Who needs Blu-ray? Everyone!

July 11, 2011
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment 

AT&T moved to eliminate uncapped data bundles in the US last year and now the online party is over for Verizon Wireless US subscribers. The firm told its smartphone users last week that unlimited data plans are history. New customers will pay $80 (£50) to stream up to 10GB of content a month. It’s no surprise that all the major operators on this side of the Atlantic have followed suit.

Despite the clear evidence of how much it costs to deliver online entertainment to consumers, however, content owners continue to plan for the demise of DVD and Blu-ray. Promotional videos show happy tablet users enjoying movies on the move with the unspoken message that this is the modern way to watch filmed entertainment.

The home entertainment industry has handed the keys of the supply chain to the telecom operators and received nothing in exchange.

In the current model, the consumer receives a physical disc in return for payment that trickles down to all parties in the supply chain from retailer to distributor and rights owner. In a mobile broadband model, streaming a film that fits on a DVD-5 costs up to £10 and none of that payment accrues to the content owner or publisher.

Still, the message goes out: “Who needs Blu-ray?” Especially since a single dual-layer disc will blow your online data budget for the next five months? But online consumers will blow their monthly GB limits even quicker.

Consider a typical customer with a 10GB limit on mobile data. To access the streaming music service from Spotify for an hour each day consumes 4.5GB of data in a month and kicks a big hole in that 10GB. Internet analyst comScore says the average UK user spent almost 34 hours online in May 2011 and visited 3,079 web pages. Since each page requires around 0.5MB of data to load – a monthly equivalent of 1.5GB – our customer has now used 60% of the allowance.

One standard definition film each week streamed from a digital locker to a laptop in a hotel room, for example, takes our customer to 10.8GB, which is 800MB over the limit before he checks emails or Skypes home. The surcharge for that final hour and a quarter to watch a film he might already own could be as much as 10p per megabyte, leaving a bill for £150. Should he venture outside the UK it would probably be cheaper to book a five-star room and use the Pay Per View service provided by the hotel.

Mobile operators point to wifi as a lower-cost alternative… “Inclusive BT Openzone wifi access,” Vodaphone trumpets in its advertising. But the 1-gigabyte monthly allocation barely covers two editions of “The Apprentice”. There is no escape from the cost of capped data – it is many times more expensive than it costs to ship polycarbonate discs to the home.

The proportion of disposable income handed over to the carrier is money that the consumer will not spend on video entertainment. The £400 or more paid for the latest iPad, Touchpad or PlayBook exceeds greatly the cost of a portable DVD player but the shock comes for most users when their first monthly bill arrives. With a two-year contract to look forward to, there can be only one solution: a cut in the consumption of video entertainment.

Mobile broadband operators are not the only ones who apply data limits. UK fixed broadband providers dot their agreements with talk of “fair usage” and 5GB “caps” and the same is true in Eire and elsewhere in Europe. Much is made of the possibility that Netflix will cross the Atlantic but its venture north of the US border into Canada ran head-on into data limits imposed by that nation’s broadband service providers.

A two-hour high-definition film streamed from Netflix eats up 3.3GB of data and Canadian viewers who watched initially several titles a week found that their broadband bills shot up alarmingly. They paid Netflix $7.99 (£5.20) per month for “unlimited viewing” but their ISP capped consumption at the data equivalent of two films a week, which assumes they do nothing else with their internet connection.

Canadian subscribers may now opt for a reduced quality service that maintains data rates within fixed limits. This response from Netflix should cause enthusiasts for broadband delivery to pause and think because maybe this will boost sales of physical media.

Digital discs have a relatively insignificant distribution cost, which is paid for once at the time of purchase and ensures permanent access to the content thereafter. The physical disc – CD, DVD or Blu-ray – is a token of ownership that plays once or 1,000 times at no additional charge. Even low-cost players offer the highest quality playback, not the compromised, compressed audio and video that broadband delivery usually entails.

Network operators pay a lot for their licence and few people would deny that they are entitled to earn a good return on their substantial investment. Ofcom ensures that current charges reflect the true cost of delivering data to the end user so there is little reason to believe that prices will fall anytime soon. In fact, the cost of constructing the 4G network and of meeting the government’s minimum service obligation is likely to mean data-rate restrictions and even higher charges per gigabyte in the future.

Has the video entertainment business gone crazy? Caught in the cumulative glare of 25 million iPads, the industry has somehow managed to convince itself that the future lies not with the optical disc but with online and wireless delivery of entertainment content. A move to online distribution means abandoning a low-cost supply chain, paid for at point of sale, in favour of a high-cost network paid for by the consumer at point of use.

One far off day when everyone has fibre-to-the-home and per-gigabyte data delivery charges are an insignificant irrelevance, most home entertainment will come that way. 

Until then, broadband delivery is not a financially viable alternative: not for the rights owners and certainly not for the consumer.