Douglas Crockford

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Digital Hollywood 2005

I attended the Digital Hollywood Conference, which was held in Los Angeles on March 30 thru April 1, 2005 at the Loews Santa Monica Beach Hotel. The conference is about large scale digital media. The mood was mostly positive. Every year, the speakers say "This year it is real." This year they said they really believe it.

Digital Cinema

The Digital Cinema Initiative was a joint project of the Studios, SMPTE, and others to develop standards and systems for digital film exhibition. Standards are almost in place. Digital theatres are beginning to appear. There are currently 35,000 screens in the US, only 100 are digital. There are about 100,000 screens in the rest of the world, only 200 are digital.

One of the initial goals of DCI was to solve the problem of film damage. Over the course of several weeks, a film can get scratched, scorched, and dirty. A digital system should allow the people who see a film in week 10 to have the same experience as the people at the premiere. However, in the six years since the project started, films now rarely play more than a few weeks. However, there are still many good reasons to go digital.

It is estimated that it will take 7-10 years to convert all of the screens to digital once the conversion begins. The biggest issue: Who pays for it? Current prices are $90K for the new equipment compared to $35K for the old equipment. (Prices will come down with volume.) As it currently stands, it is the theatre owners who have to pay, while the Studios enjoy most of the benefit. Ultimately, the Studios are going to have to figure out a way to subsidize the theatre owners. In other countries, it might be the governments who pay the subsidies.

A system contains two major components: a digital server and a digital projector. Dolby is building a server but not a projector. They might be a good partner for a projector maker.

The theatrical projector market is small, but it is very visible. A brand can be established for high quality presentation in theatres that can then be applied to the home theatre and consumer markets. DLP is pursuing this strategy.

DCI, like ATSC, was unable to select a single standard. They were smarter in that the two standards (2K and 4K) are closely related. Also, they want to have a single media deliverable that plays on all projectors.

One unfortunate thing is the geometry is not exactly the same as HDTV. 2K is 2048x1080p.

On Demand

The current form of OD was adopted by the Cable Companies as a defense against the Satellite Companies. Cable has more bandwidth than Satellite, and it has a built-in return path, so Cable has a natural advantage in the delivery of OD services. Early experience shows that people like it. Cable is now looking to develop new uses for OD that go beyond time shifting.

On Demand can be used to deliver programming that does not fit in a conventional schedule. This includes extra material (such as stuff found on DVDs). It can also include short form video, units of programming that are too short to schedule. This is sometime called Video Snacking. OD can deliver programming that is of narrow appeal. OD can deliver personalized programming.

Conventional television is now called Appointment Television. Everything else (including DVR and DVD) is some form of OD. Most programming will go to OD. The exceptions are news and sports, which can have higher value in an appointment context.

Current users go to OD if they cannot find anything good in appointment programming. However, little kids go to OD first. I think this is because little kids like to watch the same stuff over and over again.

Once people get comfortable with OD, they never record programs anymore. They don't have to. OD is an interesting alternative to DRM.

Some people think that DVRs will become ubiquitous in five years and will coexist with OD. Others think that OD will eliminate DVRs. I think that Satellite will have to continue to rely heavily on DVRs for its OD capability. The survival of DVR in cable and telco households will depend on the quality and responsiveness of the OD systems. Fast response to user input is more difficult to do in a server than in a client.

There are still outstanding questions: How does OD make money? It is not clear yet what models the customers will accept. UI is still much too difficult for most people. This problem will get worse as the amount of available OD material increases.

The biggest question concerns music rights. The rights that producers obtained for music in television programs are not sufficient to allow them to use the music in OD products. The rules for the licensing of music are extremely complex. I predict that Cable, Telco, and the Studios will join forces to demand sweeping reform of music copyright law to allow more programming to go to OD. However, this will not happen until the Studios get over their hysterical fear of humanity. (But they are getting better, see DRM below.)

Advertising

The new levels of user control will destroy the current system of television advertising. Ad skipping is an extremely popular feature of DVR and OD systems. It turns out that people have been skipping ads since the invention of remote control, and they have always used commercial interrupts to go to the bathroom and to get snacks. The Advertising Industry can no longer avoid the terrible truth: People don't like commercial interruptions. Pods of spots irritate viewers. Viewers will avoid watching them if they can. With the new technology, they can and do.

Currently, Advertising on Television is $60B-$65B per year. That is about $50 per household per month which is subsidizing broadcast and basic cable programming. For the past few years, viewership on the networks as been dropping, but the CPMs (cost per thousand) have been rising. This is because the advertisers don't know where else to spend their money. There is increasing demand for a resource that has diminishing value. This trend cannot continue for much longer.

So new advertising models are being developed. Some will be successful. Some will certainly fail.

Product placement

In product placement, the advertiser pays to have its product used in the program. For example, on a recent episode of Survivor, contestants were competing to win Pringles potato chips. Such placements cannot be skipped because they are a part of the show. Some advertisers are cautious because a poorly placed product looks foolish, which can hurt the brand.

Product integration

In product integration, the show is designed specifically to showcase the products. This used to be common in television and radio until sponsorship was replaced by the "magazine" or spot model. The American Express Jerry Seinfeld/Superman shorts are a more recent example. (American Express's ad mix has gone from 80% TV to 30% TV.) When done well, the effect is "organic". There are concerns about artistic integrity when it is done badly. "It is no longer art if it is commerce."

It might place smaller advertisers at a severe disadvantage because they cannot afford to bear the full cost of production. In the spot model, they only had to pay for the occasional appearance.

Long form

Instead of :30, commercials go to 2:00 or longer, allowing the advertiser to do a better job of explaining the product and its benefits. Viewers with an interest in the product will be more likely to watch it.

:10 or :15 interstitial

In this model, instead of occasional pods of commercials, commercial interruptions are much more frequent, each interruption carrying only a single spot. Also, the spots are much shorter. The idea is that the commercials are now too short to skip. I think this will be extremely irritating. Advertisers might be reluctant to associate their brands with such irritation.

DVR

Word of Mouth

Individuals have potential international reach with websites and blogs. This could be a powerful medium for product promotion, but it can be risky because individuals cannot be controlled the way that Big Media can. See the Word of Mouth Marketing Association.

Finding the show

Networks used to allocate a significant portion of their inventory to promoting their own shows. Those promos now get skipped with the other spots. How will viewers be informed about new programs when promos are no longer seen?

DRM

On the second day of this conference I attended 5 panels on DRM. I confess that I was dreading this day because I have heard a lot about this subject, and the debate has become, as one speaker said with great understatement, stale.

The big surprise at this conference was that the Studios are now looking at the consumer experience, and that the consequences of a bad user experience are much worst than the consequences of piracy. This is a huge shift in the industry's view of DRM.

Interoperability is becoming increasingly important. The best format for interoperability is "in the clear" (unencrypted). It easily goes from device to device, satisfying consumer expectations. DRM content does not interoperate well. Pirate content will be in the clear, and so will have higher value. The Studios now understand that their product must have higher value than the pirate product, not lower. People want consistency: They expect that their ability to use a Spiderman DVD is just the same as a Batman DVD, even if the DVDs have different DRM systems. Consumers should not have to make technology decisions when they are buying content.

DRM interoperability is a very difficult problem. The head of Intertrust (one of the DRM technology licensing companies) once predicted that it would take 2 or 3 months to work out, which is an indication of how poorly this problem was understood by the DRM community. One of the things that makes interoperability difficult is the complex set of competing business interests held by the various DRM vendors. DRM is becoming a format war. But unlike BluRay v HD-DVD, consumers don't want any of the candidates.

This war is resulting in products that will fail to meet consumer expectations, thereby driving consumers to piracy. Instead of keeping honest people honest, they are turning honest people into pirates. Distrusting the Customer is not a good idea anymore. If you don't provide value to the customer, you don't live. If you do not give consumers a Fair Deal, they become adversaries.

DRM may cause consumers to embrace analog interfaces, because DRM is less of a nuisance there. Regional Coding of DVDs is not working. People are getting around it.

When DRM systems interoperate, the whole system is only as strong as the weakest DRM system. It is likely that all DRM systems can be defeated, but interoperability makes the attacks much easier.

There was lots of talk about the requirements for DRM systems, for the first time it included the point of view of the consumers. It almost sounds like starting over. For example, DRM must be dynamic, able to evolve with market conditions. It must never restrict reasonable personal use. It must be invisible. It must honor Fair Use. It must honor First Sale. It must do all of these things not because of what the Copyright Law demands, but because of what Consumers will demand. DRM should not be an enforcement mechanism. DRM must respect privacy. For DRM to be successful, it must be perceived as a feature, not a bug.

While the Studios seem to be getting smarter about DRM, MPAA is not. Brad Hunt is MPAA's CTO and the architect of the current state of DRM. The first words out of his mouth were a lie:

Intellectual Property is exactly the same as Physical Property.

Unfortunately for Hunt, he was sitting between two lawyers who were quick to slam him. MPAA is losing its power to frame the language of the debate. Hunt dismissed the problems in the current state of DRM by saying that it is "Early Days," meaning that in time things should get better. But once a system gets forged into a piece of hardware, it can't change. The true purpose of DRM is to protect the Studios' business model of windows of exclusivity. If the Studios would update their model, most piracy would disappear. To this point, Hunt said "The Studios understand that there is a cost to the window system. There is a recognition that the business models must change.

The Studio's fears of potential losses have been greatly exaggerated. Mass duplication of DVDs (particularly in other countries) has a real impact, but DRM is totally ineffective in preventing that.

The people who are "stealing" are spending thousands for hardware and software. If they were offered a fair deal for content, they would take it. The new business models that are based on selling additional rights to use products that people have already bought are being rejected. They are seen as an unfair deal.

Some think that trial and error will be necessary to determine what consumers will demand and tolerate. Others said there is no time: expectations and patterns of behavior are forming now. We must go to market with a deal that is clearly fair.

iPod

In every session, there were statements about Apple's iPod and iTunes service, and what great products they are, and what a great DRM system they have.

Apple leads that category, but it is estimated that iTunes sales represents only a very small percentage of the content on most iPods. It is generally believed that a majority of the songs on iPods were obtained for free over the Internet. Apple's FairPlay DRM system has been broken. And it is a closed system, so it does not interoperate with other devices and services. iPod is a good product, but it does not scale up. It may be the last closed system.