In-store DVD burning?

Wal-Mart pushes talks; possible deployment in 2006

By Paul Sweeting and Jennifer Netherby -- Video Business, 11/18/2005

NOV. 18 | With retail shelves groaning under the weight of accumulating DVD releases, studios, retailers and technology companies are pushing to develop a system for burning discs on demand at in-store kiosks as a way to ease the inventory load.

Although the idea isn’t new, work in the area has accelerated recently and could result in limited deployments as early as 2006, those involved in developing the technology said.

Among the retailers showing the keenest interest in the concept is Wal-Mart, which is grappling with tight shelf space, shrinking DVD margins and the threat of competition from direct-to-consumer downloads.

According to studio sources, discussions with Wal-Mart have gained urgency in recent months, although all denied that any deployment of download-and-burn kiosks is imminent in Wal-Mart stores.

A Wal-Mart spokeswoman confirmed that conversations with the studios are ongoing, but said no decision had been made on whether to proceed.

“This is simply something that is in the discussion phase as to whether our customers would be interested,” the spokeswoman said. “As always, we’ll continue to try to stay on top of what we think will appeal to our customers.”

Other moves may be closer to reality, however.

In a conference call with analysts to discuss the company’s second-quarter earnings earlier this month, Sonic Solutions CEO David Habiger revealed that Sonic has been working with the studios on a download-to-burn system for the past two years and is hopeful that a rollout could begin next year.

“We’re still waiting for final approvals [from studios], but it could begin to have a material effect on earnings in the second half of 2006,” Habiger told the analysts.

Habiger did not disclose specific deployment plans but suggested the technology could have a variety of uses.

“This is not about replicating the video store, it’s about building a common industry platform for secure electronic sell-through,” Habiger said. “It could involve many different types of content, but we see downloading of premium studio content to DVDs as the killer app.”

A Sonic spokesman would not confirm whether the company is working with Wal-Mart or any other specific retailer, but said in-store burning is one of the applications Sonic’s technology would facilitate.

“The day [is coming] when you can walk into your favorite store and be guaranteed that the DVD you want is there,” the spokesman said.

Sonic’s involvement would likely increase the studios’ comfort level with the download-to-burn concept.

Through its Roxio subsidiary, Sonic is a leading provider of legitimate desktop CD and DVD editing and burning software.

More importantly, the company is a leading provider of professional DVD authoring software and tools and has a long history of close collaboration with the studios.

“We think we’re uniquely positioned to do this due to our backing in DVD burning and our relationships throughout the industry,” the Sonic spokesman said.

Sonic also is developing authoring tools for both HD DVD and Blu-ray Disc.

Some retailers that have closely followed developments in the download-to-burn area remain skeptical, however.

According to one sell-through retailer, the studios are unlikely to distribute their top new release or catalog titles through an untested system like this for at least a couple years. The retailer said he sees the technology as an add-on, used when stores run out of studio copies.

Another retailer said, in-store burning is never likely to be cost-competitive with commercially manufactured discs, so would be unsuitable for new releases and large catalog titles.

Instead, the retailer said, it would be more applicable for smaller titles that a store would not normally stock.

Even then, many details remain to be worked out before a download-to-burn system could be deployed commercially.

One critical issue involves copy-protection.

To be compatible with standard DVD players, any disc created in-store would have to rely on the same Content Scrambling System used to encrypt commercially manufactured DVDs.

If a downloaded file contained CSS, however, the encryption would prevent burning.

For the system to work, CSS would have to be removed from the file and then reapplied after the disc has been successfully burned.

Sonic and Microsoft have developed technology for accomplishing that without compromising security, but their technique is yet to be approved by the DVD Copy Control Assn., the organization that oversees CSS licensing, sources said.

Packaging also could present a challenge.

Although cover art could be downloaded and printed on-site, anything more elaborate would add time and cost.

Sonic officials said those problems can be solved, however.

“We’re actively developing a comprehensive download-to-burn platform,” the spokesman said.