Wednesday, June 30, 2004

Embracing disruption Major movie studios sold $9.4 billion in DVD releases to retailers in 2003, providing 52% of their incomes. Theatrical releases bring in only $3.9 billion in total, with other income coming from TV, pay TV,  and VHS. That's according to a Newsweek article ("One Man's Flight of Fancy," 7/5/2004), which traces the rise of the DVD. DVDs were introduced, as the article points out, despite the opposition of most of the big studios, who thought that DVDs would cannibalize their sales and encourage piracy. Of course, it has done just the opposite, prolonging the shelf life of their hits by giving them a strong second life, even in spite of some added piracy. DVDs became the fastest selling home electronics gear ever. It was thought that DVDs would exist mostly in the rental market, but quite the opposite, as the moderately priced DVDs sell at a higher rate than anyone imagined. The article shows how visionary Warren Lieberfarb saw that the studios could tame the potential disruption of digital distribution through a common format. He proved a master deal maker, overcoming the parochial interests of individual companies to agree on the new standard. As the story says: Lieberfarb looked for new ways to reach film audiences, but often ran into a fear that any new distribution outlets would siphon away fans from theaters and television. Entertainment companies fear "disruptive technologies," not realizing that "we all win," he laments. Now new format battles are starting up. The next-generation DVD is being developed, and the easy availability of high bandwidth means that finally, the long-predicted video-on-demand boom is likely to grow rapidly. Having conquered on disruptive force by banding together, can the movie studios hold together to co-opt the next wave of disruption? Oligopolies can either embrace and subvert new threats or they can resist, often in vain. 8:13:09 PM

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