Anthony Bay, co-founder and CEO of MOD Systems, a Seattle-based provider of digital entertainment solutions for retailers, originally wrote this column for Retail Customer Experience.com.
Corporations across every industry are looking to weave sustainable, eco-friendly solutions into their businesses, both for long-term cost savings and also for the incremental revenue opportunities that grow from the greening effect. The retail industry is no exception, with examples such as the notable sustainability program at the world’s largest retailer, to more focused awareness on a company’s sustainability scorecard.
Developing more efficient kiosks is an important place to start in an environment where, according to new research by retail analyst firm IHL Group, self-service transactions at retail are expected to surpass $740 billion in 2010. Part of that growth will come from music, movies, TV shows and games, as self-service kiosks move into the entertainment industry.
Digital entertainment kiosks will have both an ecological and economic impact on the retail industry, according to a new report from Futuresource Consulting. Using digital entertainment download kiosks, retailers have an opportunity to take the greening concept from the supply chain to DVD sales. These new kiosks will help retailers remove costly links in the supply chain and sell more entertainment content with less space.
The physical vs. digital supply chain impact on retailers
Led by efforts from the Digital Entertainment Group (DEG), the entertainment industry has begun aggressive efforts to cut supply chain costs for packaged media at every level—from disc authoring and replication, to packaging and distribution, to working with retailers on inventory management, returns and destruction. Yet, even with solid results, a single CD still produces one pound of CO2 emissions and more needs to be done.
Futuresource Consulting analyzes the entertainment supply chain from both an economic and environmental standpoint, looking at recent efforts by the entertainment industry to streamline the supply chain, and examines the revenue opportunities presented to retailers.
"A gradual shift from a physical to digital supply chain, where far fewer discs are manufactured and distributed, will mean dramatically lower costs and present a considerably more eco-friendly approach to the way media is sold today," said Alison Casey, head of global content for Futuresource.
"Bricks and mortar retail channels are still the primary source for home entertainment sales. Consumers value the convenience of shopping at retail, and renting or buying movies on impulse is a tremendous driver of sales," said Casey.
This purchasing power and preference cannot be overlooked, and retailers can take back their digital customer by rethinking how they sell entertainment.
Futuresource notes the following opportunities for digital distribution within the retail channel:
Ensuring retailer relevance in the shift to digital entertainment
- Increases retail shelf space. In the entertainment aisles, shelf space is shrinking rapidly. The combination of declining DVD sales, competition from digital channels, and multiple formats of the same title—DVD, Blu-ray Disc, 3D, box sets—require retailers to sell titles under some fairly harsh conditions. Digital enables presentation of thousands of titles in a compact footprint stored at each retail location with unique flexibility for "digital planograms" and great ease of discovery for consumers.
- Eliminates product loss and returns. Digital files eliminate overstocks, out of stocks, loss due to shrink, and destruction of previously viewed titles, often accounting for approximately five percent of entertainment supply chain costs, and upwards of $1 billion to the industry.
- Reduces carbon footprint. Digital moves the industry closer to achieving a carbon neutral product, with cost shifts from disc manufacturing to IT and systems integration.
- Changes perception that digital is free. With less than one percent of online videos actually purchased in 2009, out-of-home digital puts content in locations where consumers are used to purchasing entertainment already—at retail, shopping malls and airports.
- Offers sell-through and rental. Digital kiosks offer flexibility for sell-through and rental, broadening sales opportunities for traditional entertainment retailers and those completely outside the category. With digital rental, titles are never out of stock and there are no late fees and no returns.
With all the talk of digital entertainment, retailers are conspicuously absent. Digital entertainment is primarily a direct-to-home proposition, which reveals limited opportunities for retailers. As consumers become more comfortable streaming content to the home, connecting their TVs and Blu-ray Disc players to the Web, watching movies on demand or downloading to their computers, digital sales will climb. But what is the role of the retailer?
"Hollywood has an opportunity to control the flow of digital through retail that will stop the next wave of teenagers from expecting to download Avatar for free," said Michael Boreham, senior consultant with Futuresource.
Some retailers are building momentum for their digital video strategies—Walmart’s Vudu, Best Buy CinemaNow—and others are just entering the game—Kmart and Sears in partnership with RoxioNow, and InMotion Entertainment. But most are developing online storefronts that don’t drive customers to the store.
Digital content distributed by retailer websites, or via retailer icons on connected devices, simply compete among the clutter, and add no intrinsic value to the core retail business or capture the consumer imagination. This is often in contrast to the crisp merchandising and services experience a major retailer or service provider can deliver in any one of its stores or outlets.
In-store digital kiosks can connect to these online storefronts, giving retailers both an in-store and online digital sales strategy.
Digital direct-to-home represented just three percent of the overall entertainment market in 2009. In order for digital entertainment to grow to a more impressive level, we must not forget the power of in-store merchandising and marketing, impulse purchases and reaching consumers where they make most of their purchases—outside the home. There is a reason retail is the leading channel for entertainment sales—and it’s lacking in the direct-to-home model.
"The growth of digital is not keeping pace with declines in physical sales because retail is still the familiar environment for entertainment purchases. Over the next five years, we expect to see a surge in digital sales in part because retail delivers the ease, convenience and familiarity consumers are accustomed to," said Boreham."
Flexibility of digital puts entertainment anywhere in the store
Digital kiosks will allow retailers to get more creative in the way they sell entertainment titles. Consumers can download their favorite TV show from the night before while heading to their flight at the airport, purchase the latest "Toy Story" from the children’s aisle while searching for a birthday present, or download the soundtrack to the movie they just watched before leaving the theater.
Digital kiosks can house thousands of new-release and catalogue film titles for purchase or rent, day-after TV shows, and music files at each retail location for very quick loading to SD memory cards, USB flash drives and portable devices. No waiting for long Internet downloads or being dependent on having a high-speed internet connection. SD cards could be the 21st century physical product, presenting a secure and environmentally sustainable format for continuous replenishment, playback on multiple devices, and with content stored in a cloud-based digital locker for access from any location.
It’s an incredibly exciting time to be an entertainment retailer, whether you’re selling music, renting movies, or wishing you had the capabilities to do either. The digital entertainment opportunity is moving forward with or without you and there’s plenty of experimentation. Have a say. Build your strategy.