How Hollywood can out-apple Apple

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The long-term viability of delivering premium content to mobile devices hinges on the willingness of producers to deliver free content to consumers in the short-term, argue David Wertheimer and John Barrett.

In 1903 one of the first narrative movies, The Great Train Robbery, came to the silver screen. Although only 12 minutes long, audiences flocked to theatres to see it, marking a milestone in the rise of the entertainment industry.

For most of the next 100 years, the cinema would remain the primary distribution method for films.

Television gradually grew in importance with the advent of more channels, home video and pay-per-view but it was not until the twilight of the century that the number of potential distribution platforms exploded.

Computers, mobile phones, and portable players such as the iPod all suddenly became possibilities. The stars of devices, storage and networks aligned in a way that began to significantly alter the distribution landscape.

In fact, computers proved to be such a viable distribution medium that they soon became a key platform without the industry's consent. Full-length movies and TV episodes became available through unlicensed P2P networks while short clips could be found on video sharing sites like YouTube.

Portable platforms (such as cell phones and iPods) have proven to be a more elusive distribution channel.

Ninety percent of all broadband users have a mobile phone, but only 10 percent regularly use it to watch video; just six percent regularly use it to watch live TV.

Similarly, one-half of all broadband users have a portable MP3 player but only 10 percent regularly use it to watch video; roughly one-half the number that have a video-enabled player.

Why have consumers not been more receptive to portable video platforms? The answer lies in a mixture of technological and business challenges plaguing the industry.

The impediments to portable media distribution and adoption are numerous. From a technology standpoint, the amount of bandwidth available for mobile phones remains limited, which makes downloading and streaming of content painfully slow.

Broadcast technologies (such as DVB-H & MediaFLO) are becoming available but these will only partially solve the problem because they are primarily designed for live TV, not on-demand content.

Devices capable of displaying 24 or 30 frame-per-second video have not yet reached critical mass, while the small-form factor of portable devices makes for tiny screens with low resolution - ultimately an unappealing combination for watching long-form content.

Methods for finding/accessing and getting content onto mobile platforms are also not as user- friendly as they need to be.

Interoperability remains a major challenge: content purchased for one portable platform can rarely be used on another.

In addition to the technological hurdles, there remain significant business challenges.

The amount of high-quality content available is still extremely limited, the rights and exhibition windows situation makes for odd comings-and-goings of content (from an availability standpoint), and much of the content that is available doesn't suit the device or viewing habits of individuals using it.

Few consumers perceive of today's crop of portable devices as good platforms for viewing full-length movies or TV shows.

Also, pricing does not always match the perceived value for lower-quality, locked-to-a-system content. Another hindrance is the fact that consensus has not yet been reached on digital licensing agreements.

The 2007 US writers' strike and revenue dispute between NBC Universal and Apple provide two cases in point on the business challenges of "re-purposing" content.

These technological and business challenges will be resolved (provided that all parties constructively work towards their resolution), but it will take time.

The prevailing business arrangements evolved slowly over the film industry's 100 year history and cannot be instantaneously re-written. Technological upgrades to networks and devices will likewise require substantial investment - operators and manufacturers will not jump on board without some assurances of success.

Yet despite the long-term challenges facing the industry, there are more immediate opportunities to drive revenues and adoption.

Given these challenges, it is easy to dismiss portable and mobile platforms and marginalise efforts associated with them. At the same time, realising the potential of portable platforms will obviously require effort and investment. How can companies yield immediate returns while simultaneously preparing the market for the long haul?

We believe that Apple provides excellent insight into how this can be done. The iPod has transformed Apple as a company and achieved remarkable success. Yet the secret to its success lies less in the technology than the business strategy.

For years, big-box retailers have used music and movies as a loss-leading lure for store traffic. Apple adapted this strategy to the digital age by offering content as a low-margin lure for hardware.

The company gave away millions of free music tracks in order to prime the market for iPod sales. It likewise offered low-cost price points on movie and TV titles in order to promote ‘video' iPods.

The strategy has been a great success for Apple, but content producers have been less enthusiastic. The content sold by itself does not generate substantial amounts of revenue.

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