Disney’s Moviebeam: A New Media Distribution Channel With Revolutionary Potential

This morning, Disney announced the launch of a particularly interesting new technology entitled Moviebeam. (Incidentally, when was the last time you heard the words “Disney” and “cool new technology” used in the same sentence? It's certainly been a long time since we have.) On one hand, Moviebeam represents a very interesting and inexpensive means for media firms to develop a direct content distribution channel without having to spend billions to acquire a cable network, a la Time Warner. Secondly, assuming that Moviebeam is able to find subscribers, it has the potential to revolutionize the way we think about the distribution of film and TV entertainment, and render video rental stores like Blockbuster, video on demand (VOD) services from cable companies like Comcast and subscription rental services like Netflix obsolete.

For the last few years, there’s been a growing belief in the media industry that the future of media depends on the ability to control the distribution channel to customers. For example, part of the rationale behind AOL’s merger with TimeWarner was that AOL would be able to use the web to pump Time Warner’s music, movies and TV programming direct to consumers. Similarly, News Corporation's (e.g. Fox) forays into satellite broadcasting, and Vivendi-Universal’s ownership of Canal+ (a French cable network) largely represent the desire of media firms to control a distribution network that they can use to resell content to consumers. Not only would such a distribution network potentially increase a media firm’s ability to create value (by eliminating the middlemen of theater distribution, video rentals, or simply by creating an additional distribution channel), it would also provide media firms with a more effective means of generating revenue from their older content, by inventing a means to sell this content direct to consumers. (Generally speaking, sales of older content—e.g. backlist, catalog, syndication—offer media firms the highest margins, since the marginal costs on such sales are extremely low.) Finally, being able to own a distribution channel that permitted sales of video-on-demand might also provide a means of getting around the challenge TiVo poses to advertising revenues in the TV industry: viewers who don’t want advertising can simply purchase a subscription to their favorite shows over a VOD network, giving the revenue directly to the media firm behind the content.

However, as attractive as developing a direct content pipeline to the customer has been for media firms, it’s been insanely hard to accomplish for a number of reasons. Thanks to the limited number of Americans with broadband connections (although, in fairness, it should be noted that this number is actually starting to increase fairly rapidly), and a lack of desire to watch films and TV programming on computer screens, the Internet hasn’t lived up to its potential as a distribution mechanism. Moreover, because of regulatory rules and costs driven by scarcity and competition, acquiring a cable or satellite network for distribution has been prohibitively expensive for most media firms. Building a satellite network of one’s own to act as a distribution content—which was Fox’s solution—has proven to be exceptionally expensive. And media firms have been less than eager to partner with existing cable firms to deliver content digitally (via VOD services), in part because cable firms can use the inability of media firms to forward integrate into distribution as a position of power in negotiations, and capture most of the revenues from VOD sales for themselves.

Moviebeam is a particularly elegant solution to the challenge media firms face with developing a VOD network. It’s essentially a set-top box with a 160GB hard drive inside that receives digital content the old-fashioned way—over the airwaves. This avoids the high costs of having to build out or buy a cable or satellite network to distribute content, while creating a direct pipe to the customer. Subscribers to the service—rather than selling the box outright, Disney plans to charge consumers a monthly fee of $6.99 for the box, plus a per movie charge—can select content from all the major Hollywood studios (with the current exception of Paramount) over the Moviebeam service. The starting menu of films offers a range of recent blockbusters like Lord of the Rings: The Towers, Bringing Down the House, Die Another Day, and some older movies--about 100 movies in total, each of which are priced at $3-$4, or roughly the same price as a rental. The Moviebeam hard-drive offers interesting revenue possibilities, too, as viewers can theoretically pay slightly more to buy movies outright from and store them digitally. It’s also hypothetically possible that over time, Disney—or Moviebeam—can use the data it collects on viewing habits to determine your interests, and recommend films to you accordingly, thereby increasing sales (and selling from its backlist of titles). Finally, because the costs of adding a market to the Moviebeam service are so low—Moviebeam uses local TV stations to broadcast a signal, at a cost of approximately $250K a market—it’s conceivable that Disney could use the Moviebeam network to sell additional content like TV programming, music, or events, and effectively become a cable distribution outlet on its own.

The two biggest challenges Disney faces with Moviebeam is marketing yet another set-top box/consumer peripheral to consumers. Although the fact that Moviebeam is a set-top box that is plug-and-play is a great thing from an ease-of-use perspective, the fact that it’s a set-top box still poses a problem. For example, do you really want another box connected to the TV, after having already wired the cable box, the DVD player, the VCR, the videogame console, and the TiVo, to it? We think that Moviebeam’s pricing will go along way to ensure its popularity with consumers—a $6.99 rental is a small price to pay for the convenience of not having to worry about rental fees, and being able to order up top-caliber content from your living rooms—but Disney needs to develop creative ways to increase the attach rate of Moviebeam to TV sets. (Thinking aloud, perhaps bundling the technology inside new TVs via a revenue-sharing deal with existing consumer electronics manufacturers might be a good idea…) Secondly, continuing to ensure that viewers have access to top-quality content is absolutely critical to Moviebeam’s success. While it’s encouraging that Disney’s been able to line-up the participation of virtually every other major studio (except Paramount), they’ll need to ensure that each is properly compensated for distributing their films and not try to charge exorbitant fees to their partners, lest other studios develop Moviebeams of their own. (We think that Paramount will quickly fall into place and participate, especially if the launch of the service goes well.)

In closing, we’ll be watching Disney’s launch of Moviebeam closely: after all, it’s not every day that a firm shakes up the media business, and creates compelling new business models for media conglomerates in the process…

Some additional notes: if you’d like a detailed visual explanation of how Moviebeam actually works, there are several flash demos detailing the intricacies of the product at the Moviebeam website.

File this under tangentially related, but this is the third favorable article we’ve written about Disney in less than a month (see our take on the Disney Channel’s strategy here; or read about how impressed we are with the passion of Disney’s employees here. This sudden interest in Disney is particularly surprising (to us, at least), since we’d hardly thought about the company at all for the last few years. Is Disney suddenly becoming a hotbed of innovation and a model for media companies around the world, or what?