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Ten Factors Keeping Hollywood From Going Digital

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Why talks at the Consumer Electronics Show may be doomed to failure.

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At the dawn of a new decade, Hollywood studios are coming to grips with an inevitable conclusion. While the next 10 years will bear witness to some of the most surprising and unexpected innovations this increasingly connected world has ever seen, there are a few irrevocable facts that keep studio execs up at night.

One of them: In a few years time, we'll be regarding DVDs -- both standard and Blu-ray -- as outdated as VHS today.

Currently, physical media still commands the lion's share of business in both the film and music industries, but their numbers are continuing to dwindle, giving way to the ease and speed of direct downloads and peer-to-peer file sharing. And as digital adoption becomes more logical and essential, studios are seeing more customers purchase a cost-effective file -- or download it for free, depending on the method -- rather than shell out for the inflated price slapped on a Blu-ray release.

There have been many attempts, but few successes, to rectify this loss of revenue. However, this week at the Consumer Electronics Show in Las Vegas, a consortium of Hollywood studios and electronics manufacturers are looking to finally catch up with the digital movement and lay out plans to get digital video into people's homes quicker and easier.

Five major Hollywood studios -- Warner Bros. (TWX), NBC Universal (GE), Sony (SNE), Paramount (VIA), and Fox (NWS) -- are meeting with top tech companies Microsoft (MSFT), Cisco (CSCO), Comcast (CMCSA), Intel (INTC), and Best Buy (BBY) to discuss these plans as a part of the organization spearheading this campaign, the Digital Entertainment Content Ecosystem.

And predictably, the group's first steps are in the wrong direction.

With one eye toward profits and a blind one toward feasibility, the group has managed to concoct another restricted service that leaves potential customers with fewer options. And as Napster's pay service -- or any of Blockbuster's (BBI) actions in the last few years -- reminds us, customers will consistently reject a business where their purchases are confined and relegated to an arbitrary set of rules.

It took more than a decade for digital music purchases to reach an acceptable standard, and now we're poised to return to 2000 for the digital video business with all the same setbacks and lengthy years of correction. As it stands, the DECE's projected service will be hindered by no less than 10 different factors, which will keep its appeal far behind simply ripping a Netflix (NFLX) DVD or visiting a BitTorrent tracker site.

1. It's a proprietary format.

It's astounding and downright preposterous to champion more proprietary formats when there are still popular video players that are specifically programmed not to play certain file types. (See Quicktime and .AVI files.) To adopt another is to cause more confusion and annoying codec downloads at best, total incompatibility at worst. Locking a customer into a specific format with no support elsewhere is ensuring limited adoption. (See Sony and MiniDisc players.)
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