Posted by Allan on 12/27/05 03:22

http://www.slate.com/id/2133291/

Hollywood's New Year
My predictions for 2006.
By Edward Jay Epstein
Posted Monday, Dec. 26, 2005, at 7:48 AM ET

One doesn't need a crystal ball to see that Hollywood's future is now
inexorably tied to the small screen. Just look at the studios' own
internal revenue numbers. Before the invasion of television, the big
screen (aka movie theaters) provided 100 percent of the studios'
revenues. Now it accounts for less than 15 percent. The small
screen—which includes computers, portable DVD players, and iPods as
well as televisions—provides 85.6 percent. To be sure, much of
Hollywood's celebrity culture, and the entertainment media that feeds
off it, remains rooted in nostalgia for the big screen. Meanwhile, the
MBAs that run the studios—and their corporate owners—have come to
grips with the cruel reality that the movie business is no longer
primarily about movies, it's about creating intellectual
properties—the current term of art for a movie, TV series, or
game—that can be sold or licensed for personal entertainment in a raft
of different forms and markets. According to my crystal ball, the
further migration of Hollywood—even with its sticky celebrity
culture—into home entertainment will be greatly accelerated in 2006 by
the following five events:

1. The success of Google's Wi-Fi experiment in San Francisco.

In October 2005, Google offered to provide a Wi-Fi service that would
enable anyone in San Francisco to connect without charge to the
Internet. Google would make its profit not from an access charge, but
from the ad revenue an entire broadband-wired city would provide. If
the experiment proves successful—and Google's Wi-Fi platform proves
stable—nothing will stop the company from rapidly extending this
concept to other cities. Reportedly, Google has already lined up
unused fiber-optic cable that spans the country. Such a free Wi-Fi
network would mean that the Hollywood studios would no longer need to
rely on cable operators—or even telephone companies—to have a two-way
pipeline into homes. They could directly rent any movie to consumers
and bill their credit card (like everything else is billed on the
Internet) without paying a cut to cable operators or local televisions
stations.

Continue Article

2. The further collapse of the video window.

Up until recently, the studios gave theater owners a five- to
six-month window before a movie was released in video stores. But now
with mass merchandisers selling most of Hollywood's DVDs—Wal-Mart
alone accounts for over 30 percent of DVD sales—the pressure on the
studios to time their release in accordance with retail selling
seasons, such as Thanksgiving and Christmas, is becoming nearly
irresistible. After all, a single Wal-Mart order can amount to $100
million. So, as the studios dance to Wal-Mart's tune, the window
between the theatrical release and the DVD release can be expected to
further shrink, if not disappear entirely. As a result, more and more
people will choose to wait for the DVD instead of going to the
theatre. The resulting loss of audience will then further speed the
death spiral, which will eventually drive many theaters into
bankruptcy.

3. The proliferation of digital video recorders.

The digital video recorder has a variety of flavors—stand-alone DVRs
such as TiVo, portable DVRs such as the iPod, and integrated DVRs such
as those offered by Time Warner—that allow consumers to easily capture
movies and TV programs and then watch them when it is convenient. As
the universe of digital channels continues to expand—the telecom
giants Verizon and AT&T plan to pipe thousands of channels through
telephone lines—the DVR will be the ultimate enabler of home
entertainment. Only 9 percent of households in America now have DVRs,
but as the cable and satellite providers replace their customers'
cable boxes with integrated DVRs in the next three years, that number
will mushroom to over 40 percent. Such a plethora of personal
entertainment (including news) that can be watched whenever the viewer
wants to, without commercial interruptions, will take a huge chunk out
of the "clock" of potential movie-goers. The studios depend upon a
large number of people to turn up at theaters on opening weekends, but
soon these moviegoers will have the alternative of watching a
downloaded movie or TV program.

4. The Blu-Ray DVD.

When the Blu-Ray DVD is introduced in 2006, it will have the backing
of all six Hollywood studios as well as all the major computer
manufacturers. Its virtue for Hollywood is that, although it is the
same size as the present DVD, the Blu-Ray can hold six times as much
data on multiple layers. This immense storage capacity will allow
studios not only to re-release their libraries in the high-definition
format, but to add whole new products to the package. For example,
Sony, which has helped pioneer the Blu-Ray and will equip its
PlayStation 3 with it, is considering adding 3-D versions of movies.
Since some of the multiple layers can also be used to record material
downloaded from the Internet, the Blu-Ray will also allow studios to
sell consumers add-on interactive games, musical videos, and even
sequels to the movie.

5. The mandated digital conversion of television.

Congress passed legislation in December requiring that all television
signals be converted from analog to digital by Feb. 17, 2009. This
means that Americans who don't want to buy a converter box will need a
digital television set. Nowadays, most digital TVs sold are equipped
for high-definition. So, in the next few years, a huge part of the
population will be able to watch a picture at home—whether it is a
football game, a made-for-TV series, or a reality show—that approaches
in visual quality the fare in movie theaters. As a result, digital HD
television will deprive theaters of a significant part of their
audience. The Hollywood studios, as the kings of content, will profit
the most from the transformation of the entertainment economy. The
theaters and cable operators (unless they can acquire their own
content), on the other hand, will have a much more difficult time
surviving the increased competition for the clock and wallet of the
audience. And the couch potato will have many more, though not
necessarily better, reasons for staying home.

Happy New Year.

http://www.slate.com/id/2133291/






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