By combining Technicolor's superior infrastructure with our proven distribution technology,
our goal is to provide the most effective way to date for online retailers to deliver digital
entertainment to their customers."
- David Cook, President & COO, CinemaNow
"We have to bring content into the living room" - An Interview with Chuck Parker
London – Digital distribution is currently not really making any headway. However leading suppliers have to be set up for all possibilities. VideoMarkt spoke with Chuck Parker, Executive Vice President International DVD and Global Electronic Distribution Services Technicolor, about key challenges, major issues and the importance of DVD and Blu-ray.
The expectations placed on manufacturers have been changing in the past years and are moving in direction fulfilment. What is the impact on a major like Technicolor?
Technicolor had already been offering this [fulfilment] service since the 70s with the launch of the VHS cassettes. Since the start of our activity, we have been focusing on movies and will continue to do so in to the future. More than 85% of our revenue is generated by video. During VHS times, it was important to not only duplicate cassettes, but to take care of the supply chain to the retailer. The business model for DVD is the same. One important aspect today is that broadcast services belong to fulfilment services.
How do you see the role of digital distribution?
We believe 100% in the business model of digital distribution. It will take some time of course and as forecasted by some analysts, the market is not ready yet. DVD will exist for several years, however digital distribution will ultimately prevail. We are already offering solutions which work for future models and are well positioned in the area of Digital Supply Chain.
It is all about clients’ needs: physical media, broadcast or digital. However those imply different requirements for which we set up different divisions. This is an important point for the success of our company and our parent, Thomson is convinced about it.
But Technicolor gained resources from outside the group.
This is correct. We acquired the company Syncast last year, who are responsible for Xbox Live in the US. With this technology in the background and the know-how of Thomson and Technicolor, we are able to offer a perfect Content Delivery System. This allows us to post all content on our servers and cover all possible formats, DVD or digital distribution. This is a highly efficient process, which is absolutely secure and offers flexibility for different marketing possibilities and business models.
Are they standard business models or does the client require individual and tailored solutions?
In my opinion, there is only one way forward, and that is Digital Assets. The consumer acquires rights to content and can access it everywhere, at anytime and on any device. If you look at how many steps are currently necessary for DVD: we get an order, manufacture, pack the DVD and then ship it to retail where it takes shelf space. It then has to be constantly updated and sorted out if the title does not work. In comparison, it is far easier to use a credit card and click on the download button. We have to convince the consumer to adopt this model.
This is not an ideal model for manufacturers.
Every manufacturer has to think about fulfilment today. This is a key aspect as someone has to control the download process: are the payment process and copyright secure? Who is transferring the file to the consumer’s PC, and who is responsible for it? Plenty of tasks for a service provider. The main focus for a content owner is security and this leads to the main question: is it not safer to have all content on one secured server instead of delivering lots of copies throughout the world?
What are the main challenges for this business model?
The main challenge is to influence the consumer behaviour: how do I make sure that the consumer gets used to the new services? Itunes is a pioneer in the area - all digital distribution models today are based on PC whilst the consumer uses his TV. We have to bring fast and easy-to-use Electronic Sell Through on TV into the living room. Moreover there are several providers on the market but none of them offers the entire full range of movies.
The consumer would like to buy any movie of his choice from everywhere but there is the problem: each digitalisation of a movie costs money. How is the return of investment for catalogue titles? What about Digital Supply Chain? Each market player would then have to set up its own digital plant and invest a vast amount of money.
An investment with high risks?
Yes, definitely. Look at Wal-Mart for example, and the low number of downloads which occurred there. This is an important aspect: how to include retailers in the new business model?
Is this distribution form requiring the retailer anymore?
We need the know-how and the acceptance of the retailer, who has been gaining the confidence of the consumers over the years. Look at the latest status on digital distribution: we are continuously talking about models and how they could impact the consumer’s behaviour. Ultimately, consumers are testing some offers but the established models are still in place.
This means that DVD is still playing a more important role for Technicolor than digital distribution?
Let me give you an easy example. My responsibility area at Technicolor covers 600 people, 100 are busy with digital distribution. This might answer your question.
There is still space for physical formats then?
The search for a reasonable business model for digital distribution started ten years ago. Sales of physical media have already suffered from it, especially CD sales. A ten or fifteen percent decrease could be really damaging for some companies.
In the movie area, we have Blu-Ray which offers another experience. No download can compete with the quality of Blu-Ray and therefore the proportion of physical media will continue to dominate in the coming years. However, digital distribution will gain some share in the movie area even if it is only a low percentage in the beginning. The big excitement about digital at the start became a realistic estimate. But digital will represent one quarter of the sales at some stage.
Does this imply a generation change among the DVD consumers?
Our kids are growing with completely different technologies and therefore consume entertainment differently. Currently consumers collect DVDs or buy them as gifts. Is it something young people do? Are there any young people left who give CDs as a present? Another example is the development of digital cameras. The consumption habits can and will change.
Does this mean more consolidation for manufacturers and service providers?
This is already happening, as the insolvencies of ODS and MediaMotion have shown. There is overcapacity in the market, especially in CD and outside the peak season. We have to see how the issue of overcapacity will be solved. There are several scenarios possible, even in the past there were rumours about two big players merging.
