As Film Industry Tackles Digital Downloads, Fox Charges Ahead

As the film industry debates exactly how to incorporate digital downloads into its business strategy, 20th Century Fox is taking the lead. The studio is making a significant push into the space. In September, it launched its Digital HD initiative, making the Ridley Scott sci-fi flick "Prometheus" available online for just $15 three weeks before it was released on DVD and Blu-ray. "This was a major first for the industry," said Mary Daily, president-chief marketing officer for 20th Century Fox Home Entertainment. "It allows consumers to get access to movies earlier if they buy digital." With Digital HD, Fox is attempting to make online movies more accessible and affordable, as well as clear up some of the confusion presented by UltraViolet -- the system that gives consumers access to a digital locker, that holds the digital rights of movies they purchase. UltraViolet is essentially a digital proof-of -purchase. "With consumers' growing ease with digital content, plus an expanding base of online retailer partnerships, we thought the timing was right to launch a digital offering," said Ms. Daily, who was promoted to CMO earlier this year. "Digital HD provides the convenience, wide availability and affordability that we feel entices more consumers to buy digital movies, hence growing the business for the future." Ms. Daily spent nine years at Fox London, where she brought blockbusters like "Titanic" and "Braveheart" to international markets, before moving to executive roles at MTV Networks International and Universal Pictures International. She rejoined Fox in 2008. The release window has been hotly debated. But while other studios are still deciding how to approach digital launches, Ms. Daily is spearheading the marketing of early digital releases with splashy campaigns across the websites ESPN, Fox Sports, IGN and Pandora. Fox took over most of ESPN's home page, as well as its mobile and tablet app for the Digital HD launch of "Prometheus." The campaign, which included an HD video spot of the film, took up more of the screen than any video campaign ESPN had run previously. Ms. Daily said ESPN's young male audience is a key demographic for digital downloads because it is already familiar with and expects to be able to get digital content. While she declined to say how many consumers downloaded "Prometheus," she noted very early results revealed a new type of viewer interested in digital. Fox plans to release all recent movies in Digital HD, including "The Watch," "Abraham Lincoln: Vampire Hunter" and "Ice Age: Continental Drift." More than 600 Fox library films will also be made available digitally and sold through iTunes, Vudu, Google Play, PlayStation, Xbox and other online retailers. Still, there are limitations to Fox's Digital HD. Playback is limited, depending on where consumers purchase the digital copy. And those who buy a digital version ahead of the physical release will still need to pay for the DVD or Blu-ray if they want a physical copy. Ultimately, Morningstar analyst Michael Corty suspects the price must come down from even the $15. Fox is currently using for Digital HD. "For $15, you get two hours of entertainment, but you can get much more content these days for $15 through platforms like Netflix," he said. Options are also limited, with only a few films currently available digitally, said Jan Dawson, an analyst at Ovum. "Fox is putting more weight on it and getting out ahead," he said. "Others are taking a cautious approach and haven't put their money where their mouth is ." Meanwhile, UltraViolet, which has been adopted by nearly all the major movie studios aside from Walt Disney, remains wrought with confusion. One of the biggest obstacles facing UltraViolet is that Apple's iTunes does not support it. So in order to play digital movies on an iPad or iPhone, users must download a separate application. UltraViolet also lacks mass retail support, relying predominantly on Walmart. Amazon announced it was partnering with UltraViolet nearly a year ago, but has yet to come out with a storefront of its own. "The studios have different ideas of how this should work, which has led to confusion and loss of sales," said Mr. Corty. "The studios need to decide how they are going to come together—the release window, distribution channel and price." Mr. Dawson believes studios have been reluctant to make a meaningful marketing push because they are still trying to hold on to the single-use model. "UltraViolet takes away repeat purchases, so the studios aren't keen to hasten the transition," he explained. Still, physical discs aren't going away anytime soon, with Blu-ray sales surging 13% in the third quarter, according to the Digital Entertainment Group. And after five steady years of declines, the home entertainment category is finally stabilizing, with consumers spending $12.34 billion, up slightly from $12.22 billion last year. "We are absolutely still investing in DVDs," Ms. Daily said. "We have seen significant growth in Blu-ray combo packs, which include a physical disc and digital copy. We are future-proofing the content. These platforms can coexist nicely. None of these formats are cannibalistic. Consumers choose which way they watch depending on whether they are home or traveling and their lifestyle."

As Film Industry Tackles Digital Downloads, Fox Charges Ahead

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