How Hollywood can out-apple Apple

The long-term viability of delivering premium content to mobile devices hinges on the willingness of producers to deliver free content to consumers in the short-term, argue David Wertheimer and John Barrett.
Analysis, Delivery & Transmission
Johnny Knoxville in a scene from Jackass 2.5.
Johnny Knoxville in a scene from Jackass 2.5.


The long-term viability of delivering premium content to mobile devices hinges on the willingness of producers to deliver free content to consumers in the short-term, argue David Wertheimer and John Barrett.

In 1903 one of the first narrative movies, The Great Train Robbery, came to the silver screen. Although only 12 minutes long, audiences flocked to theatres to see it, marking a milestone in the rise of the entertainment industry.

For most of the next 100 years, the cinema would remain the primary distribution method for films.

Television gradually grew in importance with the advent of more channels, home video and pay-per-view but it was not until the twilight of the century that the number of potential distribution platforms exploded.

Computers, mobile phones, and portable players such as the iPod all suddenly became possibilities. The stars of devices, storage and networks aligned in a way that began to significantly alter the distribution landscape.

In fact, computers proved to be such a viable distribution medium that they soon became a key platform without the industry's consent. Full-length movies and TV episodes became available through unlicensed P2P networks while short clips could be found on video sharing sites like YouTube.

Portable platforms (such as cell phones and iPods) have proven to be a more elusive distribution channel.

Ninety percent of all broadband users have a mobile phone, but only 10 percent regularly use it to watch video; just six percent regularly use it to watch live TV.

Similarly, one-half of all broadband users have a portable MP3 player but only 10 percent regularly use it to watch video; roughly one-half the number that have a video-enabled player.

Why have consumers not been more receptive to portable video platforms? The answer lies in a mixture of technological and business challenges plaguing the industry.

The impediments to portable media distribution and adoption are numerous. From a technology standpoint, the amount of bandwidth available for mobile phones remains limited, which makes downloading and streaming of content painfully slow.

Broadcast technologies (such as DVB-H & MediaFLO) are becoming available but these will only partially solve the problem because they are primarily designed for live TV, not on-demand content.

Devices capable of displaying 24 or 30 frame-per-second video have not yet reached critical mass, while the small-form factor of portable devices makes for tiny screens with low resolution - ultimately an unappealing combination for watching long-form content.

Methods for finding/accessing and getting content onto mobile platforms are also not as user- friendly as they need to be.

Interoperability remains a major challenge: content purchased for one portable platform can rarely be used on another.

In addition to the technological hurdles, there remain significant business challenges.

The amount of high-quality content available is still extremely limited, the rights and exhibition windows situation makes for odd comings-and-goings of content (from an availability standpoint), and much of the content that is available doesn't suit the device or viewing habits of individuals using it.

Few consumers perceive of today's crop of portable devices as good platforms for viewing full-length movies or TV shows.

Also, pricing does not always match the perceived value for lower-quality, locked-to-a-system content. Another hindrance is the fact that consensus has not yet been reached on digital licensing agreements.

The 2007 US writers' strike and revenue dispute between NBC Universal and Apple provide two cases in point on the business challenges of "re-purposing" content.

These technological and business challenges will be resolved (provided that all parties constructively work towards their resolution), but it will take time.

The prevailing business arrangements evolved slowly over the film industry's 100 year history and cannot be instantaneously re-written. Technological upgrades to networks and devices will likewise require substantial investment - operators and manufacturers will not jump on board without some assurances of success.

Yet despite the long-term challenges facing the industry, there are more immediate opportunities to drive revenues and adoption.

Given these challenges, it is easy to dismiss portable and mobile platforms and marginalise efforts associated with them. At the same time, realising the potential of portable platforms will obviously require effort and investment. How can companies yield immediate returns while simultaneously preparing the market for the long haul?

We believe that Apple provides excellent insight into how this can be done. The iPod has transformed Apple as a company and achieved remarkable success. Yet the secret to its success lies less in the technology than the business strategy.

For years, big-box retailers have used music and movies as a loss-leading lure for store traffic. Apple adapted this strategy to the digital age by offering content as a low-margin lure for hardware.

The company gave away millions of free music tracks in order to prime the market for iPod sales. It likewise offered low-cost price points on movie and TV titles in order to promote 'video' iPods.

The strategy has been a great success for Apple, but content producers have been less enthusiastic. The content sold by itself does not generate substantial amounts of revenue.

Hollywood need not let Apple make all of the profit. If Apple is effectively using content as a loss-leader (or at least break-even leader), then Hollywood should similarly leverage content to promote sales of its flagship products. The latter must simply employ a different strategy.

Rather than asking "How much money can we make on portable content?" the question should be "How can portable content help me make money?"

Hollywood studios should strive to use portable platforms to generate revenues directly (through the sale of content) and also indirectly by promoting consumption via more traditional channels.

The free distribution of scenes, clips and made-for-mobile content will encourage ticket sales and DVD purchases. Highlighting the top car chase scenes of all time, to give an example, can draw attention to both new and existing titles. Content distributed to portable devices thus need not always generate revenue directly as long as it generates revenues elsewhere for the studios.

Initially, content producers can simply re-purpose existing previews and clips as a low-cost way to promote viewing in theatres and DVDs. Ideally, however, such efforts will be followed up with content that specifically takes into account the unique attributes of portable platforms.

Fast-paced clips, rapid cuts and panoramic scenes are just a few examples of film techniques that do not adapt well to the current generation of portable devices.

'Made for mobile' programming will moreover increase the appeal by offering unique content not available elsewhere. In the end, 'advertainment' becomes content in and of itself and a profitable way to provide consumers something to watch when they find themselves in situations where a little diversion is welcomed.

Such a strategy can take advantage of the service providers' desires to distribute value-added content, as well as Podcasting infrastructure, which could well become a significant distribution vehicle for free or advertising-supported content.

Such an approach takes advantage of the current market landscape. For one, it leverages the consumer's ongoing preference to watch movies in the cinema and on DVD.

Consumers also show a limited willingness to pay for portable video content. Parks Associates Digital Media Habits study, for example, found less than 10 percent of internet users would be willing to purchase a digital movie download (from a site such as iTunes) at prevailing price points.

Demand for portable content will grow as consumers become more accustomed to it but their appetite must be whetted with free content. Consumers have not yet established a habit of portable video consumption and cannot be expected to sign up for paid subscriptions right out of the gate.

Using portable content as a free, promotion of more traditional channels will help ready the market for the emergence of direct revenue generation from optimised-for-mobile content (whether original or "re-purposed" content).

The consumption of free previews and advertainment via portable devices will educate consumers on the potential of viewing premium content, once business and technical obstacles have been overcome.

At the same time, consumers will have a greater tolerance for a less pleasing, small screen experience if they did not directly pay for the content i.e. expectations for free movie previews will be lower than for paid, feature length films.

While growing, the market for selling movies through portable devices and cellphones is not yet ripe. Business and technical obstacles have not yet been overcome and consumers show a low interest in buying and viewing.

At the same time, using mobile content as a marketing tool for traditional consumption channels offers Hollywood an opportunity for immediate success in the mobile content space.

Moreover, freely distributed, marketing-minded content will prime the pump for premium content offerings further down the road, once technological and business challenges have been addressed. Studios can aggressively pave the way for future profitable mobile distribution models by immediately leveraging early consumer interest.

John Barrett analyses technology-driven products and services for Parks Associates, a digital home research firm and consultancy.

David Wertheimer is the former president of Paramount Digital Entertainment and is now the executive director of the Entertainment Technology Center @ USC (University of Southern California), a consortium/think-tank sponsored by top film entertainment companies, leading technology, consumer electronics and service providers. Additional research by KC Blake and Bryan Gonzalez at the ETC@USC.

Digital distribution pioneers

Jackass leads the way

While the major Hollywood studios remain mostly reluctant to take anything other than tentative steps towards establishing online distribution services, Paramount Pictures Digital Entertainment has jumped wholeheartedly into the digital domain.

The company combined with Viacom sister company MTV New Media and online rental business Blockbuster in December to debut the third feature-length instalment of the inane Jackass franchise, Jackass 2.5, online.

The event marked the first time a studio-backed feature had been streamed in its entirety online. It was free, to boot.

Thomas Lesinski, president of Paramount Pictures Digital Entertainment, explained that Jackass 2.5 was the first of several feature films the company planned to distribute online.

"As the digital world evolves, we will continue to turn digital distribution of content on its head," he said.

Blockbuster CIO Keith Morrow said the film rental business was eagerly eyeing new opportunities in the online space.

"We were thrilled to be part of what was really a ground-breaking event," he said. "Streaming Jackass 2.5 emphasised our commitment to provide consumers with the entertainment they want, in the format they want, whether it's through our stores, through the mail or online.

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