CES 2012: Amazon Joins DECE, Backs UltraViolet

Amazon has put its weight behind UltraViolet (UV), the DRM/authentication system that gives users unlimited online access to movies once they've purchased a DVD.

It is the largest retailer to have joined the Digital Entertainment Content Ecosystem (DECE) and gives the initiative a significant boost - just as Netflix has pulled out.

During a CES press conference updating its progress and future roadmap, the DECE consortium revealed it has 750,000 UltraViolet accounts in U.S. households since its launch in October. It predicts that number to dramatically rise during 2012.

“We are anticipating and planning for an exponential growth of the user base in 2012,” said DECE general manager Mark Teitell.

There are 19 UltraViolet titles available (in the U.S.) now, with around 100 titles forecast for released in 2012.

Said Fox Home Entertainment president Mike Dunn, “We are at the forefront of digital ecosystem being formalised. You have wide access among multiple service providers. You have an ecosystem where mass consumer adoption could come in the fourth quarter.”

Amazon has signed a deal with a major Hollywood studio for EST rights—which includes UV rights—but it did not disclose which one.

“We haven’t been closely involved with DECE before but we have been big advocates of the concept of a digital locker,” said Bill Carr, executive VP of digital media for Amazon. “In the past few month we have engaged with the process and signed an agreement with one of the major studios. We are excited about this additional possibility from a customer’s point of view.”

Netflix Out, Amazon In

The reasons for Netflix’ decision to abort its support were discussed and broadly are that while Netflix’ business is based on streaming rental, UltraViolet is firmly targeted at a new model for ownership of content. While Amazon will continue to rent movies online, Carr said the company is "keen on ownership and making ownership easier in the digital world.

“We believe that the best experience is the one that gives consumers the broadest choice possible. Amazon is committed to a thriving DVD and Blu-ray business," said Carr. "We are looking to build the best possible customer experience for VOD and EST. We have an s-VOD combined with disc rental from Lovefilm in the UK. There are different consumer needs and we want to meet all of them and we think all can be successful and not be too exclusive.”

A number of devices are emerging with support for the locker. This includes a new smart Blu-ray player from Samsung with a function enabling consumers to port their existing physical discs of movies to UltraViolet. The player simply reads the key from the disc and uploads that information to the cloud offering upgrades to HD or other formats and making the content available on any of the user’s devices.

There have been some teething problems, such as initial failure to work on Android devices but these concerns were brushed away by DECE president Mitch Singer, who is also CTO of Sony Pictures.

“The best way to describe the launch is that we are building a house which has incredible foundations and integrity and in our excitement to move in there was some finish carpentry that needed to be done,” he said. “If you think about the UV platform, it is the first ever interoperable cloud service. This has never been done before.”

Blinkbox, Disney Holding out on UltraViolet

While movie studios and technology companies may have signed up, until Amazon there were few retailers backing UltraViolet. Even UK retailer Tesco, a signatory to DECE, has not yet supported UltraViolet, giving its backing instead to a digital locker devised in conjunction with its subsidiary Blinkbox.

“It might be that the complexity of the system is keeping retailers out, but we only just launched three months ago,” said Singer. “This is the beginning of an evolution. I am not at all concerned about the complexity. You have to realise that UltraViolet takes the retail environment to another level. There are many complex viewpoints that have to be negotiated."

The problems have not been technical issue rather “how consumer’s interact with UltraViolet,” said Lisa Hook, CEO of Neustar, which provides the back-end infrastructure for the project.

One key content owner is also missing from the DECE: Disney.“We are an open platform," Singer said. "It would be terrific to have them join. I am not holding my breath, but we are certainly talking.”

Video Purchases on Decline

The Digital Entertainment Group (DEG) is also embarking on a marketing initiative.

Executive director Amy Jo Smith said: “We will have a multimillion dollar ad campaign from in the fourth quarter. We plan to devote the same attention to UltraViolet that we did for DVD and Blu-ray so that UltraViolet can enjoy the same success as those formats.”

The stakes are enormous for the studios, with combined U.S. consumer purchasing of video content—both physical and electronic—expected to decline to $9.9 billion in 2011, down 29 percent from its $14.1 billion peak in 2004, according to IHS Screen Digest.

Unless there’s a change in the consumer proposition, revenue is expected to continue to fall in the coming years to $8.1 billion in 2015, the analyst predicts.

"The U.S. video retail business is in decline,” said Tom Adams, principal analyst and director of U.S. media, for IHS. “Although the rate of decrease moderated during the last two years from the double-digit drop in the recessionary year of 2009, we don't see those declines turning into renewed growth without a fundamental change in the ownership proposition for consumers.”

Instead, consumers are increasingly turning to disc-rental, while consuming more and more on-demand video through both their pay-TV subscriptions and internet-based subscription services like Netflix, Adams noted. The problem for film and TV producers is that the purchase models—both physical and electronic—produce far more revenue per view than do rentals or subscription services.

"We think it's important that UltraViolet is being launched not so much as a feature of EST files, but as a value-added feature of the digital disc, on which consumers have spent $113 billion since they were introduced in 1997," Adams added. "Even if our projections are correct that annual disc sales in the United States will have declined to some $9.3 billion in 2011, that's still about 14 times the size of the EST business. If UltraViolet sparks just a 7 percent increase in consumer disc buying in the years ahead, it would pay off for studios as much as a doubling of the EST business."

Warner Home Video kicked off the UltraViolet market in October in the U.S. with the release of the first Blu-ray discs enabled with the technology. The company rolled out Horrible Bosses on Oct. 11 and Green Lantern Oct. 14. In Europe, UV launched on Dec. 26 with Warners’ release of Final Destination 5 in the UK.