by guest blogger Kevin Laws (former entertainment industry strategy consultant)
While it may be too late for the music industry to save itself from filesharing, the movie industry is making all the right moves.
The music industry is finally embracing online distribution, but retailers held them back until it was too late. Though some predict the same fate for the Hollywood studios, they will likely fare much better than the music companies. The structure of the industry is such that they will not be held back from supporting early experiments in online distribution, and they will be able to learn from the music industry's mistakes.
As the MP3 format was still catching on, the music industry tried to set up the Secure Digital Music Initiative (theoretically still going) to create the "perfect" technology. Of course, "perfect" to the music industry meant that it couldn't be copied or hacked under any circumstances. Not only did they fail (rather publicly), but consumer electronics companies wisely realized that supporting just that format would be meaningless.
Online video formats still evolving
The result is that the world is locked in to MP3. If you want the same file to play on your computer, your portable MP3 player, your media appliance (like Tivo), and your cell phone (yes, the new Treo has an MP3 player), then you need the one format they all support: MP3. Anybody trying to promote a new format trips over the MP3 standard every time. iTunes is great -- for iPod users. But if I want it on my Tivo, oh well.
In the video world, the equivalent of MP3 is DivX (named after the failed Circuit City/Blockbuster project). It fits a movie in less than a gigabyte -- still too large for easy download given today's speeds, but within reach. Everybody knows that better compression and better bandwidth mean that movies will eventually be traded like music is today.
However, the movie industry has been more focused than the RIAA. After all, the music industry and iTunes aren't the only losers to come from the dominance of the MP3 format. As a consumer, I lose because I can't easily buy music and have it available on all my digital devices. Rather than insisting on perfect copy protection, the movie industry is taking an approach more like software industry: use the same format as everybody else, and know that somebody will crack your DVD and distribute illegally. However, just like iTunes today, for a guarantee of easy, legal access I want the DivX format to support (though not require) simplistic copy protection.
The HDMI connection and broadcast flag are similar. The formats support, but do not require, copy protection. It's not perfect protection, and can be circumvented -- but it's enough that the typical consumer (as opposed to the power user) will find it easier to just pay to get the fully supported experience.
This approach stands in sharp contrast to the music industry's insistence on perfect copy protection at all times which has hobbled the growth of online distribution. The MP3 standard doesn't even support the possibility of copy protection, so devices like the iPod are intentionally crippled to prevent copying. It can play MP3s, but try using it as the backup for your collection and you'll find you can't -- it won't let you read the MP3's you write.
Come Through My Window
Finally, unlike the music industry, the movie industry is quite used to releasing the same content through different distribution channels -- some of which may even cannibalize its own sales. Each movie comes out in theaters, then airlines & pay per view, then VHS & DVD, and finally broadcast. Or not. It all depends on the release -- Hollywood is quite sophisticated about calculating the profit-maximizing way of working a particular piece of content through the channel. Given that mass digital distribution has characteristics most like broadcast (it can be shared more widely), it will probably come at the end of the chain most of the time.
The movie industry, unlike the music industry, went through the pains of adjusting to more easily copied formats when VCR came out. After fighting them (and losing) initially, it turned into a major revenue source for the studios. They even borrowed a page from the music industry, and promoted the DVD format -- just like the CD format, it can be copied imperfectly to tape, but people prefer the higher quality. Digital distribution just fits into the framework they've already developed for releasing content.
Hollywood Saves Itself
Of course the MPAA will follow the legal path followed by the RIAA (suing the prevent the copying technologies), and they will do many things that will anger the same people who hate the RIAA. However, they will be more successful at defending the long term health of their industry than the RIAA.
They have been much savvier than the RIAA about approaching digital distribution. By working with the new format rather than trying to replace it, and fitting digital distribution into their existing system for releasing content, the movie industry will avoid the same fate as the music distributors.