This is the first in a series of posts reporting on the hot button issues discussed at the 2008 Entertainment Supply Chain Academy Conference.
Over 140 executives of the European and U.S. entertainment industries assembled in Prague, Czech Republic, in early October to address “The Future of Packaged Media in the Emerging Digital World.” Leaders of operations management at the home entertainment companies, retail behemoths, thought leaders and solution providers of the industry engaged in open information exchange, collaboration and networking, confirming that supply chain management is everyone’s business.
As conference chairman, I was pleased to see that this year’s Academy not only reflected the overwhelming success of last year’s event but also a keen understanding throughout the executive suites of studios and their supply chain partners that we are facing extraordinary opportunities and challenges.
The operational agenda for the industry was to:
- Launch Blu-ray and unleash web-enabled connectivity, including figuring out how to embrace digital distribution to satisfy consumers and be profitable,
- Grow the business in the emerging Eastern European market,
- Ensure sustainability of the environment, while reducing the overall cost in the supply chain.
This is the first in a series of posts, each devoted to discussing one of the issues above and what came out of the Academy. The relevance of supply chain management thinking and practice has never been greater than in our current circumstances with the global economic crisis we now find ourselves in. At the heart of it all is the potential to reduce inventory and time in the supply chain through collaboration where waste and redundancies are further eliminated.
Blu-Ray: The Technology Driver of the Entertainment Industry
In his keynote address, Philippe Cardon, president of Warner Home Video International, emphasized the new opportunities that Blu-ray—with its web enablement and anti-piracy features—offer the industry. While the DVD will remain the dominant delivery mechanism for studios for the foreseeable future, the growth of the industry will come from the transformation of the standard DVD to Blu-ray in the new High Definition television environment, he said. The delivery of innovative packaged media containing local market preferences and local language productions are also real opportunities, he said.
Licensing and Other Issues
As a counterpoint, independent Blu-ray providers argued that the licensing of Blu-ray DVDs is expensive and very complicated as the process involves a vast range of patents and many licensing agencies. In the absence of a patent pool scheme, MPEG in Los Angeles is attempting to put one together, while Philips has offered a Philips-only license scheme and Sony has a Sony-only licensing scheme on its web site. Licenses for Blu-ray Disc’s Digital Rights Management (DRM) technology, the Advanced Access Content System (AACS), are available from the AACS Licensing Administration, members of which include IBM, Sony, Toshiba and Disney.
While replicators are putting aside money to pay for the day when a comprehensive licensing scheme is unveiled, there is no answer on when that day will arrive and how much money will be needed. Obviously any licensing scheme will have to be retrospective. It was also discussed that the absolute requirement to incorporate the copy protection scheme of AACS is expensive and a deterrent to releasing of certain applications where the content owner does not need copy protection.
Physical Is Physical, Digital Is Digital: The Twain Shall Meet!
The complexities of preparing content for digital distribution, both online and mobile, provide bring a series challenges, for example, the multiple file formats associated with the mobile world, and the re-purposing of content and requirements for ever-enhanced metadata. Nonetheless, Rob King (Abbey Road), Steven Samwell (Ascent Media), Gerre Vertseegh (Bonver/Film2Home), Chuck Parker (Technicolor) and Will Morley (Deluxe Digital Services) demonstrated how to embrace the emerging digital world.
On the move towards digital media, Cardon said that digital distribution will add value to the packaged goods media through the bundling of digital copies, which can be played on the PC or various portable media. As a result, digital distribution will finally become a legitimate business.
Cardon reported that day and date video on demand (VOD) releases have increased purchase rates of DVDs by 150% in certain markets. Remote devices for PS3 consoles have also significantly impacted the viewing of DVDs.
He also reported that versions of anti-piracy laws are being considered in France, UK, Spain, Germany and Italy, where nearly two billion dollars of revenue (30% of sales) have been lost because of piracy. Internet service providers (ISPs) are also being approached to minimize peer-to-peer illegal downloads.
Growth in Gaming
Video games have now overtaken music in the global consumer expenditure league and are forecast to exceed DVD revenues within five years (Exhibit 2). Audience expansion is at the heart of the growth. This product has been the bright spot for replicators and retailers as gaming has entered the mainstream.
With a growing number of successful formats (both console and handheld), a widening retail distribution base and a strong “accessories” market segment, the supply chain challenges are intensifying. At the Academy, an esteemed panel, including Patrick Inskip (Sony Computer Entertainment Europe), Mike Kearney (Electronics Arts), John Quinn (Warner Brothers Interactive) and Fergus Riley (Microsoft), discussed the high-tech platforms for graphics, expanding demographics for newer games, the interactivity achieved with software and the synergies and differences with video.
Devendra Mishra, MBA, MSIE, is an adjunct professor of decision sciences at Pepperdine University’s Graziadio School of Business and Management.
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