called the RCA Akimbo Player ($250). It will directly link broadband connections with the TV, providing access to the Akimbo library plus new movies from Movielink.

Integrators don't have to wait to start leveraging the opportunities video and other broadband services will generate. Van Zuiden feels that "depending on the literacy of the client," integrators can sell new digital home solutions today while carefully leading them through the digital progression.

"First customers have to understand they have their own content that can be digitalized around the house, and to many that is new," he said. When ready, they can then "break free of the CD and DVD mold." But he cautions that "if we are called upon to do a lot of post sales support, we will have difficulty maintaining as profitable a business model as we like."

David King, president of Kings Systems, an electronic systems design and installer in the Denver area, calls IT service and support "key for our industry." He's excited about Internet content spurring more digital home adaptation from the PC side, adding, "the computer part of the industry is going to be huge for us." King plans to have a fully integrated showroom finished this summer and for subsequent clients who want to install emerging home technologies. "You have to have an integrator who can set that up and walk them through it—once you do that you have to be able to service and support it," King said.

On the plus side, support also provides an opportunity for future sales. "You can build long lasting relationships with your clients by setting a precedent that you are going to need service and that is not a negative thing," he says. "You say that now they can download first-rate movies, etc., and in six months we'll come back and make sure everything is working and talk about available upgrades."

But there are potential downsides. "A lot of customers are very needy and don't want to try and learn. They say, why this isn't working and why did I buy this? If you are not set up to support that, you will fail," he said.

King recommends integrators have a special qualified team, other than installation, to address IT service issues. Because "no integrator wants to go out and fix something for free," he suggests an upfront discussion with clients as to expectations and costs. "If a customer calls to fix a PC, that's a set price," he says. "If it is covered under the warranty, no problem; if not, it is so much per hour."

King says to improve their services, computer manufacturers must be more responsive in the services they provide, especially phone support. He offers a recent example: "Our guys were trying to get answers on the Media Center PC and talked to someone on the east coast, then Bangladesh and found no one to figure out the problem," he said.

Jon. W. Litt, former owner of Custom System Installation and now national sales manager for custom installation at Monster Cable, thinks a proprietary customer service number for integrators is "a great idea," but will not be cost effective for manufacturers until the digital home becomes pervasive. Meanwhile, his solution to IT service problems when at Custom System Installation was to "team up with a specialist in the community and if we got in over our head we would call them in."

Joe Piccirilli, vice president of business development for AVAD, a national distributor of home technology products, sees Internet video content as a mixed blessing for integrators--an opportunity, yes, but one with potential problems.

"First and foremost the user interface has to be simpler. It shouldn't be a lot of work to be entertained," he said. "In the computer world people put up with the blue screen of death. In the entertainment world, nobody is going to put up with that. I get worried because the media servers today are on the cutting edge but their designers have little ability to relate to the average consumer. They prefer cutting edge over simplicity and reliability."

Piccirilli feels the ideal interface is here right now—iTunes-- and if he were in the media server business, he would fear Apple's entrance into the market. "They'll bring it out at a profitable price, and make it hip and easy. They made iPod like an accessory sale--if you don't have one you are not dressed," he said. Though he has great admiration for Microsoft, "I think there is a certain arrogance they have. They think all of us will put up with products that are not quite right. That has to stop because consumers will go elsewhere," he said.

The good news for integrators is that wherever consumers go in the digital world, they will need experienced specialists who can provide not only today's solutions but tomorrow's.

"Never underestimate the success of an integrator in terms of what we know about in near term future, because so much of what we do, especially in new construction, is to provide solutions for the future," said Van Zuiden. He adds, "I think about us as long term professionals handling the technology needs of our customer's homes, meaning we are not in it for today's sales and gone."

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