Desperation time: Warner Bros. doubles the waiting time for DVDs

All Things Digital reports that Warner Brothers is set to double the delay between the time that DVDs and Blu-Ray discs go on sale and when they're available for rental through Netflix, Redbox and Blockbuster from 28 to 56 days--almost two full months. (In a separate decision, Warner Brothers' sister division HBO has decided to stop selling DVDs to Netflix altogether, requiring the company to purchase the movies at retail price.)

Warner Brothers' plan is very likely to anger consumers but have no substantial effect on DVD sales. The reason is that consumers who are already unwilling to pay for a DVD in order to see it a month sooner aren't likely to be willing to pay for it in order to avoid a two-month delay. Under Warner Brothers' new plan, movies will hit the rental and pay-TV/video-on-demand markets at about the same time. The plan could actually backfire and lead to lower wholesale sales of DVDs and Blu-Ray discs, since Netflix, Redbox and Blockbuster may purchase fewer copies due to the increased competition from video-on-demand and streaming services.

Warner Brothers and other studios can't turn back the clock and can't change the economy. They might be able to make their plan work, if they make UltraViolet versions of their movies available without having to first purchase the movies on DVDs or Blu-Ray, at a reasonable price and with a much simpler process than they have today. That would make services like Warner Brothers' Flixster a real alternative to Netflix, rather than an ill-conceived tool for decreasing piracy.

Here's why the movie industry needs new revenues

AllThingsD reports that Rich Greenfield of BTIG has quantified the straits that the movie industry has found itself in. For more than a decade, DVD sales made up an ever-increasing majority of the industry's revenues. 2008's Great Recession flipped the DVD market from growth into decline, and the increasing popularity of Netflix and Redbox moved the home video market, which had transitioned from rental to purchase, back toward majority rental.

BTIG's numbers show how far the pendulum has swung. In the first half of 2010, U.S. sales of DVDs were just over $4 billion. Including Blu-Ray and electronic media, total home video sales were $4.998 billion. In the first half of this year, U.S. DVD sales were just over $3 billion--down almost 24% in one year. Blu-Ray sales, which were once seen as the great hope of the movie industry, were $810 million, up from $773 million a year earlier. The total for all physical media was less than the total for DVD alone last year. Electronic media sales increased year-over-year, but only from $260 million in 2010 to $270 million in 2011. Rental and Video-on-Demand revenues, on the other hand, increased from $3.782 billion in 2010 to $4.195 billion in 2011. The total rental market is now bigger than home video sales, and most of the rental revenues go to companies like Redbox and Netflix, not the movie studios.

This is why the movie studios are desperately trying every tactic they can think of to increase revenues, from $60 Video-on-Demand movies to UltraViolet digital copies of movies for online streaming. It's why Sony no longer wants to pay for 3D glasses, and why both movie studios and theaters are pushing 3D movies so hard. DVD sales were the lifeblood of the industry, financing ever more expensive movies and bigger promotional campaigns. With DVD revenues shrinking, studios are having to make difficult decisions, such as Paramount's recent decisions to consolidate its home video division with two other groups and to close its New York distribution office. At some point, studios are going to have to cut back movie budgets and possibly even cut the number of films they release each year.

The DVD "cash cow" is running out of milk, and there's nothing new on the horizon to replace it.

Does content in the cloud mean the end of DRM?

Two days ago, I wrote about The Digital Entertainment Content Ecosystem's (DECE) Ultraviolet DRM initiative. More than 60 content, distribution, consumer electronics, DRM and services companies have joined DECE to build a uniform DRM-neutral platform for controlling content access and making content available to multiple devices.

Ultraviolet is based on the premise that consumers will purchase physical media--CDs, DVDs and Blu-Ray discs--and will want to play the content stored on that media on a variety of devices. Today, consumers can "rip" content to hard drives and personal media players. That's illegal under the U.S. Digital Millennium Copyright Act (DMCA) if they circumvent any security systems in order to copy the content, but it's fairly easy to do. As I understand Ultraviolet, when consumers purchase a Blu-Ray disc (for example), they will be able to access a copy of the movie on the disc in an online "digital locker", and download that movie to personal computers and portable media players using the DRM system supported by each device. Ultraviolet will prohibit customers from making more copies or using the content on more devices than they're entitled to.

Ultraviolet is a way to keep most consumers from making copies of digital content themselves, but it primarily makes sense in a "physical media" world, or at least a world where every device requires its own local copy of content. However, we're moving to a streaming environment, where consumers increasingly never touch a piece of physical media and instead stream content from the cloud. Netflix, Amazon, Rhapsody, Microsoft's Zune Pass, Pandora and other services are based on this streamed, monthly subscription model. Apple is widely rumored to be planning to launch its own cloud-based subscription service later this year.

With streamed content, must less is needed in the way of DRM. A partial or complete copy of each song or movie is streamed to each authorized device while it's being played, but the copy is temporary ("ephemeral") and is deleted when the viewing or listening session ends. The biggest downside of streaming is that a high-speed connection is required while viewing or listening to the content. That makes it unusable on most airplanes and in other places with no broadband wireless Internet service. However, the range of places without service, and devices without at least a WiFi connection, is getting smaller every day.

By the time Ultraviolet gets fully defined and commercially implemented, it will probably be made obsolete by streaming media. As for the heavyweight DRM schemes that Ultraviolet is designed to simplify, they're likely to be replaced by authentication and encryption systems that are easier to implement, more standardized and more compatible across devices. The new DRM standard is likely to be a HTML5-compliant browser or its equivalent.

DECE's Ultraviolet: Still invisible to the naked eye

The Digital Entertainment Content Ecosystem, a consortium of 60 video content, distribution and DRM companies including Sony, Time Warner, News Corporation, NBC Universal, Paramount, Comcast and Cox, has announced Ultraviolet, the new brand name for DECE's initiative. Today, consumers have to deal with a thicket of different DRM schemes; content that works on one device might not work on another one, and their rights for using the same content on multiple devices can differ dramatically. Ultraviolet's goal is to smooth over the differences, so that consumers have uniform rules for how they can access and use content on multiple devices.

Consortia are inherently slow at making decisions, and with so many different members with different technology and agendas, DECE has been very slow to arrive at an architecture that its members can actually implement. In fact, there are still no finalized technical specifications, only a trademark and a set of goals. Also, the promise of universal interoperability is only a promise unless everyone buys in, and Apple and Disney have opted out of the DECE consortium in order to develop their own platform.

The odds for Ultraviolet's success, when it's finally defined, aren't great. Streaming content, which is inherently stored in the cloud and doesn't require the same level of DRM as content that's intended for local storage, is taking over in video, which is DECE's primary target. Ultraviolet is likely to be irrelevant by the time that DECE completes its specifications.