Pirates Seize Control of Korean DVD Market

Wednesday, November 12 2008 @ 06:28 PM EST

Pirates were in the news this week, seizing their 83rd vessel off the coast of Somalia and the entire Korean DVD market. It might be more accurate to say that pirates have always controlled the DVD market in Korea and this was just the week that Warner Bros. admitted to this and pulled out of the market altogether. Prior to the announcement Warner Bros. was the only major studio still trying to sell $19.98 DVDs in a country where the latest Batman film can be purchased in any subway station for $3 (5,000 Won). Warner now joins the other major studios in wondering if they'll ever see revenue beyond theatrical distribution in that country.

But what Warner should really be worried about is whether or not the situation in Korea is a harbinger of doom for the U.S. DVD market. I think it is.

In the past six years the Korean DVD market has dwindled; revenue is now less than half of what it was in 2002. During that time internet access in that country soared, to the point that Korean now leads in the number of DSL connections per head world-wide. In many ways the U.S. is where Korea was 6 years ago. U.S. carriers are just starting to ramp up high-speed DSL and can expect a similar adoption curve as the service becomes available. The studios are acutely aware of this. So now that they've seen where their market is headed, what are they doing?

Warner Bros. has taken an interesting approach in China. They've decided to undercut the pirates with an ultra-low price point of $1. To get this price point Chinese consumers have to download the content, so it's not in direct competition with street vendor piracy (consumers will still step off the subway and buy the thing that's right there in front of them). But it's a start.

Keep in mind that this is a country in which the studios expect to see no revenue, so they're willing to try things out. When you can download Warner Bros. content in the U.S. for $1 you'll know the world as the studios know it has come to an end. But it's still frightening to think that a guy on the street with a pile of ripped DVDs could set the price point for an entire industry. Which yet again brings me back to the point that you need to create something that you can sell through the existing channels (via the studios that control those channels). If Warner Bros. is having this much trouble supporting the $19.98 price point imagine how hard it will be for independents in the future.

Yeah, I know, you were accepted into Sundance. You got past the protesters outside the Marriott (whose CEO, Bill Marriott, tithes to a group that ran slimy ads in favor of Prop. 8) and you won an award. You survived the crooks that Sundance wanted you to get into business with. And now, finally, after all of that, some guy is selling your movie in the Gangnam-gu subway station in Seoul for $3. Do you really think you can fight piracy without a big studio behind you?

Warner's trying out a lower price point to see if that has any effect. They are working night and day to protect their revenue streams (and they've been extremely successful, I might add). They've got international relationships that independent producers can only dream about. Which is why, as much as independents love to disparage the big guys, they cannot live without them. This whole business model has been set up over years of strategic thinking, channel management and price control.

It is sadly, in the end, show-business.

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