Warner Brothers Entertainment has begun releasing its films online in South Korea before they are released in the country on DVD, shaking up an established Hollywood distribution model and potentially paving the way for a sharp increase in movie downloads.
The studio, which is part of Time Warner, has targeted South Korea because it has high broadband penetration. It hopes that releasing films online first will cut down on DVD piracy, which is rampant in the country.
Kevin Tsujihara, head of Warner Bros' home entertainment group, said: "Korea used to be a very robust video market but we have been hit very hard by piracy. We have high hopes of turning that market around and legitimising it again . . . all the ingredients are there."
If the move is successful, Warners will target other countries. It is considering bringing forward the online release of films in China, potentially the world's largest home entertainment market. DVD piracy is rife and distribution costly and time- consuming. "From a physical product standpoint it has some of the same characteristics as a market like Korea," said Mr Tsujihara.
Warner Bros will reap additional benefits by bringing forward the release of films online. Profit margins on digital rentals and sales are higher than they are with physical DVDs.
Revenues from DVD sales and rentals have propped up the industry over the past 10 years. DVD sales generate about $12bn a year, while rentals generate $7bn. Studios take 20-25 per cent of the money from a rental but if the film is rented in digital form the share is closer to 70 per cent.
"The beauty is that the consumer does not have to spend any more money on the product," said Mr Tsujihara. The downloading of film and TV content online is expected to generate about $4bn annually in the next five years, according to Adams Media Research.
The South Korean experiment could have big repercussions for the US, the largest theatrical and home entertainment market. But US broadband penetration lags behind other countries, so it is unlikely the studios will release films online first.
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