Digital downloads, despite seeing healthy growth through 2008, leveled off in 2009, coming in at $291 million instead of the $360 million projected by Screen Digest. While Hollywood searches for scapegoats, it need look no further than itself and the burdensome controls it puts on digital.
Digital downloading is characterized by its restrictions--it's all about what viewers can't do, rather than what they can do.
When will Hollywood learn?
The movie studios are overlooking their real value, just as the record labels did before them. Hollywood is desperate to guard bits: the 1s and 0s used to store its prized assets. But people don't care about the bits. They care about watching them. Yet Hollywood continues to focus on protecting bits instead of making access to them easy and entertaining.
The music and TV industries are ahead of the movie industry in this, with TV's Hulu and music's embrace of iTunes. But they, too, still drag their feet. For example, the BBC continues to block access to its iPlayer from open-source players, and the U.S. music industry can't seem to come to grips with the highly popular Europe-based Spotify service.
Meanwhile, Apple is cleaning up. Apple, Hollywood's sometime nemesis and sometime partner, understands where 21st-century value resides. iTunes, iLife, and iPods/iPhones are all about easy access and enjoyment of digital media. And Apple is raking in the profits from this approach.
Value has shifted in the digital age. Value is still created by scarcity, but digitization has made attention and the right content at the right time scarce, not the content itself. In a world of freely copyable bits, there's no shortage of them. Hence, companies and individuals are happy to pay companies like Google, Canonical, Facebook, and others to sift through the multitudinous bits and make sense of them.
Or, in the case of Apple and Hollywood, make them easy to enjoy on a range of devices with minimal restrictions.
The 20th century was all about shipping bits in ever-more convenient form factors. The 21st century will be all about filtering the avalanche of content and creating the devices through which we digest them.
Hollywood is in the enviable position that people still love its products and are willing to pay for them. It's just a question of how we will pay for them. It certainly won't be business as usual, but it can be lots and lots of business for Hollywood, if it plays its cards, er, bits right.