As the cable industry seeks out new video growth engines, electronic sell-through (EST) has quickly emerged as something MSOs can put under the hood and rev up.
Pay TV providers are looking to join the race to sell movies and TV shows through all-digital multiscreen storefronts, as retail distribution models shift away from physical DVDs and Blu-ray discs. And as Verizon Communications has already discovered with Flex View, an EST service the telco launched in 2010, pay TV operators have not just the foundation on which to build their digital video stores, but also a direct sales link to millions of customers.
But EST is a crowded, hypercompetitive market with no shortage of consumer options. Led by Apple’s iTunes Store, others fighting for their piece of the revenue pie include Xbox Video, Google Play, Amazon Instant Video, M-GO, the Walmart-owned VUDU service, and Target Ticket, an online video store that launched last year.
EST has not come close to overtaking total consumer video-entertainment spending, but its adoption is on the rise. According to The Digital Entertainment Group, EST (a category it now refers to as “Digital HD”) in the U.S. jumped 50% in 2013, surpassing $1 billion for the first time. DEG also said 2013 ended with about 15 million accounts for UltraViolet, the digital locker platform that counts backers such as Paramount Pictures, Sony Pictures, Universal Studios, Warner Bros. Entertainment, Liberty Global, Cox Communications, and Comcast.
COMCAST’S BIG EST MOVE
Comcast has not yet adopted Ultra- Violet, but it jumped into the EST pool with both feet with last November’s launch of a digital store that allows customers to buy movies and TV shows and play them back on PCs, as well as set-top boxes, while also offering a playback app for iOSand Android-powered smartphones and tablets.
EST offers Comcast access to a new video window and is an important complement to video-on-demand and pay-per-view distribution channels, Comcast Cable senior vice president and general manager, video services, Matt Strauss said.
“We realized that we needed to move further upstream in giving customers the ability to not only rent movies but to own them,” Strauss said. “We do think there is a different behavior between people who rent and people who buy. We think they can both coexist.”
Comcast had to seek out ways to differentiate its product. Taking a tack also used by Verizon, Comcast believes deep integration at the settop box level can help it stand out.
Comcast has extended its EST capabilities not just to new, IP-capable boxes that run its X1 platform, but also to millions of legacy, QAMonly set-tops. Comcast now has the advantage of offering a full suite of live, on-demand and EST services on one TV-connected device, rather than requiring customers to toggle inputs.
“The Achilles heel for digital ownership was the ability to get access to that library on the television,” Strauss said. “Our assessment was there was an opportunity for us to get into the ownership business, [knowing] we had a subscriber base that would be very open to that type of a model, if we could offer them the convenience on the television.”
That strategy has already been paying off in just the first five months since the product was launched. Comcast, despite a smallish catalog (its digital store was stocked with more than 565 movies and just 16 TV series at last check) and limited marketing, has become one of the top EST retailers for several titles, including Despicable Me 2, The Wolverine, 12 Years a Slave and Gravity.
Its EST studio partners are noticing. “Comcast’s recent entry into the EST business is already proving to be a catalyst for accelerated growth,” Lionsgate CEO Jon Feltheimer said in February during a third-quarter earnings call. “In the first two months of their service … Comcast has captured 15% of the EST market and expanded the business.”
Comcast is not yet breaking out its own electronic sell-through sales figures, but Strauss said the “vast majority” of EST transactions to date are coming not from the Web, but from the remote control.
Full TV integration “so far is why I think we’re seeing such a huge lift in a relatively short period of time,” he said.
Because Comcast already provides one-click access to EST purchases via set-top, there’s no great urgency to extend access to other TV-connected devices such as Roku boxes, the Apple TV or gaming consoles.
As for priorities this year, Comcast plans to expand its EST catalog with new and existing studio partners, which today include Lionsgate, Universal Pictures, Fox, Sony and Warner Bros. “You’ll see us expand and add thousands of titles in the coming months,” Strauss said.
Comcast, he added, is also considering new EST bundling options, including the ability for customers to buy multiple titles together. It is also looking to offer a pre-order model that would let subscribers buy titles ahead of their release and have them automatically populate the purchases menu when they become available.
Selling prior seasons of TV shows will also become a big priority as Comcast looks for a way to complement its VOD platform, which already offers current seasons of about 50 top shows on a free-to-subscribers, ad-supported basis.
“When we market a show, we can market it in its entirety,” supporting both the EST and VOD windows, Strauss said. Comcast’s EST transactions have been evenly split between movies and TV shows, he said.
In addition to getting access to EST windows, which increasingly offer access to movies before their DVD and Blu-ray releases, those studio agreements have also given Comcast access to titles that it normally wouldn’t be able to offer, including two Netflix originals — House of Cards (distributed by Sony) and, soon, Orange Is the New Black (Lionsgate).
EST: NEW TABLE STAKES?
Lionsgate’s Feltheimer said on the earnings call that he believes Comcast’s early success will cause other multichannel video programming distributors to get more aggressive with EST, acknowledging that the studio is in talks with other MSOs.
“You will see them [cable operators] enter the EST space,” he said. “It’s been too successful for Comcast. I think everybody … that has the technological capability will be in that game, and we think it’s a very exciting proposition.”
Although Comcast’s new store is the most ambitious to come out of the pay TV industry of late, it’s not the only cable operator that has been kicking the EST tires.
Time Warner Cable and Bright House Networks, for example, have been selling TV shows and movies through a Web portal for several years in tandem with In Demand, which has helped to stand those up by handling the metadata and content preparation management. Those offerings also rely on Content Direct, a digital locker product from CSG Systems.
“The new trick here is going crossplatform” and extending access to the set-top box, Jim Ra, vice president of application development at In Demand, said. Comcast has figured out a way to share EST entitlements for Web-based transactions with other systems, he said, including the set-top box and mobile playback apps.
“The products need to be cognizant of each other to make the crossplatform entitlement work,” Ra said.
TWC and Bright House are among the operators believed to have set-top EST integrations on their respective roadmaps, but neither has announced any specific plans.
Vubiquity, an aggregator of multi screen content for more than 700 distributors and service providers worldwide, including Comcast, TWC, DirecTV, Dish Network and Google Fiber, supports EST in AnyVU Cloud, a new cloud-based platform it is using to deliver a mix of on-demand and live video.
EST has emerged as a “crucial model to support as ownership changes from physical to digital,” Darcy Antonellis, Vubiquity’s CEO and a former Warner Bros. Entertainment executive, said.
UltraViolet is just one of several forms of digital lockers Vubiquity supports. “We are fully committed to supporting locker-based services,” Antonellis said.
But not all major U.S. pay TV providers are ready to go full bore with EST. Cox, for example, has yet to pull the trigger on an EST offering, though it is a member of the Digital Entertainment Content Ecosystem, the consortium behind the UltraViolet brand.
“We are in the early phases of evaluating what we’d want to do and how we’d want to do it,” Steve Necessary, Cox’s vice president of product development, said. ‘It’s defi nitely on the radar screen.”
Cox is still sorting through both the technical and operational aspects of EST, he said, and views the category as one that appears to be gaining momentum.
“It’s at a minimum interesting, moving toward compelling, as a business opportunity,” Necessary said. “But I don’t think it has risen to the level of must-have or table stakes.”
EST AS A CHURNBUSTER
EST may become more front and center of future service plans as additional data emerges showing the benefits it offers to the rest of cable’s video business.
It’s too early to know the retention benefit of electronic sell-through, Strauss said. Comcast customers who buy titles from the MSO will still be able to access them on PCs (but not via the smartphone and tablet apps) if they should they disconnect service.
But recent research indicates that offering an EST product certainly can’t hurt. In fact, Verizon has already seen some tangible benefits in terms of both revenue and churn reduction.
Last fall, the telco told Multichannel News that the average EST revenue per FiOS TV sub had quadruped since Verizon launched its EST product more than three years ago, and that FiOS customers who use the Flex View service are three times less likely to churn compared to customers who do not use it.