Published: 13-Aug-08 DVD manufacturing-on-demand (MOD) service provider Polar Frog Digital (PFD) plans to roll-out second generation installations in an exclusive technology deal with software company Nero. In addition to on-demand CD and DVD burning, PFD's new kiosks will enable users to download music, movies and TV content to flash-based storage devices. Unlike earlier incarnations, the latest solutions will also feature CSS copy protection for burned DVDs. PFD intends to install the new solutions at college campuses in the US over the third quarter of 2008. In the meantime, the companies plan to license the technology to other kiosk service providers and identify retail partners.
However, PFD's announcement comes in the wake of the effective collapse of fellow MOD service provider TitleMatch. According to an SEC filing on 30 May 2008 TitleMatch parent company Protocall Technologies was forced to lay off its staff, citing insufficient funds. Grocery chain Walgreens was reportedly due to trial TitleMatch kiosks in the second half of 2008 so has delayed any foray into MOD until 2009.
Our take... PFD's plans should be viewed with caution. By upgrading its MOD solutions to incorporate CSS copy-protection, PFD has circumnavigated one of the obstacles that MOD faces – without CSS, the major studios will not license content for burning to DVD. However, even with CSS-capable solutions, the studios are hesitant. A number of MOD service providers have added CSS copy-protection but this has not been a catalyst for growth.
There are a number of other hurdles for MOD, particularly store-based solutions. According to PFD – which has agreed no major content deals to date - the studios are reluctant to license their premium content for kiosks installed in outlets that sell pre-packaged DVDs, as they are concerned that MOD transactions will cannibalise off-the-shelf DVD sales. Consequently, PFD is focusing on establishing retail partnerships with non-traditional outlets (NTOs).
The studios are not keen to engage with MOD distribution unless retail support is secured, but retailers are understandably tentative about investing heavily in technology that is not yet proven on a large scale and without the draw of premium content. Attracting retail partners, and thus premium content, is likely to become even more difficult for PFD as it has ceased offering its services for free and is now requesting retailers carry the costs of the kiosks.
This 'Catch 22' situation has slowed the arrival of in-store MOD and is one of the reasons Screen Digest has previously predicted that MOD will take off more rapidly in the e-tail environment (where DVDs can be burned on demand at the retailer's warehouse or a dedicated depot) than in-store (see below for a link to Screen Digest's MOD report). One major retailer - Amazon - already operates an online MOD service but in-store MOD is yet to be adopted beyond the trial phase. Computer giant Hewlett-Packard (HP) is also active in the online MOD space, managing the back end for FYE, the online arm of specialist retailer Trans World Entertainment.
Indeed, it was HP that convinced Sony to become the first major studio to license content on a MOD basis in January 2008. The Sony-HP deal focused on niche and deep catalogue content, which Screen Digest expects will dominate fledgling MOD services. The theory of 'The Long Tail' underpins the assumption that the MOD business model will generate incremental spending on video, and not simply cannibalise existing revenues.
Screen Digest's forecasts on the potential market for MOD were contingent on a number of factors. Principle among these was that the proposition be executed effectively; services must satisfy rights holders' expectations, and from a retailer perspective must be both affordable to implement and reliable, particularly where in–store solutions are concerned due to the capital cost for rolling out solutions to multiple locations.
Screen Digest's research emphasised that there is a limited window of opportunity for MOD distribution, albeit a potentially lucrative one. As viable and compelling digital delivery platforms develop, the window for MOD will narrow appreciably. PFD is hoping to guard against the kind of early obsolescence that doomed CD-burning kiosks by incorporating digital delivery into its new installations. The company expects its hybrid solution to be more profitable than the MOD-only business model it has abandoned. Certainly, digital delivery would reduce the costs - and the time constraints - associated with burning content to disc. However, this strategy introduces another set of challenges, not least that the digital market is dominated by Apple, which will not license its Fairplay DRM to third parties. Screen Digest is forecasting Apple's iTunes store will account for around 65% of digital transactions in the US in 2008, so even if successful, PFD's strategy will only make it another competitor in an already crowded 'digital ghetto'.
For now, despite PFD's ambitious plans, the state of the MOD business is probably best characterised by the fate of TitleMatch.
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