10 Pushy Questions for Kevin Tsujihara

A very significant example of the growth that can result from this type of collaboration is our movement into the video games publishing area. By leveraging the distribution, marketing and sales infrastructure and expertise that already existed at Warner Home Video with the capabilities of our Interactive Entertainment group we were able to move in a significant way into the games publishing business and take advantage of an overlapping retail and consumer base.We think this movement into a new category, accomplished largely with existing resources, is a terrific growth opportunity for our company going forward.

Q 2: According to Adams Media Research, consumer spending on movie downloads will triple over the next five years, with relatively little impact on the DVD market. Do you share that view, and does that mean the two are really different markets?

New technologies have always been a positive for the entertainment business, whether it’s been the advent of sound, color, digital projection, distribution channels or numerous other advances.And, many times these new technologies run parallel with the current offerings, serving as great supplements to the consumer’s experience.

We expect to be in the packaged goods business for a long time and see digital downloads as largely additive to the home entertainment industry and an extra convenience for the consumer. We may see some cannibalization down the road but the long term benefits to the industry far outweigh any negative impact.The upside for content producers and retailers alike in regard to availability and shelf space issues for library product alone will be enormous and almost immediate.

Q 3: The sequence of ancillary windows that has developed for TV product seems to fly in the face of the logic behind the sequence for movies, notably by making downloads available immediately after the broadcast premiere and well ahead of the DVD release. Have the studios been wrong all these years about the right sequence for movies?

Television is an advertising driven medium and the online availabitity of programming creates additional opportunities for the advertiser.When networks make programs available online the day after broadcast, they are helping to build loyalty for a show by providing their audience with an opportunity to enjoy the show again or catch up on a storyline if they missed the episode.

Q 4: As a corollary to that, can (or should) an orderly system of windows be maintained for movies when the TV business is moving closer to an anywhere, anytime, any device model?

Television and movies are both moving in the same way to provide flexibility to the consumer. Again, television is advertiser driven and the anytime, anywhere offerings reflect the economics of an ad supported medium.Movies are offering the same choice and portability to the consumer but the timing of these options will reflect a different economic model.

Q 5: Will the digital distribution business scale do as well for the studios as the DVD business did, and if not what does that mean for your margins over the long term?

Yes, in time the digital distribution business will scale.VOD is a terrific industry wide opportunity and will improve margins relatively quickly while EST and High Definition media will do the same longer term.

But again, we expect to be in the packaged goods business for quite a long time.

According to Adams Media Research, Internet downloading is expected to generate about $4 billion in annual revenue within the next five years, and this is in addition to consumers purchasing content on DVDs. This growth, which will only continue, will be driven not only by increases in broadband access and easy-to-use consumer interfaces, but also through an increase of vendors and devices in the space.

Q 6: How will the current lack of DRM interoperability among different digital devices and storefronts affect the development of the studios’ digital distribution business?

All of us, digital rights owners and consumer electronics companies, have to work together to solve interoperability issues to give the consumer the best possible experience.The success of the DVD is a great example of the kind of success the industry can experience when we work together and develop an open standard.We need to learn from the experience of the music industry and their attempts to bring to the market multiple incompatible platforms.

Q 7: What do you think the mix of short form programming (TV) vs. long form (movie) will be in the digital distribution business five years from now? 10?

I don’t think there will be any distinction as to what content will be available through digital distribution in 5 or 10 years.Whether people prefer TV product to films or packaged goods to digital distribution, the choice will be theirs.

Q 8: What impact do you think Apple TV will have? Will it become the same sort of choke point for content owners that iTunes has become on the music side?

There are so many companies working on various solutions, it seems unlikely that one company will dominate the market. Having said that, it is hard to imagine that Apple with the intuitive nature of their technology and their extraordinary marketing power won’t continue to be a major player in the digital distribution of video content. But other approaches include Xbox Live which is already in approximately 6 million households and provides a means to move online content to the TV screen, as well as Amazon who with their unparalleled customer relations expertise and customer preference capabilities, is sure to become a force in the business.

Q 9: WHE has been a strong proponent in inter-industry discussion groups of new distribution and business models for DVD, such as managed-copy and managed-recording. Why are those important?

We would like to see everybody work together to provide the consumer with options and choices as to how they get their entertainment content. Managed-copy and managed-recording allow consumers to enjoy our products flexibly across multiple networked devices, while still protecting the integrity of our content. It is all about working backwards from the consumer.

Q 10: Why was the industry unable to resolve the format war between Blu-ray and HD DVD before it reached the market? What went wrong this time?

Part of it, of course, was the ongoing battle for the living room between Microsoft and Sony but also at some point in this process the common wisdom in the industry was that HD-DVD was a short term proposition. The real issue at this point is this: When it is clear that both formats will be in the marketplace for the foreseeable future, why has the industry not made the appropriate adjustment to eliminate consumer confusion and do everything we can to bring about main stream adoption of HD media?

Most people don’t understand the difference between the LCD versus plasma HD monitors, and yet both are flying off the shelves simply because consumers can get the programming they want on either. There is a very simple solution here and that is for all the content providers to produce in both formats and give the consumer a simple choice.

At a time when the home video business is flat and HD media presents our best hope for near term growth our focus as an industry should be on the consumer and creating the most attractive scenario for them.We have a window of opportunity here and if we continue to perpetuate consumer confusion HD media may become the next laser disk.

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