HP to manufacture DVD on demand

Tech giant building hybrid service for retail brands

By Jennifer Netherby -- Video Business, 5/11/2007

MAY 11 | Conceding that consumers aren’t likely to give up DVDs and start downloading movies overnight, tech giant Hewlett-Packard plans to expand its movie download business to incorporate physical DVD sales this summer.

HP provides the back-end technology and operations for Wal-Mart’s movie download site, which launched in February  (read our review). This summer, HP plans to launch its DVD-on-demand business, which will manufacture DVDs when consumers order them.

The DVD-on-demand business will be integrated into Walmart.com’s download site, and HP is in talks with other retailers to provide the same services. (Wal-Mart didn’t return calls for comment, but an exec confirmed to Business 2.0 that it would feature on-demand DVD.)

“We started this whole business around a download model, then we looked at consumer acceptance, how fast [it was happening] and came to the conclusion, it will take quite a long time before it becomes mass market,” said Willem de Zoete, VP and general manager of HP Digital Entertainment Services. “Consumers will still be buying DVDs for a while. It’s difficult to justify the investment for download-only now.”

Through retailer Web sites like Walmart.com, consumers will be able to choose a movie and then choose their preferred format—either download or as a DVD.

If they choose a DVD of a more popular movie, HP will send the order to a fulfillment house, and a pre-manufactured DVD will be mailed. But for smaller and niche titles, HP plans to burn the movie to disc, print out artwork, package and ship the title to the consumer.

The company can produce tens of thousands of discs a day, all different movies, from its Northern California facilities. Prices are expected to range from $5 to $25, depending on the movie.

De Zoete said there’s a big opportunity for DVD-on-demand on smaller and niche titles that have too small an audience to justify a production run. While many online stores have 50,000 titles or more listed, many of those titles aren’t immediately available because they’re out of print.

Amazon similarly runs a DVD-on-demand publishing business, CustomFlix, which has deals with TV networks including NBC, CBS and A&E Networks to create DVDs of certain programs on demand.

So far, HP has no announced studio deals for DVD-on-demand, but de Zoete said the company is in talks with the majors.

Wal-Mart is the first retailer to work with HP on video, but HP is building its hybrid download/DVD-on-demand business as a back-end that can be used by a number of different retailers under their own branding.

The company plans to operate its video business similar to its photo business, Snapfish. The service is offered through 40 different retailers under the retailer’s name and allows consumers to order prints in-store or online and either pick up those photos in-store or have them mailed.

Along those lines, HP plans to do more hybrid video releases like it did with Wal-Mart for Superman Returns and Blood Diamond. Consumers who bought DVDs of either film in a Wal-Mart store were able to log on to Walmart.com and buy a download or portable copy for a few dollars more.

“We want to build a platform that basically is multi-format, multichannel,” de Zoete said. “We don’t care if [a consumer buys a] DVD or download. There’s an opportunity in combining the online experience with the in-store experience.”

The DVD-on-demand business is part of HP’s plans to offer Hollywood an end-to-end download solution. HP has deals with Paramount Pictures, Sony Pictures and Warner Bros. to digitize their film libraries.

Right now, studio libraries are stored on tape. When a digital download service signs a deal with a studio, each movie must be transferred from tape to digital for each deal. By digitizing libraries, a digital copy could be sent out immediately to a company when they sign a download deal with a studio or supplier.

De Zoete estimates that less than 5% of studio libraries have been digitized.

At the same time that HP works on delivering movies from studios to consumers, its Managed Home division is working to get downloads from the Internet to consumer TVs more easily. Last year, the company introduced the MediaSmart TV, which connects to the Internet and lets users transfer movie downloads from partner CinemaNow to the TV from a home computer.

HP plans to introduce a second-generation model with a 1080P picture this fall along with the MediaSmart Server, a home server that can store downloads and send them to the TV. HP also is looking to add more content in addition to the Web radio stations, photo albums and movies available now.

With the MediaSmart TV, consumers can transfer movies directly from the MediaSmart server or their home computer, rather than adding another set-top device or other connector.

“There are a lot of advantages to that,” HP Managed Home Business director Brian Burch said. “People want to mount [their TVs] on the wall and connect as few things as possible to them.”

One area the company considered but is not entering is movie download kiosks, De Zoete said. HP didn’t think the consumer experience is compelling enough as downloads take time to burn and because the number of movies kiosks can burn in a day doesn’t justify the cost at this time.