There has been a lot of fuss this week about Disney pushing a new technology, ostensibly called ‘Keychest’ which will push DRMed ‘rights locker’ content to multiple devices.
This whole subject area is central to what we have been writing about at Faultline for the past 7 years and Disney’s CEO Robert (Bob) Iger has been saying this week that Hollywood needs to change its approach to digital video distribution and embrace the internet.
It’s great that Iger is one of the few Hollywood CEOs that ‘gets it’ but we’re not entirely sure that he does. Well, perhaps not ALL of it. Hollywood needs a root and branch transformation and it can happen the easy way or the hard way. The hard way is what we call the Sony way. Sony completely missed the boat on third generation games devices, digital music and LCD TV, missing several waves of technology and letting in Apple, Samsung and Nintendo in areas it had once taken for granted. The other way is the easy way, where studios will make the changes that need to be made, survive and stay on top.
But despite Disney’s CEO’s fine words, the transformation is more likely to end up the Sony way all over again for Hollywood.
Already it has been a massively long road to reach a point where not one, but two efforts, led by two major studios are saying that they need a digital video architecture for the future ‘ where buying the rights to a video in one format on one device, means that you have access to it for free (or cheaply) in any other format, on any other device. By two efforts, we mean one fronted by Sony, who pitched the idea through DECE (Digital Entertainment Content Ecosystem) a year ago, and now Disney, which is now preaching more or less the same idea, although details right now are sketchy.
We wrote up DECE in September last year when Sony said that it would help offer film services especially, which could be protected on any device but also allow copying to other devices and burning into DVDs without removing the DRM, so not risking the content becoming pirated by the average user. The architecture also calls for the content to live in a ‘rights locker’ a remote server so that it can be retrieved from there at any point in the future by a DECE registered device.
But while that may suddenly involve a number of breakthroughs in interoperable DRM, and in streaming technology and in encryption key and security management, it will not solve all or perhaps ANY of the problems in digital video distribution.
The internet changes many aspects of video. It affects distribution, creation, stardom and lifecycle for video and here we are ONLY talking about digital distribution. Creation of films needs to travel along a completely different exploitation chain, perhaps starting as an idea, or a badly filmed YouTube clip, rights being acquired, and production values being increased, as it is re-shot with new stars, but at vastly lower cost levels than major motion pictures these days, and then global immediate flash distribution taking place (by flash we mean as in flash flood not Adobe Flash) and production companies getting their money back in a much shorter time scale, before the film goes stale and is shifted to TV reruns, and sequels where they are worth it and pirated out of sight. It may not happen exactly like that, but a lot has got to change for it to get to anywhere near that, and nowhere in there is there really room for megalith studios that ensure success for crap films, by owning the mechanisms of distribution.
But certainly the key effort has to be the next four or five years, as we begin to see internet revenues start like DVD revenues did in the past, and then grow solidly year on year to become the $20 billion business that DVD once was. It won’t be easy and it won’t happen overnight.
In other words we need to create the online equivalent of the DVD, and by that we are not just talking about streaming, but also about the business model of how we bring video productions to market in the online world. New types of contracts, new performance based rewards, we need to infiltrate and integrate the social networks and provide YouTube or Hulu with services which allow people to get the feel for a global video event and sign up for it.
The potential reward is half the people on the planet paying to join a unique video event such as an opening weekend, and the bulk of the money hitting internet cash registers, but also box office and DVD retailer numbers, all overnight. Instant riches.
And the first sign of that was probably signaled by the creation of a DRM framework which stops the religious platform wars and puts technology in place to at least ‘let’ this happen, if anyone gets the business model right.
A year ago the DECE movement was triggered by Sony Pictures, but it has attracted initial membership from Alcatel Lucent, Best Buy, Cisco, Comcast, Deluxe Digital, Fox, HP, Intel, Lionsgate, Microsoft, NBC Universal, Panasonic, Paramount, Philips, Samsung, Toshiba, VeriSign and Warner Brothers. That’s 6 studios, plus an assortment of chip makers, telecommunications equipment makers, cable operators, handset, PC and TV suppliers, a retailer, security specialists and software houses.
We’ve never known two studios to agree on a model, so getting that lot to agree is virtually impossible and one of the reasons for Disney to go it alone is perhaps because NOTHING has been heard out of DECE since its launch. Perhaps they are all quietly heading to a conclusion, but we think that’s unlikely.
Not when the studios want to embrace as many platforms as possible; the equipment makers want to tie it into their platforms only; the pay operators want to tie it into supporting their existing services (Cable subscription for instance) and the TV makers and Phone makers have to cover every move on the market to ensure they don’t fail to support the one movement that ends up as the video equivalent of iTunes.
So while it looked like a slam dunk, in the US at least, except for the lack of any of the major US telcos, the fact that Disney was missing and Apple’s lack of interest, likely means that it has stalled, mired in argument and vested interests.
We can understand entirely why Apple would not want to join in such a system, whereby you can buy content once and have it on any device. After all Apple’s entire strategy rests on a DRM lock in, so that you can buy content at iTunes Music Store (or the App Store) and it only works on Apple devices. And once your content is on an Apple device, there is NO way that you can get it off without buying another copy.
But that same fact also means that Apple cannot really afford to be part and parcel of the Disney ‘Keychest’ movement either. Disney could write an App for the iPhone, but it could not be part of iTunes. What needs to happen in these rights locker situations, is that a consumer registers his or her devices, and that these devices are registered in turn with an umbrella technical organization which effectively acts as a gatekeeper for content.
That gatekeeper will tell other companies licensed under the scheme that this customer has already paid for ‘Batman Returns’ up to and including HD versions, and if they are then asked to supply a copy they only either charge nothing or only the cost of distributing the new copy ‘ perhaps a baseline streaming charge or download.
Now put some names on that scenario. Let’s assume that Comcast tells Keychest (or some DECE agent) that one of its customers has paid for ‘Spiderman 3’ because he bought a copy on Comcast VoD. A Member of the household tries to copy it to his iPhone, and what this actually triggers is a request for a new copy of the film, but protected under Apple’s Fairplay DRM. Would Apple want to send a free QVGA version with a different codec and waive the fee? We don’t think so.
And what if the download or stream is sent over an AT&T DSL line. Would AT&T be happy to obey network neutrality principles and take no share in the transaction because it is paid for under a monthly download cap.
And would Best Buy be happy to give the DVD away for nothing, after it has taken up space (plus the space for promotional materials) for the DVD in its retail space? Again unlikely.
Cisco and Alcatel may not have too much of a problem letting a film travel over their equipment as long as it gets paid somewhere along the line for adapting its equipment to work with DECE (or was it Keychest).
Philips, Samsung and Toshiba may feel much the same way and put in any chips that facilitate such a service, as long as it costs very little and makes their devices more desirable and the same goes for Microsoft to allow a piece of software on the home page of its operating system.
But you can potentially see the double edge of involving many companies in this kind of adventure ‘ they will all pull in different directions and want to be sure that they are making enough money out of it.
Disney, by the other extreme, has been trying to do things on its own for some time in the new digital world. It built and sold Moviebeam, which never really happened, and it has had interests in a variety of movie services ‘ usually coming late to the party and only contributing its films. It backed Blu-ray from day one and helped it win the day, by which time every other studio had joined in. As a result Disney has no conspicuous digital successes.
Disney lives in a Disney centric world, the same as Apple lives in an Apple centric world. Both of them think that not only do consumers think the same way, but that where they don’t, they have the power to force consumers to think their way.
Apple has proved that it DOES have this power. People WILL buy content from Apple to use solely on Apple products. But the question is does Disney have the same market power? Will people buy Disney products only from Disney registered Keychest operators and run these ONLY on devices which have signed up to the Disney Keychest system?
Well of course that depends upon how easy such a system is to use and how easy it is to coexist with similar systems and whether Keychest will build bridges to other similar environments such as DECE. If every device can have Keychest membership AND DECE membership, there is almost no point in developing a separate Keychest system.
What really needs to happen is that some form of federated identity scheme is created or harnessed. The SIM chip, universal in GSM and UMTS phones the world over, could identify people, and by physical connection to a device ‘prove’ that such a device is owned by the same person that owns the phone (We picture an Near Field Communications click). If that doesn’t work there are simple ways to register devices and sure they are part of a single home or family group, for instance where they take their IP address from a single wireless router, as extensions of that device.
There should be no technical reason why devices should not be registered with multiple content networks, such as on Keychest and DECE. They there can be a secure Disney Keychest network and retailers and manufacturers can opt in, and there can be another network for each Hollywood player.
But we’re sure that somehow this will suddenly appear to become a technical impossibility, because of what’s at stake and of how Disney may perceive its market power.
If a consumer had designed this, even one which supports digital protection for video entertainment, he or she would have designed a simple DRM, and made it universal. The only reason for DECE or Keychest to exist is to get around the islands of DRM which have been created by platform suppliers such as Apple, Microsoft and Nokia.
Then this hypothetical consumer would have created the idea of a rights locker and given the DRM away as open source to every part of the eco-system. That way an open online distribution model could have been created and online video would have happened sooner.
But wherever a major studio has even been involved in any content distribution, it cannot kerb its instincts to take over that control, knowing then that its control can make up for deficiencies in the quality of its content, by removing choice from the equation. At global cinemas now something over 99% of seats are sold to watch films distributed by the major studio chains. Is this because they makes the best content? No it’s because if you turn down a Buena Vista film (Disney) one week, you may not be offered another next week. Same for Time Warner and so on. By carefully orchestrating around 100 major film releases a year, whether they make them or distribute or fund them, most of the world’s cinemas are fully booked up.
Disney will inevitably see Keychest in the same way, as a distribution company.
If Apple can become the biggest online music distributor in the world, by getting it right and launching early and using a DRM lock-in, then Disney with Apple CEO Steve Jobs as the biggest individual shareholder, is likely to want to create the biggest online movie route to market. And for that it will use an interoperable DRM lock-in. The same as iTunes but with lots of DRMs.
What is Keychest likely to do? Assuming it is the same as DECE has proposed, the technology will sit above multiple DRMs, and tell them when it is okay to send a DRM protected piece of video content to a particular consumer. It’s an ownership or rights database that is common to all online video distribution routes, where the content creator sets the rules.
One rule might be for price X you can have a copy of the film in this format. For a further payment of Y, you can have the right to download or stream it a certain number of times, to other formats, and you can always pick up a copy in the original format. Or other rules, like you can always have the resolution that you have already paid for or any lower resolution but you have to pay a service operator an upgrade price to get it in a higher resolution.
It’s a bit of a dream world, in the sense that this is what the consumer wants, but it is what none of the players in online video want to allow.
Perhaps the ONLY way of delivering this is if ONE company drives the idea, so perhaps Disney has seen the DECE work stagnate and wants to go for it on its own. But it’s really hard to see how it can deliver all of that to the eco-system without any help. At the very least it will need Apple’s help, plus one of the big retailers, online or otherwise, to take part and it will need to offer content sales directly from its own site.
Interestingly nobody jumped when Sonic Solutions delivered much the same technology. It has rebuilt the back ends for both CinemaNow and what was Movielink and which is now sold as Blockbuster Online. It supports three DRMs and multiple device types, and offers a rights locker. We’re not sure that Sonic has the clout to bring it to market, but the technology is in place, inspired by DECE (we won’t say copied) and the kinks worked out by Sonic.
Finally you have to think about what content organizations would do, even if they came along for the ride, to the price of video. Right now they charge each family for it at least five times. They charge at the Cinema, when it comes out on DVD, and again on Blu-ray, purchased or rental, and once again they get a revenue hit when it goes to pay TV, VoD and free to air repeats. Although this is only about digital distribution, if it happens it will affect all of these existing revenues streams.
The bulk of the revenue comes from box office and DVD right now. But given that the average family has 2 children plus two adults and pays say $7 a head for a Cinema seat (half goes to the film distributor), and another $30 or more to buy it on Blu-ray at some later point in life (half goes to the retailer) that means it can expect each family that sees a film to pay around $29 to $30 each in the first year or two of a film’s life.
Over the lifetime of the film, it might yield closer to $50 with repeats, pay TV costs, Pay Per View and VoD charges. In fact these probably extend the film to many families that would not see that film anyway, so brings in extra unexpected revenue. To risk all of that, the lifetime purchase of a film will need to be $50 and most studios will err on the side of caution and want it to be $75 plus some kind of sales margin for any online partner or retailer.
We don’t think that kind of price, all paid up front, will be attractive, and it will take a while for business models to emerge where payments are cumulative. So how about a rule that says you CANNOT pay more than $100 throughout the lifetime of a film, so that each time you pay for it, whether that’s rental, DVD or online file, the payments are cumulative, and then you end up with a permanent copy in your rights locker after that.
But this doesn’t work either. That big chunk of revenue up front from cinemas is unlikely to be included in this amount. What incentive will cinemas have for buying new EPOS equipment which can report these purchaser details back to a rights locker? People will shun cinemas in favor of online, because that way they will get a permanent copy.
The cinema chains will somehow want to be protected from the effects of such a new online business, and will want compensation for their lost business. Any studio not resolving these conflicts will have their films dropped by cinemas before they are ready to reap full benefits online.
So rights lockers may end up ONLY working with online file and stream purchases, and so will need to be cheaper ‘ but still they will impact DVD sales and cinema tickets.
If Disney upsets its cinema chains AND Wal-Mart AND Amazon all at the same time, it would suffer terribly, even if only for a few years.
Which is why Disney CANNOT go it alone, and why it has been demonstrating Keychest to other studios to get them to come along for the ride. All the Hollywood studios acting together cannot be held to ransom by their existing routes to market.
Given the current interest in netbooks it would make sense for Disney to push this as a streamed only service to start with, and target the TV through some form of internet connection (like Apple TV), netbooks and phones and perhaps one or two portable media players which support wi-fi (including portable games consoles).
But it will need to understand on key aspect of music and music piracy. When music went online, people wanted to pay less for each track and have a lot more of them. The same rule will apply to video, and what studio in its right mind is going to accept that?