Appeared in BRC Solutions, July 2006

The video download revolution

Paul Hague, Managing Director of BiBC

In the past few years music downloads have taken the consumer market by storm, prompting a step-change in the way music retailers and content owners use the Internet. Although the audio industry was forced by illegal file sharing to reevaluate the way it works it has certainly benefited in the long run. Now this has driven the demand for moving image downloads which are about to undergo the same revolution.

With high value material at risk, content owners are understandably cautious. Now inbuilt Digital Rights Management (DRM) coding can ensure that files downloaded over the internet can not be illegally copied. This has burst open the market place and now there is a big opportunity for retailers to get a piece of the action in a new industry. Already much progress has been made with the early innovators stamping their mark and now the market is starting to pick up serious momentum. But still there is no clear leader at the moment so we’ll see many big brands fighting for the biggest share of this market.

So what opportunities does this innovation present for retailers?

The convenience and competitive pricing of downloads is such a draw that consumers will wonder why they should wait for a DVD to be delivered by post or go out to a shop when they can buy the content and view it straight away. With an already loyal customer base, there is a very real opportunity for retailers in the e-tail space. Downloads are the perfect product – with no packaging and few overhead costs the products become cheaper and these savings can be passed on to the consumer.

There’s plenty of room for competition in this market but if a retailer is going to do well they need to get to market quickly - this is essential to avoid a situation similar to that of the music industry with one brand such as iTunes cornering the whole market. There are clear benefits of being the first big retailer to provide this offering, the first to get into the market will often be established as the most credible. Amazon is a case in point.

Routes to market

Physical

DVD products will still be sold in the near future, but the restrictive nature of the medium will see sales steadily decline as more companies offer flexible video downloads. At present consumers often write off their supermarket's ‘in-store’ DVD range as "too small" but with downloads shelf space will no longer limit what can be offered. The only limiting factor will be the number and quality of relationships retailers have with the content owners. The transition to download will not be seamless though and to combat this, some companies will even offer both physical and download. Universal is hedging its bets offering this package, which includes both versions for £20.

Content owner’s online media stores

Owners of content will for the first time find that they are able to get in front of the consumer easily themselves and won’t need to rely on distributors or retailers. Building their own online store though will take an enormous amount of investment if they develop their own technology, but will mean they can reap the financial benefits in the long term.

This poses the threat that content owners such as Warner or Universal will directly grab a big share of the market. Which will certainly mean that the shape of the market and the way retailers and content owners do business will change. But content owners will still need retailers - they’ll still want as many channels to market as possible especially as consumers will lack the patience to go to each content owners site individually. They’ll want to go to a site that can quickly and easily provide wide ranging content from a variety of content sources. Even so, as content owners become distributors, they are effectively becoming competitors. Retailers will need to exercise caution to ensure they still get the best opportunities and the best deals. Retailers pricing strategy will have to change to really squeeze the studio’s retail margins, because as a competitor the retailers will be even less reluctant to give them a big cut of their takings.

Content owners using an aggregator:

Content owners can partner with a company that can sell their content for them, taking away the headache of the technology, marketing and sales associated with being a distributor. Itunes or Boxoffice365.com is an example of this, they take the burden of the technology but obviously they’ll take a cut. This may be less profitable in the long term, but short term it is an easy and risk free route to market.

Rebranding an aggregator site as your own

As a retailer, you can rebrand an aggregator’s site as your own so you have all the benefits of using someone else to sell through – they’ll manage all payments and relationships with the content owners – but the consumers will understand they are buying from a brand they know. Tiscali is a well-known brand that uses this model. They can maximise their brand name and customer base, but don’t necessarily need to provide content or maintain the site in any way. They just enjoy the added value it offers their customers and make additional returns.

New horizons

As well as channels to market increasing, the amount of content is going to mushroom dramatically. No longer is content production and distribution going to be only the remit of the big budget players. Virtually anyone will be able to produce content if they own the rights, which will really open up the market for new and independent media companies. The video content market is not a finite size and will grow and grow so opportunities for retailers are endless.

The most innovative companies will be the ones able to win new customers in a competitive market. If a retailer can get access to a content owner’s archive then there is the possibility of packaging content together into an exclusive promotion. For example music videos can be teamed with interviews of the band.

But a word of caution, as the market becomes more fragmented, it will be the big brands with the captive audiences that will reap the benefits. And this is not restricted to retailers, with the Post Office moving into telecoms there is no reason why they or other brands like ISPs can’t move into the video download space.

There are opportunities there for the taking and the consumer will see the benefit of increased competition. The companies that will succeed will be the ones that offer the best pricing, choice and service. Retail is perfect as they have a captive audience who already know and trust the brand. Many retailers are successfully diversifying into new areas such as loans and telecoms and with e-tail thriving it’s a natural progression.