Free content being devoured by recession hit public - By: Paddy Chang

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With the recession starting to bite hard, more and more consumers are cancelling subscriptions and learning to be satisfied with free TV content. They want to watch but not to pay.

With the worst economic recession known to man upon us, consumers are more interested in finding ways to get access to their favorite music, movies, TV and videos without having to pay. This worrying fact will impact upon the profits of media and entertainment companies pinning all their hopes on the pay to view and pay on demand services.

The problem is that consumers have many free ways to access entertainment and other content using totally free internet broadband platforms and devices. In fact, this depression may actually see a growth in low cost/free home entertainment and online television.

Viewers will start to record more on their Digital Recorders and other time shifting devices to watch more TV at home, and increase their use of Internet connected devices to access free content on websites such as worldtvpc.com.

On the flip side, entertainment companies will shift fewer DVDs and pay for media as viewers opt more for in home. So far this year, total DVD sales are down about 4% Y/Y through the end of October. In the third quarter alone, overall DVD sales declined 9%, and the sale of higher priced titles fell 22% from the previous year, according to Nielsen. However, that does not reflect the 40% of all DVD sales that are generated by WalMart.

The only high priced device that could prove to be relatively recession-proof is Apple’s Ipod, which is expected to sell more than 15 million of its portable devices by 2009 that offer flexibility and portability of digital TV and film content. The irony is that even as studios like NBC Universal reduce film production by $500 million or 3% next year, they still will not make as much as they traditionally hoped from conventional releases in a digital marketplace.

This is why analysts such as DiClemente remain guarded about the financial outlook for the entertainment and media sector–much less specific companies.

“Given the new dynamic of widespread broadband deployment (an added cost for many consumers to begin with), the cyclical pressures of the economy could exacerbate the more recent secular shift to the Internet/digital, and cheaper and easier Web content,” DiClemente explains.

In other words, much of digital media is about to turn into a freebie. The entertainment and media players banking on profits from discretionary purchases and high-margin extras are being confronted by more than recessionary pricing and cost concerns. This could be another dramatic about-face for digitally empowered consumers with easily accessible and cheap alternatives.

There are ways that producers and distributors of digital content can save themselves from a monetization malaise. DiClemente’s recommendations are: Lower wholesale costs to retailers on SD-DVD and iTunes downloads in order to drive and maintain unit volume; provide easier access of TV and movie content for online users; slash operating expenses for home video sales and distribution channels; consolidate marginal networks and studios; accelerate the shift to “day-and-date” video-on-demand for new digital titles simultaneous with the DVD release; and seek a swift resolution to the Screen Actors Guild’s new contract negotiations.

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