I didn’t think I would write about iCloud, but a short piece in the Hollywood Reporter titled “How Apple’s iCloud Impacts Hollywood” by Carolyn Gardina and Greg Kilday seems to cast it as a competitor to UltraViolet:

When Steve Jobs unveiled iCloud on June 6, Apple leapfrogged Amazon and Google in the music sphere. It also embarked on a collision course with UltraViolet, the Hollywood consortium that this year plans to launch a cloud-based system of its own to house digital rights to movies and TV shows. […] While Jobs didn’t mention movies or TV, neither Apple nor Disney is part of the UltraViolet 70-strong consortium. According to David Wertheimer, CEO of USC’s Entertainment Technology Center, Apple now competes with UltraViolet’s developer, the Digital Entertainment Content Ecosystem, in the digital rights locker space.

7 Days of Deals (reg. req. for full article)

Forget UltraViolet vs. iCloud. What the article doesn’t mention is that the “digital rights locker space” competes with the golden goose that is dying (DVD revenue), the one that appears to still be healthy (cable and pay T.V.) and the one that is growing by leaps and bounds (subscription streaming services like Netflix). Real numbers on this stuff is a tightly-kept secret, but movie finance expert Edward Jay Epstein wrote that in 2004 the studios were already making more gross profit from television licensing deals than theatrical or DVD.

The Good Ship Ownership

To get to my point, I’m going to have to flashback to turn of the century and the days of the nickelodeon. (A ‘nickel’ is a five cent coin and an ‘odeon’ is a theater.) The early movie-screening devices of the nickelodeons were inefficient. The customer put his or her money in a box and watched the film through a little hole. Films had to be short, or the proprietor couldn’t make many nickels.

Theatrical screening was more efficient. You could show the same film print to big troop of people. It could even be a longer, more complicated film and the theater owner still made money, as long as the audience bought some popcorn. In neither case did the audience feel they owned anything but their own memories of the film afterward.

Flash forward to the TV age. Television mostly operated with the same principles — you paid for peeping in on a show indirectly, via commercials, rather than popcorn and ticket sales. When a young Martin Scorsese wanted to see moment in a movie a second time, he’d have to set his alarm clock to wake him up for when it re-aired after midnight. Not until VCRs became widespread did the consumer have the option to time-shift, to choose when and what he or she saw.

But it still wasn’t on-demand. If you wanted to watch a particular movie on your own schedule, you had to wait for it to screen on t.v. and then tape it. And it might never screen on t.v. The more channels you had, the better your chances, though. Hence cable t.v., which had channels that just showed movies round the clock.

The movie studios, tepidly, began putting movies out on VHS tapes. Flash forward again. Now there could be stores which specialized in having large libraries of movies, from which you could “rent” copies. The stores adored by film-lovers like Quentin Tarantino not only had official VHS releases from the studios, but the “bootleg” recordings from t.v. While this was akin to ‘illegal file sharing’, the studios were making too much money from legal rentals of recent releases to care much about persecuting lovers of obscure old films.

Blockbuster video was born, turning the corner video store concept into a mega-franchise. The studios raked in the money even further when it became apparent that consumers would pay a premium to have copies of their favorite films on the shelf at home, where they would truly have them at their fingertips.

For consumers, it was worthwhile to “own” the film for a number of reasons. Kids movies, because kids can watch something over and over, were a good value. Classic Disney films were and still are generally priced above the average market price. The other main reason for the average consumer in owning a film library is the same reason people own a book library. Not because they re-read these books over and over, but because they are status objects. They say something about you and what you value. This psychological component means real dollars for the studios. People will pay more for a feeling of ownership.

Now, based on the trend with music, where consumers will trade easy access on multiple devices for physical ownership, Apple and the UltraViolet consortium are betting that consumers will feel the same way about movies. But the approach they are taking may be a bigger gamble than they have considered.

The Big Gamble

With music, consumers built up large digital libraries by ripping CDs and through digital file trading. Once mp3 players became the primary way people listened to music, it was natural that digital sales overtook physical.

The economics of film lockers are a bit different. 1. The CSS encryption on DVDs and copy-protection on commercial VHS tapes has made it difficult for the average consumer to make digital copies from the copies they own, even if these are legal backups. 2. Most people don’t seem to think there has been an ideal portable device created for watching movies, at least until the iPad. 3. The size of the files makes them harder to trade and stream with current bandwidth for internet connections. All these are reasons why consumer takeup would be slower with the lockers when it comes to films.

But the big difference between music and movies is that there was never a Netflix for music. While there are subscription services, because Apple managed to corner the digital music market, the major labels have reportedly denied them the rights to launch their own, for fear they would become unstoppable. The way iCloud is set up, you still have to prove you have a track, even if it is just that you have gone to the trouble to torrent it. You subscribe… but to your own music.

Apple’s iCloud is expecting people to pay for the privilege of streaming back to themselves what they already own? With Amazon and Google offering similar, if more cumbersome, services for free? Netflix, on the other hand, is like the world’s best Blockbuster. Great selection, instant access, all-you-can-eat.

I think it is a mistake to think consumers will collect and “own” movies in the cloud like they are expected to do with music. Even if Apple were to make the same offer for movies as they are doing with music, the practicalities of how consumers would prove what movies they own would be a hurdle. Why manage your own library of files when you can pay a small monthly subscription fee, or single-time rental fees and have access to a better library, expertly managed by someone else?

Meanwhile, for those concerned with ownership of films as status objects, Blu-ray already seems to have taken hold, if only at the margins. While the take-up on Blu-ray is currently accelerating, because of the attractiveness of streaming subscription services like Netflix, it will probably never attain the golden heights that DVDs once did.

Thus I see more of a rollback to nickelodeon-type viewing. Small screen, one-at-a-time, on demand viewing. This time the consumer owns the box (say, an iPad) and rents or subscribes to what plays there. And guess what… that neatly replaces the model already being used by cable t.v., a.k.a. the golden goose.

Instead of the UltraViolet cartel brainstorming how to apply DRM to every minute of Transformers VII, or how to compete with iCloud, they should be working with the cable companies on a subscription service that’s as good and cheap as Netflix’s. Or do they really think the average consumer is going to replace the DVD collection with a hard-to-use digital locker? I wouldn’t bet on it.

UPDATE: The industry is already forward-looking enough to be lobbying for legislation against ‘streaming piracy’.

Chart from Edward J. Epstein’s website, click to follow link. Nickelodeon and dice images from Wikipedia.

Consideration of how Apple’s iCloud strategy fits into a larger idea of moving away from local storage of all data is outside the boundaries of this topic. Just know that I’m aware of it.