July 11, 2007

HP and On Demand DVDs

Recently HP and Trans World Entertainment Corporation inked an agreement to offer a new service that would give consumers access to a diverse catalog of movie, TV and specialty video content not readily available in stores or online. The companies stated that to date, there have been nearly 1 million movies and TV episodes created worldwide, yet less than 10 percent have been captured on DVD. People can log on to Trans World Entertainment’s f.y.e.com online store and place orders, choosing from a variety of titles. The order is then fulfilled by HP’s custom manufacturing facility where most purchases are mailed within 24 hours. All orders include a DVD in full color packaging that is green certified as environmentally responsible packing. The service is a component of HP Video Merchant Services, which enables retailers to deliver video content in a variety of ways, including digital downloads, and traditional packaged DVDs as well as new formats including HD-DVD and Blu-Ray.

OK, so you are thinking, aren’t the pundits saying that downloads will decimate all physical movie and music purchases and rentals real soon now? Well, this pundit never bought into that argument, and the numbers in the market show that downloads, while growing, have hardly displaced physical media as the dominant delivery mechanisms for movies and music. However, downloads do address one of the gating factors for cost effective sales of content, namely, moving the cost of goods to as close to zero as possible to enable a positive ROI on small volumes. For niche content, the overhead of producing a modest run of DVDs, say 2000 copies, to sell perhaps a couple hundred makes it extremely difficult to break even, let alone earn a buck. If the fixed cost of a release could be reduced to creating a disk master, something that a mainstream PC with a few hundred dollars of software can easily do, and developing simple, but very acceptable packaging printed on demand, then the economics of content distribution change dramatically.

There is a potential goldmine in old television, movies, newsreels, animated shorts, commercial short subjects, and so forth that have commercial value to a select group in the marketplace. In many cases these enthusiasts, researchers, geeks, or just plain regular folks with irregular interests, would happily pay the market rate for a volume release or perhaps even more for content that is of special interest to them. Yes, some might be willing to download it, but downloads do not offer a permanent archive for the content, unless the purchaser wants to burn a DVD, print up a sleeve or box, and then assemble the product for long term storage and use. This is where HP’s solution is so cool, it does the “hard” stuff, but at an economic investment that would not be hard for a niche content provider to reasonably make a return on.

While some of the early success for Trans World Entertainment will probably be on older volume content such as TV shows, sports events, foreign movies; educational programming, and pieces of historic interest, in the long term we believe the value in this HP solution will be much higher for independent commercial producers of content, community groups/organizations, non-profits, etc. who may have the aptitude to produce content, but lack the infrastructure or wherewithal to effect distribution and sales. We could easily envision this service at the local photo/video shop similar to the kiosks that print digital snapshots. Creative components such as templates for thematic packaging or even custom content could be added on to create a higher value service for the vendor. If placed correctly, the potential for HP as a back end content fulfillment provider could be enormous.

A few years ago it was common to hear HP’s competitors slamming the company as rapidly becoming little more than a printer company. For those who truly believed this, history has shown them to be dead wrong. HP is not just a printer company, but it is very much a printing, imaging, and content enablement and distribution company. Through its Video Merchant Services, the company has lowered the barrier to entry and fundamentally changed the playing field for niche video content providers. While success is not automatic, this approach could well challenge those postulate that the future of media distribution will be predominantly based upon downloads.