The numbers behind the industry.
doesn't need a crystal ball to see that Hollywood's future
is now inexorably tied to the small screen. Just look at
the studios' own internal revenue
numbers . Before the invasion of television, the big
screen (a.k.a. movie theaters) provided 100% of the studios'
revenues. Now, it accounts for less than 15 percent. The
small screen—which includes computers, portable DVD players
and iPods as well as TVs—provides 85.6 percent. To be sure,
much of Hollywood's celebrity culture, and the entertainment
media that feeds off it, remains rooted in nostalgia for
the big screen. Meanwhile, the MBAs that run the studios—and
their corporate owners—have come to grips with the cruel
reality that the movie business is no longer primarily about
movies, it's about creating intellectual properties—the
current term of art for a movie, TV series, or game—that
can be sold or licensed for personal entertainment in a
raft of different forms and markets. According to my crystal
ball, the further migration of Hollywood—even with its sticky
celebrity culture—into home entertainment will be greatly
accelerated in 2006 by the following 5 events:
The success of Google's WiFi experiment in San Francisco.
October 2005, Google offered to provide a Wi-Fi service
that would enable anyone in San Francisco to connect without
charge to the Internet. Google would make its profit not
from an access charge, but from the ad revenue an entire
broadband-wired city would provide. If the experiment proves
successful—and Google's WiFi platform proves stable—nothing
would stop the company from rapidly extending this concept
to other cities. Reportedly, Google has already lined up
unused fiber-optic cable that spans the country. Such a
free Wi-Fi network would mean that the Hollywood studios
would no longer need to rely on cable operators—or even
telephone companies—to have a two-way pipeline into homes.
They could directly rent any movie to consumers and bill
their credit card (like everything else is billed on the
Internet) without paying a cut to cable operators or local
The further collapse of the video window.
until recently, the studios gave theater owners a 5-6 month
window before a movie was released in video stores. But
now, with mass merchandisers selling most of Hollywood's
DVDs—Wal-Mart alone accounts for over 30% of DVD sales—the
pressure on the studios to time their release in accordance
with retail selling seasons, such as Thanksgiving and Christmas,
is becoming nearly irresistible. After all, a single Wal-Mart
order can amount to $100 million. So, as the studios dance
to Wal-Mart's tune, the window between the theatrical release
and the DVD release can be expected to further shrink, if
not disappear entirely. As a result, more and more people
will choose to wait for the DVD instead of going to the
theatre. The resulting loss of audience will then further
speed the death
spiral , which will eventually drive many theaters into
The proliferation of Digital Video Recorders.
Digital Video Recorder (DVR) has a variety of flavors—stand-alone
DVRs, such as Tivo; portable DVRs, such as the iPod; and
integrated DVRs, such as those offered by TimeWarner—that
allow consumers to easily capture movies and TV programs
and then watch them when it is convenient. As the universe
of digital channels continues to expand—the telecom giants
Verizon and AT&T plan to pipe thousands of channels
through telephone lines—the DVR will be the ultimate enabler
of home entertainment. Only 9 percent of households in American
now have DVRs, but as the cable and satellite providers
replace their customers' cable boxes with integrated DVRs
in the next three years, that number will mushroom to over
40 percent. Such a plethora of personal entertainment (including
news) that can be watched exactly when a consumer wants
to see it, without commercial interruptions, will take a
huge chunk out of the “clock” of potential movie-goers.
The studios depend upon a large number of people to turn
up at theaters on opening weekends, but soon they'll have
the alternative of watching a downloaded movie or TV program.
. The Blu-Ray DVD.
DVD is introduced in 2006, it will have the backing of all
six Hollywood studios as well as all the major computer
Its virtue for Hollywood is that, although it is the same
size as the present DVD, the Blu-Ray can hold six times
as much data on multiple layers. This immense storage capacity
will allow studios not only to re-release their library
in the high-definition format but to add whole new products
to the package. For example, Sony, which has helped pioneer
the Blu-Ray and will equip its PlayStation 3 with it, is
considering adding 3-D versions of movies. Since some of
the multiple layers can also be used to record material
downloaded from the Internet, the Blu-Ray will also allow
studios to sell consumers add-on interactive games, musical
videos, and even sequels to the movie.
The mandated digital conversion of television.
passed legislation in December requiring that all television
signals be converted from analog to digital by Feb. 17,
2009. This means that Americans who don't want to buy a
converter box will need a digital television set. Nowadays,
most digital TVs sold are equipped for high-definition.
So, in the next few years, a huge part of the couch potato
population will be able to watch a picture at home—whether
it is a football game, a made-for-TV series, or a reality
show—that approaches in visual quality the fare in movie
theaters. As a result, digital HD television will deprive
movie theaters of a significant part of their audience.
The Hollywood studios, as the kings of content, will profit
the most from the transformation of the entertainment economy.
The theaters, and cable operators (unless they can acquire
their own content), on the other hand, will have a much
more difficult time surviving the increased competition
for the clock and wallet of the audience. And the couch
potato will have many more, though not necessarily better,
reasons for staying home.
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