Salocin

Hack This!

A new type of self-destructing DVD is being created by Flexplay. It is reportedly being prepared for use in a number of Disney releases including The Recruit, The Hot Chick and Signs. The DVDs are red, but become opaque within 48 hours when exposed to sunlight, thus becoming unusable. According to Reuters...

The technology cannot be hacked by programmers who would want to view the disc longer because the mechanism which closes the viewing window is chemical and has nothing to do with computer technology.

Of course 48 hours is plenty of time to copy a DVD onto another medium like, say, a hard disk. But this is not the paradigm that's getting kicked about. This technology has some very interesting potential consequences in the movie rental market!

The DVD/VHS rental market is currently all about enforcement. You have to subscribe, provide details about your home address and proof of identity, then you have to "open an account" with a local rental service. All this is designed to ensure that the movie comes back to the store, because at over $60 per movie, each one has to be rented several times to ensure that they not only pay for themselves, but also for the costs of holding a back catalogue.

Enter the disposable DVD - since it's not the medium but the content itself that people try to protect, this new medium changes the relationships in the supply chain in two ways. First of all, it removes elements of the supply chain, releasing a bunch of value there. If the supply chain looks something like this...

... then for renters of these disposable DVDs, you can cut out the Membership, Return and Disposal segments of the chain. But there's much more to it than that.

The second change this provokes is in the dynamic between the rental service and the movie provider. This is much more profound.

The reason content is released in the staggered way we know today is to do with price skimming. For each consumer who is going to want to watch a specific movie, they have several choices.

• They can go see it at the movies, on the big screen in Dolby surround sound.
• They can see it on video/DVD by renting it
• They can see it when it comes out on cable
• They can buy the DVD/Video when it comes out or borrow it from a friend.

These cost progressively less (and generate less revenues) as you go down the chain, and so film distributors want to make sure that each consumer sees the movie in the most expensive way that they are willing to. Releases are therefore staggered to make sure filmgoers are incentivised by their impatience to not "go cheap", and see the movie at the most expensive price point they are willing to endure.

This new system means that DVDs can be released at the per-rental price minus whatever margin the distributors want to give to the rental services, and there is no additional risk of the content going on wide release. It effectively shifts power upwards towards the studios and away from the retailers like Blockbuster, because the upstream providers can now acquire a per-view margin rather than charge a single price for a DVD that can be rented several times. By imposing the right conditions on the downstream shops, distributors can acquire per-view revenues but leave the risk with rental outfits: They would do this by forcing rental shops to buy "per-view" discs in bulk quantities and then not accepting returns of unused DVDs. I doubt they would go this far, but the fact that they could is indicative of where the power will lie.

Of course this doesn't stop those that know how and have the inclination from copying the DVDs during the 48 hour period in which they are copyable, but that threat exists already anyway, so it has little influence over the changes this new technology brings about.

Due to the reduced enforcement costs - if this new technology is widely adopted - some savings will be made. Who will benefit from these savings? As illustrated above, it seems likely that any benefits will accrue to the studios and distributors, since they have the power to acquire them and they probably perceive a need to build up funds to fight piracy. At the very least, however, consumers will no longer have to give away personal details to rent a DVD, or have to bring them back to the shop the next day.

Of course this is really bad news for the rental shops, because with a product like this, any shop at all can rent out DVDs - at a low price point consistent with those in grocery shops (that already sell full-release videos and DVDs), and without the need for overheads such as membership systems, "48-hour DVDs" of the latest and greatest blockbusters can be sold over the counter at your supermarket or corner shop. Widely adopted, this new product is a serious threat to movie rental providers that already make tight margins and depend on heavy rentals of big hits to make up for the costs of holding a heavy back catalogue.

Another issue this raises is the cost of all that plastic. It may be cheap to manufacture, but it certainly isn't cheap to dispose of. Can they be recycled? If not, I think the cost of disposing of them should be incorporated into the price of distributing them, lest we end up with hundreds of black discs littering the streets.

Posted by nlvp at May 20, 2003 06:15 PM