Movie studios’ quest for life after Dvds

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Movie studios, desperate to return their home entertainment divisions to growth, are scrambling to shape the post-DVD era.

Until very recently, most Hollywood heavyweights were loath to speak too openly about the promise of digital entertainment—the downloading and streaming of movies and television shows on computers, Internet-enabled televisions and mobile devices. Nobody wanted to anger retail partners like Wal-Mart or do anything that might slow the DVD gravy train.

But business currents have shifted. While DVD and Blu-ray will remain a huge profit center for years to come, studio executives are finally confronting an uncomfortable reality: Little silver discs—for reasons of convenience, price and consumer burnout—may never recover their sales power. To grow, studios need to figure out digital distribution.

Disney announced last week that it had developed a system to track digital ownership, so people won’t have to buy the same movie or television show multiple times for different devices. But that’s just the latest, most likely not the last, approach.

“I expect these guys to try many different ways to figure out an endgame to digital entertainment,” said Doug Creutz, a media analyst at Cowen and Co. “In the meantime, you will find a lot of false starts.”

Everyone is trying to solve one problem: Consumers, the industry believes, will be reluctant to open their wallets for digital movies and TV shows until they get more portability and can watch the same content on several devices. Studios want to make consumers collect digital entertainment the way they would DVDs or books.

In the third quarter, studios' home entertainment divisions generated about $4 billion, down 3.2 percent from a year ago, according to the Digital Entertainment Group, a trade consortium. But digital distribution contributed just $420 million, an increase of 18%. Standing in the way are technology hurdles—how to let consumers play a video on various devices without letting them share it with 10,000 close friends on a pirate site—and the reluctance of studios to cooperate too closely with rivals for reasons of antitrust scrutiny and sheer competitiveness.

The Walt Disney Co. in the coming weeks will introduce its new system for tracking digital ownership, which it calls Keychest. It would allow consumers to buy permanent access to digital entertainment—a specific film, for instance —that then could be watched on computers, cell phones and cable on-demand services. Analysts speculate that Apple will be a partner.