The Wall Street Journal [B]- Walt Disney Co. is close to unveiling technology that it says will enable entertainment companies to adapt their business models to a new reality in which consumers increasingly rely on computers and cell phones in place of DVD players and TVs.
The technology, code-named Keychest, could contribute to a shift in what it means for a consumer to own a movie or a TV show, by redefining ownership as access rights, not physical possession.
The technology would allow consumers to pay a single price for permanent access to a movie or TV show across multiple digital platforms and devicesâ€”from the Web, to mobile gadgets like iPhones and cable services that allow on-demand viewing. It could also facilitate other services such as online movie subscriptions.
The company has been quietly demonstrating Keychest for other movie studios and technology companies in a bid to get them to sign on. It plans to unveil the technology next month.
Keychest aims to address two of the biggest hurdles blocking widespread consumer adoption of movie downloads: the difficulty of playing a movie back on devices other than a PC or laptop, and limited storage space on those computers’ hard drives.
As such, Keychest could put Disney on a collision course with an initiative, known as the Digital Entertainment Content Ecosystem, or DECE, that has similar goals.
Keychest uses the same “cloud computing” logic that underlies Web-based applications, such as Google Docs, permitting users to store files and photographs on remote Internet servers and access them from anywhere, rather than keeping them on their own computers.
With Keychest, when a consumer buys a movie from a participating store, his accounts with other participating servicesâ€”such as a mobile-phone provider or a video-on-demand cable serviceâ€”would be updated to show the title as available for viewing. The movies wouldn’t be downloaded; rather, they would reside with each particular delivery company, such as the Internet service provider, cable company or phone company.
The rollout of the new technology comes at a critical juncture for the movie industry. DVD sales, once a financial mainstay for Hollywood, have fallen as much as 25% at some studios. Blu-ray discs and digital downloads from sites like Apple Inc.'s iTunes Store, haven’t grown quickly enough to offset the losses. Blu-ray and downloads combined currently make up just 11% of home-video sales, according to industry estimates, with DVDs representing the other 89%. That proportion could grow to 20% next year.
The decline in DVD revenue has undermined the business model Hollywood has relied on for more than a decade. In Disney’s most recent quarterly earnings report, its movie studio recorded an operating loss for the first time since 2005.
Bob Chapek, president of home entertainment at Disney Studios, says the company doesn’t expect Keychest to deliver tangible financial results for five years. But he predicts that in combination with Blu-ray, digital distribution “should bring our category back up to a healthy state where we can expect growth in the future.”
The company declined to name other companies that may have agreed to participate. Apple Chief Executive Steve Jobs is Disney’s largest shareholder, and people in the entertainment industry say it would be reasonable to infer that Apple would cooperate with such an initiative.
To be sure, other movie studios may be hesitant to put a competitor in charge of access to their content. And Keychest would allow movie studios to dictate how many devices, connected to which distribution networks, a given title can be played on. That could limit consumer choice and make the system confusing.
The competing DECE effort is being assembled by a consortium headed by Mitch Singer, the chief technology officer of Sony Corp.'s Sony Pictures Entertainment. DECE, announced just over a year ago, includes five major Hollywood studios, plus tech companies like Comcast Corp. and Intel Corp.
Disney and Apple have been notably absent from that group.
Disney executives concede that the Keychest and DECE have similar goals. But they argue their effort represents a more streamlined approach. Instead of designing a new set of standards and formats, as DECE is trying to do, and having participants sign on, Keychest works using a combination of digital file formats that are already common, and recognized by a wide range of existing devices.
Disney executives insist that movie studios, cable companies and Internet service providers who participate in DECE could also use the new Keychest platform. Neither DECE nor Keychest has set a date for when the service would be available.
With Keychest, when a consumer buys a movie from a participating digital-download store, his accounts with other participating services â€“ such as a mobile-phone provider and a video-on-demand cable serviceâ€”would be instantly updated to show the title as available for viewing.
The Keychest process is enabled by a system that generates a unique “key” when the movie is purchased, then stores that key in a repository. Other distribution services that are Keychest participants automatically query that repository and learn what movies the consumer has paid for.
Movies bought on discs, whether DVD or Blu-ray, could also generate an access key. In the case of a DVD, the user would need to manually type in a code; Blu-ray players are designed to connect to the Internet, and could send codes automatically.
The idea is that if numerous content and hardware companies sign on to Keychest, users could have easy access to a library of movies without toting around discs or data files.
In theory, even if an online entertainment company went out of business, taking down a user’s entire movie library in the process, that user would still have access to the same titles via other services.
“Our vision for the future is that consumers won’t have to think about where they bought [a movie], how they bought it, or when they bought it,” says Mr. Chapek.[/B]