Parks Associates Blog

Wednesday, January 14, 2009

Blockbuster and Sonic Want a Piece of a $4.6 Billion Pie

Today, movie rental giant Blockbuster announced a partnership with Sonic Solutions that will allow it to stream movies and shows not only on TVs and PCs, but also on mobile phones, portable media players, Blu-ray players, set-top boxes and digital video recorders. Between them, Blockbuster and Sonic already have deals with such CE manufacturers as LG Electronics, Samsung, and VIZIO. VIZIO had just taken the wraps off of its “Connected HDTV” Platform at CES last week. VIZIO’s other content partners include Accedo Broadband, Adobe, Amazon.com, Flickr, Netflix, Pandora, Rhapsody, and Yahoo! The Blockbuster and Sonic direct-to-CE service is expected to launch in the second quarter of 2009.

The bulk of the content available through the service will be newer titles, which will be available to consumers a la carte. Pricing has not been disclosed yet; however, Blockbuster will have to charge around $5 per movie to remain competitive with pay video-on-demand offerings from the cable operators. Blockbuster is also contemplating a subscription model.

The partnership comes as no surprise. One may say it’s in the partners’ blood (pardon the expression), since Blockbuster owns Movielink and Sonic Solutions recently acquired CinemaNow (both companies offer online video purchase and rentals). However, both Blockbuster and Sonic Solutions must beware of the pitfalls that have made Movielink and CinemaNow acquisition targets in the first place:

Business model: consumers already pay for content by going to movies, renting videos and paying their monthly cable/satellite/IPTV bills. Getting them to buy/rent more content will be tricky.

Consumer experience: The digital rights management (DRM) software has the potential of undermining the consumer digital media experience. Content partners require strict DRM to protect content from being pirated. The side-effect of strict DRM is that consumers may only play content on a limited number of devices (such as the original PC to which the content has been downloaded). Poor experience will limit consumer interest in the offering.

Competition: Obviously, Blockbuster’s direct competition is Netflix, which has made its Watch Instantly feature available through numerous consumer electronics devices (LG HDTVs and Blu-ray players, Samsung Blu-ray players, the Roku Netflix Player, the Xbox 360, and TiVo). Additionally, this new partnership will compete with cable operators’ ever-growing VoD collections. It will also compete with numerous free offerings directly from content owners, including Hulu, CBS, and Disney, to name a few.

Parks Associates recent study TV 2.0: The Consumer Perspective, indicates that the potential exists to convert the more than 26 million monthly users of online video services to premium offerings, as Blockbuster and Sonic Solutions are offering. Bringing premium Web video content directly to the consumer electronics device – whether it is the TV, the set-top box, the Blu-ray player, or other devices should be a lucrative business in the next few years. From our report Internet Video: Direct-to-Consumer Services: Second Edition, we forecast that that transactional revenues for online video consumed directly at the TV (via a connected CE device) will grow from $1.2 billion in 2009 to $4.6 billion in 2013. Not only could Blockbuster drive new transactional revenues from both a PC- and CE-oriented online video strategy, but there is much to be said about simply offering the additional online video content as a value-add, and – longer term – there may be some opportunities to derive ad revenues. However, Blockbuster’s success depends on the specifics of how the offering is implemented in terms of business model and the user experience, predominantly. As always, the devil is in the detail.

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