InformationWeek
Defining The Business Value Of Technology
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October 23, 2000 |
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Hollywood's New Star Is IT
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But Justin Yaros, the studio's CIO, wants to do more than catch up. He wants to couple the Internet with digital video technology to permanently alter the way people watch movies, by downloading them whenever they want. Digital distribution is Fox's highest priority, and IT is at the center of it. Although the new technology won't replace movie theaters, Yaros says, he's candid about the impact its successful deployment could have. "We don't see a role for the video store in the future," he says.
Digital distribution will be more convenient than what exists today. Rather than renting from a video store or waiting for a start time, as movie-on-demand services require, consumers could get a movie any time after waiting for it to download to their home. And unlike pay-per-view services, the Internet video-on-demand technology would also have VCR functions: stop, rewind, pause, and fast forward.
The benefits for movie studios are clear. Digital distribution means no manufacturing costs, which sets Fox back roughly $5 per videotape. And by eliminating middlemen, the studios restore a substantial cut of each sale.
But the benefits go beyond money saved and money earned. Digital distribution will let studios do what they haven't been able to do since antitrust laws in the 1940s forbade them from owning their own theaters: connect directly with customers. That would give studios information to tailor their marketing to consumers. It's something the studios haven't done, but neither have the video chains. "When was the last time you were effectively marketed to by Blockbuster?" Yaros asks.
Yaros envisions a Web site that will personalize content for potential viewers and not just with movies from Fox. Visitors will be able to read reviews from other moviegoers, as well as learn which films are doing well with other viewers in their regional, economic, and age brackets--in short, use technology to find the right movie for them. Try getting that from the kid behind your local Blockbuster counter.
Of course, big ideas must overcome big obstacles--the foremost in this case being the companies that Yaros' system would displace. Chains such as Blockbuster and Hollywood Video are the biggest sources of video revenue for studios. In 1999, Blockbuster accounted for 32% of all video rentals, which totaled $10.1 billion, according to Adams Media Research--and the rental chains aren't likely to let the studios cut them out. Indeed, Fox and other studios could pay a penalty if they decide to bypass the video stores--a substantial period of time when they're cut off from their existing video revenue stream without generating a new one.
Blockbuster, in particular, isn't eager to become obsolete. It has teamed with Enron Broadband Services, a subsidiary of Enron Corp., in its own attempt at digital distribution, due to go live next summer. Enron will provide a private fiber-optic network, while Qwest, SBC Communications, and Verizon will deliver digital subscriber line connections, so a movie never has to go over the Internet, minimizing security concerns. The DSL suppliers will bolster their infrastructure to guarantee a minimum speed of 1.5 Mbps. Blockbuster will sell or lease consumers a set-top box that will shoot DSL to both a PC and a television, and consumers will be able to order videos whenever they want. But there will be some drawbacks for consumers: The movies will come out after video releases, and, at least initially, they'll cost more than a typical rental.
Although Blockbuster can't prevent the studios from creating their own digital-delivery services, the company says it will be more successful because it has better brand recognition. "We're within a 10-minute drive of 70% of the U.S. population," says Steve Pantelick, chief operating officer of Blockbuster's new-media division. And consider this: When was the last time you rented a movie knowing which studio produced it?
For its studio-driven digital-delivery project to be successful, Fox has to convince other studios to play along. There are ample precedents for this kind of thing in Hollywood; movie studios collaborate all the time on big projects, as 20th Century Fox and Paramount did on Titanic. They also work together on standards for everything from DVD formats to theater projection. But despite their almost universal wariness of Blockbuster and its brethren, it's difficult to see why a competing studio would work with Fox to compete against a video chain. "We'd be competing with our current customers, which would be a serious problem," says the CIO of one major film and television studio.
Other obstacles are technical, not political. Fox's biggest concern is that digital video files can be easily copied. Letting customers download movies to their desktops would make things easy for pirates. In digital form, movies can be reproduced without any degradation in quality. So many of Fox's initial resources are concentrated on security measures. "I could spend more time making it faster and smoother if I didn't have to figure out how to lock it up," says Mark Dolar, Fox's VP of strategic technology. Other unresolved issues include controlling how many times a customer can watch the video. The studio is exploring several options, including encryption that would give the customer a one-time reader, and a digital watermark that would make it difficult to copy and sell the video.
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Photo of Yaros by Tom Keller
Illustration by Allen Crawford
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