How not to do downloads

For some reason, the debut of download-to-own services from Movielink and CinemaNow are getting lots of hype. But the hype is completely unjustified, as the movie studios are doing everything possible to keep movie downloading from becoming a viable option.

The immediate benefits of digital distribution are diminished manufacturing/packaging/ distribution/storage costs. The medium- to long-term benefits are found in the long tail, where the movie studios can make a huge amount of money off of less popular titles (since each sale is essentially pure profit, and unlike in a real store there is unlimited “shelf space” and it doesn’t cost anything to “stock” a title that only sells 100 copies a year).

The new download services erase both of these benefits. It actually costs more to download a movie than it does to buy the same film on DVD. The New York Times reports: “Memoirs of a Geisha, from Sony, will cost $19.99 to download from CinemaNow and $25.99 from Movielink. As a DVD, by contrast, it is priced at $16.87 at Wal-Mart. King Kong, from Universal, which will cost $19.99 from both download services, is being sold on DVD for $14.96 by and $13.99 by Circuit City.” Plus you can burn a movie you download, but you can only play the burned DVD on a computer. Apple hasn’t done everything right with iTunes — catalog songs should be cheaper than 99 cents, there should be more pricing experimentation in general, the proprietary format is limiting — but the price and ease were good enough to become a huge success.

Because of the high cost and limited rights, nobody is going to use these services. Which is what the studios obviously want, but that shows how backward thinking they are. The success of DVDs is a physical long tail in action. A cheap, comprehensive download service could only add to their profits.

Video game companies should look to this as a warning. But we have good reason to hope for a different model. Nintendo is making downloadable old-school games a central part of the Revolution pitch, and Microsoft is pushing downloads with Xbox Live Arcade. Neither is going to price old games so high as to kill off a potentially vast revenue stream. And they have a built-in advantage over movie studios: no piracy. If you download Zelda onto your Revolution, you won’t be able to play it anywhere else. So Nintendo has no reason to be scared, and every reason to be fair. The movie studios should do the same.

— April 3, 2006

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