MOD companies poised to pounce on business

CreateSpace, Allied Vaughn, others bet studios will follow Warner Archive

By Susanne Ault and Jennifer Netherby -- Video Business, 4/10/2009

APRIL 10 | With Warner Home Entertainment Group’s move to use DVD manufacturing-on-demand technology to offer thousands of films from its archives on disc, MOD companies are hopeful other studios will soon follow.

The technology, in which consumers can buy a made-to-order DVD, has been at studios’ fingertips for years. But the floodgates are just now opening for its wide use, as copyright protection solutions, the hurting economy and one studio's kick-off program are combining to create a powerful incentive for MOD.

No other studios have yet committed to MOD and most aren’t commenting on their plans. A spokeswoman for Universal Studios Home Entertainment said the studio is exploring it. Sony Pictures Home Entertainment, which did limited MOD with Hewlett-Packard a couple years ago, wouldn’t say whether it plans to use it again.

Recent approval of CSS copyright protection standards for burned discs is what finally motivated Warner to jump into MOD, according to the studio’s MOD partner Allied Vaughn.

“Warner wouldn’t have done the deal if it were not able to do so with CSS encryption, and clearly having one studio step up and start a working model attracts the attention of the other studios,” said Doug Olzenak, Allied Vaughn president. “Then you look at the trend of retail shelf space being at a greater and greater premium. But studios can market their complete library [with MOD]. And their inventory cost is zero.”

Through the Warner Archive program, people can choose from dozens of classics, once labeled too niche for wide releases, and spend $19.95 to get a DVD of these titles at their homes within days of purchase.

Warner Archive also has quietly introduced a complementary download option on select titles through Sonic Solutions-owned CinemaNow. (Allied Vaughn uses Sonic’s Qflix copy protection on Warner MOD discs.) The $14.95 download-to-own files are playable on PCs, portable media devices and soon certain set-top boxes.

Sonic also is talking to Warner about adding the ability for consumers to burn those downloads to DVD at home, Sonic executive VP of strategy Mark Ely said.

Allied Vaughn beat out MOD competitors including Amazon.com’s CreateSpace and Hewlett-Packard for the Warner deal and, like competitors, is pushing to land other studios.

H-P, which made a highly publicized MOD push in 2006, has greatly cutback on its MOD capabilities and shuttered its West Coast manufacturing warehouse. But a spokeswoman said the company still handles MOD fulfillment in a facility near Boston “at prices competitive with any service on the market.”

The company had a deal with Sony that sources say the studio used to replicate TV episodes that could be quickly shipped and sold in stores the next day in test markets.

New entrant Ustrive, made up of many executives and staff from closed digital kiosk company TitleMatch, also is making a push to handle MOD for the major studios, said Mary Litchult, VP of multi-media distribution.

Amazon CreateSpace execs declined to talk about future plans, citing company policy, but said they’ve added more suppliers and titles over the last year. That includes putting out Web hit Dr. Horrible’s Sing-Along Blog in December, from Buffy the Vampire creator Joss Whedon. The DVD release shot up to No. 2 on Amazon’s DVD sales charts alongside such major film releases as Warner Home Video’s The Dark Knight.

“It demonstrates that disc on demand is not just long-tail, obscure content,” Amazon.com director of self-publishing and manufacturing on demand Aaron Martin said. “It’s a fast, efficient way of getting content into digital distribution. Joss’ fans wanted a physical copy, and it really took.”

CreateSpace also has deals with HBO, CNN, ESPN, Nickelodeon and others and is seeing strong growth, particularly from suppliers using MOD to turn around TV product quickly and as backfill for fast-selling new releases when suppliers run out of product, said Hunter Williams, senior manager of Disc on Demand at Amazon.com.

Allied Vaughn is banking on its Warner cache, plus experience and unique business model to win further studio business. Since 2000, Allied Vaughn has performed work for Microsoft, which uses MOD to service its product distributors with discs supporting software updates. Allied Vaughn signed up its first entertainment client, National Geographic, about two years ago and continues to handle fulfillment for some of the company’s titles sold directly at its retail Web site www.shopng.com. Starting last fall, Allied Vaughn took control of fulfillment of A&E Network’s titles at its retail Web site http://store.aetv.com, nearly all of which are offered on a manufacturing-on-demand basis.

Sources say Allied Vaughn generally hands over a bigger percentage of sales to its content suppliers than some competitors, such as CreateSpace, which is compensated for offering its huge Amazon customer base for MOD products. In contrast, Allied Vaughn has no role in generating traffic to its MOD clients’ Web sites, such as WarnerArchive.com.

Martin said CreateSpace can't comment about terms of its studio or label deals, but said terms for independent filmmakers are available on its Web site. "Independent authors, filmmakers and musicians do not incur any set-up fees to self-publish with CreateSpace. Our platform gives our members access to tens of millions of customers on Amazon.com and great royalties and manufacturing pricing."

Amazon execs say Amazon’s customer base is part of the appeal to many of its suppliers, and success stories such as Dr. Horrible and 2006’s hockey film In the Crease, another top-seller, demonstrate why.

The company also offers an option to suppliers, allowing them to create their own Web presence and handle all their marketing, with fulfillment by Amazon.

Warner will sell all of its titles at WarnerArchive.com exclusively, giving the studio a direct connection with consumers, which MOD execs say is increasingly important. After 90 days of their bows, the studio plans to allow other retailers to sell the product using Allied Vaughn for fulfillment.

“This is the right time for MOD,” Allied’s Olzenak said. “We can help studios conserve capital, and we are providing customers with choice. Content owners are focused on increasing sales in a difficult market, and that lines up with MOD.”

Sonic’s Ely said the recession is pushing studios to MOD as retailers cut back on carrying deeper catalog titles. MOD also eliminates studio costs to stock product just as studios are being forced to cut back on inventory expenses, MOD execs say.

Beyond studios, Allied Vaughn is targeting wholesale distributors, along the lines of Ingram Entertainment, as an additional client category.

“How can the traditional supply chain be improved?” asked Olzenak. “We can supplement some of it with on-demand, reducing their inventory. That is one of the newest things being looked at.”

Allied Vaughn is already pushing for second-generation services, which heavily underscore personalization. For example, for recent fitness client Push.net, Allied Vaughn creates personal training discs that are highly customized to each customer’s exercise needs.

“There are thousands of exercise vignettes and 20 different personal trainers" to choose from, explains Olzenak. “The customer states what their objectives might be, like ‘Susan has a bad knee,’ and they’ll personalize a workout for you. Every disc is different.”

While Allied Vaughn focuses on making inroads in the traditional disc business, CreateSpace is working with TV networks, independent and foreign filmmakers and more Web content producers. The retailer is about to put out Web series The Guild from Felicia Day, who starred in Dr. Horrible.

“Web content is definitely a new source of entertainment and one that’s a continuing growth area for disc on demand,” Amazon.com’s Williams said.