If you accept the argument that Content Scrambling System (CSS) encryption is the perfect solution (indeed, the only solution) to the problems that beset the online movie download market, then Sonic Solutions’ Qflix will likely become a household name -- eventually. Qflix is a whole new DVD-recording platform, which uses modified recording drives and blank DVD-R media pre-encoded with CSS copy protection.
Sonic Solutions is convinced that the major video content providers want CSS. “The overwhelming word from Hollywood studios is that they need secure content. And overwhemingly they have been pointing to CSS,” says Mark Ely, Sonic’s executive vice president of strategy. “It is a proven scheme compatible with every DVD player in the world. It gives consumers a seamless experience.”
Sonic Solutions is also convinced that online movie consumers want DVD. “We did a lot of market research in conjunction with the studios and what we found was that somebody who is going to spend $15 or $20 on a movie, they are going to want to put that on a disc,” says Ely. “That revelation was a driver for us with Qflix. We saw that having a physical disc with something you purchase is something that is important to consumers.”
But Sonic’s Qflix initiative requires the market to accept proprietary technology on several levels. End users must purchase new “Qflix-enabled” recording drives that have been augmented during manufacturing with additional new circuitry. They must buy new Qflix-enabled media. And recommended but not required is Sonic’s software (Roxio Venue) for use both at the server and on the end user's PCs or CE device.
MARKETING PLAN OF ATTACK
But while Sonic Solutions’ new Qflix platform presents the online movie download market with some proprietary hoops to jump through, Sonic sees the market in terms broader than just movie downloading. They prefer to call the wider market they intend to conquer the "DVD-on-demand" market. And according to Jim Taylor, senior vice president and general manager of Sonic Solutions’ Advanced Technology Group, the company is not approaching the online movie market head-on, but instead hopes to capture several adjunct niche markets before frontally assaulting the vast consumer market. The Qflix marketing plan will be a three-pronged offensive, with flanking maneuvers and maybe a Trojan horse or two.
Sonic plans to attack the market gradually, in waves. As Taylor puts it: “The Qflix program has three thrusts that inter-relate.” The first thrust will be to capture the "Manufacturing On-Demand" market, which Taylor also refers to as "factory-on-demand." This niche addresses the needs of one-off or small-run DVD duplication shops, large retailers, and various types of online services, who, as Taylor puts it “have concerns about copy protection and the cost of small-run duplication.”
“Qflix--because it adds CSS recording--finally puts recordable DVD on par with replicated DVD,” says Taylor. "Consequently, small-run duplication and cost-run duplication services will be able to provide most of the benefits of mass market replication."
Taylor envisions the Qflix factory-on-demand technology being useful for event videographers and small video production companies who produce wedding videos and “life tribute” DVDs for funeral homes. There’s a “big fear” of unauthorized copying among these “semi-pro outfits,” he says. They need to make a living from selling a small number of discs, so even one pirated copy can cut into their profits. “They put a hefty price on additional copies; they do small runs, and they want to recoup their costs, and so copy protection is even more important to them than to the big studios who sell millions of copies,” says Taylor.
"Qflix allows people who are using DVD recording technology to compete with mass replication and provide the same level of playback quality, content protection, and everything else," says Taylor.
Sonic also foresees their Qflix DVD burn technology finding rapid acceptance for use in kiosks at retail stores. Those stores might be retail DVD outlets like Blockbuster or Wal-Mart, where the kiosk would probably be behind a counter. Or they could be standalone automated kiosks like the Redbox vending machines that dispense DVD packages in places like McDonalds restaurants and in Giant and Stop & Shop grocery stores.
By using Qflix-enabled kiosks, stores would be able to offer a virtually unlimited selection of DVD movies, while stocking nothing but stacks of blank discs. Obviously the kiosks would house DVD burners, and they could also contain printers capable of printing out labels and box graphics that could be dispensed along with the disc. These graphics would spruce up the DVD packages to make them more appealing to the public.
To end users, there will be little difference between a Qflix one-off movie printed on-demand specifically for them or a mass-produced boxed DVD grabbed off of a shelf. But to the stores the difference would be dramatic. “Today, stores with a Redbox are really limited. They are especially limited to physical inventory,” says Taylor. “But when you add in-store burning to that model, where they can supplement their collection of physical discs with on-demand manufacturing, then things get a lot more interesting.”
Taylor says that 30% of shoppers in DVD retail outlets leave the store empty-handed because they can’t find the specific movie they want, and he believes Qflix kiosks would solve that problem. He also says he “saw a report the other day from an industry analyst who predicted that within 3 years 25 percent of the movie rental business would be from automated kiosks like Redbox.”
Taylor predicts that the first successes for Qflix will appear in the manufacturing-on-demand market (expect partner announcements to come shortly, he says), followed by the in-store kiosks niche (trials are just rolling out and will pick up in the fall) followed by the consumer/home-burning market for online movie downloads.
“Consumer download-to-burn will take longer,” says Taylor. “It will show up in connected DVD recorders, even Blu-ray recorders. You might even have machines that play back Blu-ray but record with red lasers.” And he believes manufacturers of PCs, DVRs, and set-top boxes will also eventually adopt Qflix.
MARKET SUCCESS SO FAR
It may take some serious convincing to get a skeptical market still reeling from a long, debilitating battle between proprietary technologies (HD DVD vs. Blu-ray) to quickly accept a new proprietary technology like Qflix, but Sonic Solutions says they are already well on their way. For example, Taylor reports that Sonic has obtained commitments from “half of the marketplace for drives.” The basis of this claim may stem from the fact that Sonic has struck a deal with PLDS (the combination of Phillips and Lite-on), which is the world’s biggest drive manufacturer, according to Taylor. Other drive-makers on board the Qflix bandwagon include Pioneer, Plextor, DataPlay, and TSST (Toshiba Samsung Storage Technology).
Then there’s the OEM market for desktop and laptop PCs. “We think we have a lot of interesting opportunities with PC manufacturers who are looking to add additional functionality or more media hub-style functionality to their PCs,” says Ely. “That’s where we see our major PC partners preloading Qflix drives into their PCs over the next few years. And that will rapidly wind up getting those drives into the marketplace. And by the same token we think there is an aftermarket for these drives. You know, if a consumer can get the ability to buy movies they can’t readily get in retail, that may justify going out and spending an extra 50, 75 or 100 dollars for a USB external drive that handles Qflix.” One of the PC manufacturers that have committed to Qflix so far is Dell.
In the DVR and set-top box space, Sonic Solutions’ partners include MediaTek and Sunext. Taylor thinks this market could be a very good one for Qflix. “The companies who add Qflix into a set-top environment are going to have more success with the whole download-to-burn concept,” he says, explaining, “You’re asking people to make a change in their media consumption behavior and that’s tough. That’s one of the reasons that new formats meet such resistance. For example, MP3 has been around a long time and people are still buying lots of CDs, so I think the same will be true with movies. The more you connect in with something that people are familiar with--like round shiny discs, for example--the better. You need to connect them with something that they know will play at Grandma’s house or will play in the DVD player in the van on the way to Grandma’s house. The more that familiar technology is used in the mix, the easier it is to introduce a new paradigm. To make the most of digital download, the set-top market is going to need Qflix.”
Along with having commitments from about half of the drive manufacturers, Sonic also has commitments from about half of the media manufacturers, according to Taylor. Here again, Sonic has struck a deal with a market leader: RITEK. Also onboard is Mitsubishi Kagaku Media (MKM)/Verbatim. Media in this new format “will begin to show up later this summer,” according to Ely.
Ely says that fears that the new CSS-enabled media will be prohibitively expensive are unfounded. He claims cost increases will be “pretty marginal,” but he also admits the discs won’t be cheap, at least not at first. “As far as media costs goes, we are setting the bar high in terms of high quality and compatibility,” he says. “The price for Qflix-enabled media will be at about the same level as premium media costs today; so you’re not going to see Qflix compatibility with the cheapest media out there, but with media that is on the premium side.”
Among companies in the retail kiosk space that have been announced by Sonic Solutions as Qflix partners are: Lucidiom, MOD Systems, Polar Frog Digital, TitleMatch Entertainment Group, and YesVideo. Partners in the manufacturing on-demand space include Allied Vaughn, Elesys, Inc., Microtech Systems, Primera Technology, and Rimage.
FUTURE ROLE FOR HD/BLU-RAY?
So what role will Blu-ray play in the Qflix market assault? Well, Taylor doesn’t see it being either a big plus or a big minus for Qflix in the short term. Standard-def DVD will be the main format for Qflix, he says. “Over the next few years the market will remain primarily standard-def. Blu-ray’s installed base is so small and the media is still expensive. Right now a blank Blu-Ray disc cost about $10. Of course, those things will change,” he adds.
Ely echoes that sentiment, citing current consumer “bandwidth problems” as the main barrier to HD Blu-ray in the online movie download market. “At 20 to 40 Gigs, it could take a better part of a week to download a movie in HD,” he quips. “Fiber to the home” will have to become more common before the downloading of HD movies takes off. “Of course, our platform is designed to scale up to handle HD in the future,” Ely adds. “We see that coming.”
“But this is not and either/or situation,” says Taylor. “Qflix will work just as well on a Blu-ray player as on a standard-def DVD, and vice versa. And if you upgrade to hi-def, you’ll still be able to download and burn in standard-def. The whole goal of Qfix is [to leverage] the incredible installed base of DVD players out there. They are ubiquitous,” he continues. “Roughly 50 percent of US households have two or more DVD players, and even if you buy a Blu-ray player, you’re not going to throw away your old DVD player. You’ll give it to the kids to put in a bedroom or wherever.” Even if Blu-ray players hit the market that don’t use Qflix, that will still be good for Qflix because it will “keep the playback installed base growing,” says Taylor.
He’s hoping, of course, that manufacturers of Blu-ray players will deem Qflix a necessary addition to their drives. He says that a Blu-ray player is a natural platform for online movie distribution “because it is an internet-connected device. It already has the Ethernet port and the BD-Live capability, so it can connect to the internet and download trailers and so forth.” The only thing that’s missing in Blu-ray is CSS, says Taylor, and that’s where Qflix comes in.
But can Qflix prosper if it remains a playback-only technology? Don’t a couple hundred million home-based movie buffs have to pony up some serious bucks to buy a new “Qflix-enabled” DVD drive before the whole Qflix plan becomes widespread enough to pay for itself and make adopters and partners glad they bought in? Taylor argues that having a virtually unlimited number of playback units overrides any scarcity of burners. “In the CD and DVD markets, there have always been fewer recorders than playback devices,” he says.
MARKET POTENTIAL/CHANCES FOR ADOPTION
Right now Qflix is still rather futuristic. The first online movie download site to offer DVD burning via Qflix will probably be CinemaNow, though neither Sonic nor CinemaNow has announced a rollout date. The two companies jointly announced the signing of a licensing agreement on November 6, 2007, but as of this date, Qflix is still not in place on the CinemaNow site. “They are now working at putting CSS into place instead of Flux,” says Taylor. “They are not offering it now but they will be. We are working with them on rolling out Qflix downloads, so they will do that.”
Another site that presumably will implement Qflix at some point is Movielink. “We have a deal with Movielink,” says Taylor. “But when Movielink was purchased by Blockbuster, that kind of put their plans in limbo. But the deal is still in place and we’re still working with Movielink. But it’s up to Blockbuster to decide when they want to roll out the Movielink download-to-burn feature.”
Assuming that Sonic Solutions gets all its ducks in a row, Qflix could eventually alter the online movie download market dramatically. “The utility of DVD is great,” says Ely. “If a person can burn a DVD and watch it in their living room, this is going to open the market up. People are doing that today, legal or not, because DVD is such a compatible way to move content around. The whole idea here is that by being able to burn to a CSS disc, you essentially open up those libraries and get a whole ton of content that today just isn’t available.”
The ability to burn a DVD will “a huge factor” determining movie download industry success, says Ely. “This is one of the top-requested features at places like Amazon Unbox and a top-requested feature by potential DVR buyers. And that shows that people like digital accessibility for content, but they like portability too, and not just with a specific manufacturer’s device but also portability with the devices they already have plugged into their TV sets, which is predominantly DVD players.” As proof of consumer interest, Ely points to a presentation made by Warner Brothers at last year’s DVD Forum North America Conference. According to Ely, research data released by Warner showed that there is a 10x increase in electronic sell-through when the consumer was offered the ability to burn the content to DVD. He says that in its survey, Warner asked people – would you be interested in buying a movie online, and if they said no, Warner followed up with: well, what if you could burn it to a DVD disc and play it in any DVD player anywhere? And when asked that question, an overwhelming number of people (10 times as many) changed the answer to the first question from no to yes.
QFLIX IS NO QUICK-FIX
While Qflix is a compelling technology with great potential, it also obviously faces big obstacles. Not everyone in the industry is optimistic about its success. Jim Flynn, CEO of EZTakes Movie Download Store, a pioneer in DVD-to-burn, finds the technology interesting but problematic. “Qflix has some good applications, especially for in-store burn stations and kiosks or maybe being built into some consumer electronic devices,” he says. “But the big challenge with Qflix is that you need special media and a special burner. So especially for direct-to-consumer, that is a big challenge. How long is it going to take to get a decent installed base? There are 50 million DVD burners in the U.S. market alone; how many Qflix burners are out there? In five years, will there be a million of them? How many broadband-enabled TiVos are out there--maybe 800 thousand? So to think that everyone is going to go out and buy Qflix burners is not very realistic. Unless Sonic cuts a lot of deals with companies like Dell and HP to put them in everything, growing an installed base is going to take a real long time.”
Flynn emphasizes that’s he’s not anti-Qflix and would even consider using it on his site at some point, but he’s just not sure it’s ready for prime time. “I think it would be good for applications where you can actually control the device, like maybe a kiosk or in-store burn station where people can walk into the store and they don’t even have to know about the technology, they just say – I want this Hogan’s Heroes episode from 1965, and the clerk burns it for them. But once you start telling consumers, 'Well, you need to go out and buy this special media and look for the Qflix logo and then buy a special burner,' you are really going to lose them. I just don’t think that’s going to be a viable market in the short haul and may never be. It will just take so long to get enough consumers that have it. But, look, if Wal-Mart would roll out Qflix burning stations in all their stores, they’d have a neat application for doing on-demand manufacturing in their stores. And because it supports CSS copy protection, it would open up libraries from the major studios.”
Even Sonic Solutions concedes that success will come sooner and easier in the one-off and in-store duplication markets, but the company is obviously hoping that success in those two niches will act as a sort of Trojan horse to gain admittance to the vast home-based consumer market.
But that market won’t be so easily conquered and certainly not overnight. And in the interim, what happens if some competitor comes up with a way to please the studios without CSS?
In the online movie download market, at least, Sonic Solutions had better start sharpening their pitons for an Everest-sized uphill climb. And company spokesmen like Taylor and Ely had better start limbering up their vocal cords--just as when they helped lay the foundation for mass-market DVD ten years ago, they’ve got some serious evangelizing to do.
The DVD Download Business, Part 4: Everybody Loves "Download-to-Burn"
The DVD Download Business, Part 3: Is DRM Killing This Industry?
The DVD Download Business, Part 2: Potholes of a Bumpy Road
The DVD Download Business, Part 1: A Young Market Struggles to Take Off Mark Fritz (markfritz at intergrafix.net) is a contributing editor to EMedialive and Streaming Media.