Pirates are firing at the ship, seizing the vessel, and taking command of its precious booty, leaving nothing for the ship’s captain and owners but the fear of a life’s work brought to a naught. Although not as swashbuckling as Pirates of the Caribbean, it is the dire picture Hollywood is painting of pirates ravaging its creative content. Is Internet piracy really a threat to the industry, or is it simply a sign of changing consumer demand?
The industry is abuzz with reports that NBC Universal (NBCU) will likely be spun off by its parent company, General Electric (GE), once French conglomerate Vivendi sells its 20 percent stake in NBCU back to GE. Who could be the potential buyer, under this scenario? Comcast. According to publications like MarketWatch, the company is considering contributing its cable assets, along with up to $6 billion in cash, to purchase a 51 percent stake in NBCU. While no official announcements have been made, industry analysts are already anticipating the possible consequences of such a merger. For example:
Comcast boosts its content library. The move would significantly expand Comcast’s entertainment portfolio and Web reach, placing it among the top industry players, says ZDNet. Through NBCU, Comcast would gain network TV assets like NBC and Telemundo; cable content such as CNBC, A&E, Bravo, USA Network; global properties such as The Weather Channel; various Universal Studios assets; Internet sites such as MSNBC.com, iVillage and a partial ownership in Hulu.com; and more.
Comcast gains better online leverage. Comcast would also gain more control in deciding how and when TV shows and movies are distributed online, and at what price to consumers, says the LA Times. As more people stream videos online for free [see our previous post on online streaming], cable companies are pressured to step up their game to maintain viewership. Comcast and Time Warner, for example, recently launched a “TV Everywhere” service that allows consumers to watch shows online — provided they are paying cable subscribers.
"This deal (Comcast-NBC) has major implications on the success of TV Everywhere," Thomas Eagan, an analyst at financial advisory group Collins Stewart, tells the LA Times. "Comcast may decide to change Hulu to some degree to facilitate a premium Hulu service much faster." Hulu, now the number two online video site, according to market research firm comScore, is jointly owned by NBCU, News Corp and Walt Disney Co.
Comcast could shorten DVD release “window.” According to studio executives and media analysts, Comcast could try to reverse the current movie release sequence by offering movies through its paid On Demand service ahead of their DVD release date. "It's a potential game changer that could completely upset the traditional windowing position of the studios, if Comcast were to decide to get very aggressive in releasing new movies and TV shows in a variety of ways," Tom Adams, founder of financial and market research firm Adams Media Research, tells Reuters. Such a move, however, is likely to meet opposition from theater owners whose box office revenues could be threatened by a shortened “window,” reports Reuters.
Whether or not Comcast strikes a deal to buy NBCU, however, some analysts believe spinning off NBCU may be a good move for GE. "Selling NBCU will increase management focus on the core infrastructure businesses and that is a good thing," Steven Winoker, analyst for investment research and asset management firm Sanford C. Bernstein, wrote to clients. "GE has long suffered from too much complexity and faced significant investor pressure to part with its media and entertainment assets."
Marketing and media research firm Nielsen predicted that 2009 would be a good year for 3-D cinema, and it looks like they’re right on target. Box Office Mojo, a website that tracks box office revenue, reports a nine-figure box office success for 3-D films such as Up, Monsters vs. Aliens and Ice Age 3. If the hype behind James Cameron’s Avatar is any indication, then it’s also likely to be a huge hit. The Associated Press reports that Avatar has a $237 million budget, placing it among the most expensive movies ever made.
But will 3-D technology be enough to revive movie theaters that have progressively been losing market share to TVs, DVDs and the Internet? For now, it seems unlikely.
For one, to show films in 3-D, exhibitors need to invest in digital screens and projectors. With a slew of 3-D films in the pipeline, Hollywood studios have offered to help finance part of the substantial cost, but not all exhibitors have made the transition. Currently, Nielsen reports that there are just over 1,000 3-D screens in the U.S. — a small number compared to the 38,990 total screens tallied by the National Association of Theatre Owners.
Exhibitors also balk at the cost of training staff on the new technology, as well as providing the audience with 3-D glasses. In fact, Regal Cinemas, the largest movie theater chain in the U.S., refused to show Ice Age 3 in 3-D unless its distributor, 20th Century Fox, provided the glasses.
But perhaps a more important factor is this: TV and even online outfits are also arming themselves with 3-D technology. Companies like Samsung Electronics, Sony, LG Electronics and Panasonic have unveiled their latest versions of 3-D TVs at this year's Consumer Electronics Show in Las Vegas. Digital media company Sonic Solutions also recently announced that it’s offering 3-D movies for PCs through its Roxio CinemaNow video service, and that it’s working with consumer electronics manufacturers to deliver 3-D content directly to Blu-ray Disc players and next-gen connected HDTVs (systems that allow users to browse the web, view JPEG photos, listen to MP3s and access various software services).
Entertainment publication Variety notes that ESPN, Fox Sports, 3ality Digital, the National Football League, the NBA and the NCAA are experimenting with 3-D.
Finally, tailing behind, but also joining the fray, is online video streaming, with current market leader YouTube recently enabling users to watch and create 3-D videos.
Perhaps the only saving grace — for now — for movie theaters is that 3-D TV sets and players are still rare and a lot more expensive than a movie ticket, and that online 3-D streaming still has a lot of kinks to iron out, as YouTube itself admits. But the theaters’ 3-D head start might not be much in the fast-changing world of digital media, so exhibitors are best advised to have a fallback plan if they don’t want to be edged out of the picture.
Chalk it up to a bad economy if you will, but more and more consumers are foregoing movie theatres and DVD rentals for online streaming. In fact, a recent survey by Allot Communications notes that HTTP streaming is the fastest-growing application globally, with a usage increase of 58 percent.
That’s good news for companies like Netflix, whose 2nd quarter earnings surged 22 percent. True, subscribers are flocking to the cheapest price plans just so they could stream movies, but the cost of getting and keeping them on board is also less expensive than traditional mail-order subscriptions, so Netflix still nets a profit.
The bad news? Competition is fierce, with broadcast networks, cable networks, Internet-only channels and even companies like Amazon and Apple all vying for online viewership. Piracy is also a problem, with illegal copies of movies and TV shows regularly appearing online, albeit often in lesser quality.
If Netflix is any indication, however, consumers seem to be willing to pay to watch on the Web, so long as it doesn’t cost them an arm and a leg. Hulu, the popular streaming site — a joint venture of NBC Universal (GE), Fox Entertainment Group (News Corp), ABC Inc. (The Walt Disney Company) and Providence Equity Partners — is in fact banking on this, and is considering charging for content in the future.
The bad news? Content is still king. As Forrester Research analyst James McQuivey said in an interview with the New York Times, “Consumers are under the impression that everything they want to watch should be easily streamable.” Which means the cost to license and provide as many titles as possible can minimize profit. This is the reason why Netflix shares fell, after it announced that operating margins would likely remain stagnant for the next several years as they invest in their streaming library.
Good or bad then, when it comes to online viewing, the real issue for content providers and media companies is how best to maximize profit — and that’s something that’s likely to change as technology improves and partnerships are made in the industry.
