Deliver Us From Stuff

Posted by Mark Radulich on 07.09.2008

Owning large collections of physical stuff is no longer cool and media companies are feeling the sting.

A recent article from the AP Hi-Tech stated that, "A Lehman Brothers analyst downgraded the entertainment industry Monday and slashed forecasts for its five major companies, saying digital downloads of movies and TV shows posed a huge threat to profits from DVD sales that the companies rely on.

The stocks of The Walt Disney Co., News Corp. (NWS), CBS Corp. (CBS), Time Warner Inc. (TWX) and Viacom Inc. (VIAB) fell slightly more than the market by close, with CBS falling the most, by 4.7 percent, or 87 cents, to $17.73.

"Shifts from physical to digital will disrupt the marginal economics of the TV and movie businesses, just as it did for music," analyst Anthony DiClemente said during a conference call.

DiClemente argued that the average profit the companies see from new DVDs, including higher-priced Blu-ray discs, is $10.59. Selling the same movie through Apple Inc. (AAPL)'s iTunes online music and video store nets them $9.29, 12 percent less, he said.

Online movie rental services offered by iTunes and Netflix, with profits ranging from $1.81 to $2.44 per movie rented, will further hurt the industry as more young people choose to rent digital copies, he said.

"Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business," DiClemente said."

I feel no sympathy for the movie industry. After Napster and it's subsequent effect on the music industry, all media should have known this was coming down the pike and prepared for it. Much like the auto industry, when you fail to see the future and adapt, typically you are left in the past of fond remembrances.

For Generations X and Y whom have grown up on computers and now the internet, finding ways to employ your computer as a multi-media tool is as easy as working a calculator. Even the most ludite amongst us can figure out Itunes. Though I usually root for any American company to succeed, I cannot abide by the entire movie industry not understanding it's consumer base enough to adapt it's profit margin in the wake of a consumer culture less likely to make physical purchases.

Had the movie and the record industries really understood their consumer base, they should have seen these market trends even years before downloading media became a mainstream option. For years, if folks had access to a "bootleg" outlet rather than paying full price, the consumer typically went for the "bootleg". NOTHING HAS CHANGED about our collective behavior. We all still want a bargain and convenience. The internet and the ability to download digital media has brought the bootlegger into our home and we're all mostly happier for it.

But the really fascinating trend is that last quoted line in the article, "Owning a collection of movies in this new digital world is really just not that cool for young adults in the target demographic that we look to for the future of the business." That's certainly a mouthful. My friends and co-workers have all been lamenting collections of stuff as of late. My once 1,000+ plus strong collection CD's used to be a source of great pride; now it's another piece of furniture collecting dust that I don't even look at seeing as I haven't bought a physical CD in a dogs age. With Services like MP3 Fiesta selling albums at 10 cents a piece, I don't even go into record stores anymore.

The same goes for movies. I sold my collection of DVD's years ago in lieu of joining Netflix and blockbuster online. By today's consumer standards, even that activity is a bit quaint as others download the movies directly to their computers in some fashion or another.

With the advent of the Amazon Kindle portable reading machine, I'm sure those younger than I will be quick to dump physical books in favor of digital ones (this will certainly make my girlfriend happy as our apartment is starting to look like an abandoned library).

Those who amass large collections of physical stuff will most likely pass on with the Baby Boomer generation and certainly after Generation X kicks the bucket I suspect all media consumers will be close to 100% digitals as the tools for such an endeavor become cheaper and the knowledge of how it's done becomes more widely spread. This is a warning too all media companies, shun physicality of your product or you too will end up in the antique store of life.