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Issue: December 1, 2007

SWOT: THE DIGITAL SUPPLY CHAIN

By: Stephen McKenna, VP, Media & Entertainment Industries, HP

STRENGTHS: Today's entertainment supply chain evolved from the need to fulfill media sales and distribute entertainment for theatrical exhibition, which had established release windows and a dedicated value network. As first television, then the home video and cable markets emerged, the model was repeated, producing a series of parallel and more-or-less independent business units, processes and supply chains. This is the approach that still dominates the world of media distribution. In effect, a unique path through the value network is crafted in artisan-like fashion for each new entertainment product that is created and physical delivery of media assets remains prevalent.

Now, however, the media and entertainment industry is in the middle of a shift from physical to digital file-based processes. New consumer electronics devices and digitally based delivery options are emerging, and are fueling consumer appetite to find, acquire and consume content when, where and how they want. In response, media providers and content distributors are under increasing pressure to service new digital channels and modernize their media operations.

The emerging digital media supply chain promises to address these challenges by providing a more efficient, metadata-driven digital supply chain that will work for multiple studios and media service providers. This supply chain would provide a separation between uniquely creative services, and more automatable, manufacturing-oriented activities in both post production and entertainment product creation. It would rely upon metadata and digital format standards to ease interoperability among digital file-based elements and work processes. It would allow content owners to reap the benefits of the IT world - speed, scalability, flexibility - while continuing to growing their core creative business and explore new business models.

WEAKNESSES: These pressures of the digital world are driving content owners towards a more cost effective and timely digital supply chain based on standard metadata models and media formats.

Yet before such a supply chain can be established, four significant challenges in the existing industry supply chain must be addressed:

- Lack of naming, metadata, and nomenclature guidelines

- Lack of standard essence formats

- Limited ability for electronic business-to-business interoperability (transactional metadata)

Most content owners, including the major studios, have taken independent steps to break down internal fulfillment silos across the various products and distribution windows in an effort to increase efficiency. Nevertheless, the process to prepare digital media for distribution to consumers and business partners remains inherently physical, manual and ad-hoc.

OPPORTUNITIES: Addressing these challenges, however, will accelerate the transformation and provide significant benefits, including:

- Reducing existing servicing costs 30-40 percent by automating repetitive manual tasks, eliminating redundant activities, reducing the need for physical media, and facilitating more reuse

- Reducing time to market for new media products by removing distribution redundancies, extraneous links, multiple handoffs, and operational barriers

- Enabling the flexibility to explore new digital media growth opportunities through innovative content strategies and emerging distribution channels

- Enhancing content security and reducing the risks of piracy across the value chain

- Mitigating risk involved with individual investments in new processes and technologies

- Enabling a richer network of available third-party servicing vendors

THREATS: The biggest threat to the development of the digital media supply chain is not technological. The tools and technologies to build such a system exist today. The danger is that the major content owners and distributors will pursue individual, proprietary, or even point solutions and will reject the need for a standards-based approach. What is required is a coordinated effort on behalf of the industry as a whole - working in conjunction with leading technology vendors - to define and implement common standards for both B2B and B2C supply chain logistics.

OUTLOOK FOR 2008: The shift to an IT-based supply chain for the media and entertainment industry is inevitable. The steadily declining costs of enterprise computing and storage has already made application of industry-standard IT platforms to the creation, formatting, and delivery of content the preferred way to implement many discrete media services. The next step is to simply link these technologies into a unified Web of content and services. Digital standards have already helped reshape industries from finance to communications. The shift to file-based processes in the media industry is every bit as significant as the move to digital transactions by these industries. It may take a couple of years for the appropriate standards to emerge and proliferate, but advantage will go to early adopters with a smart execution strategy and solid responses to the challenges of digital media supply.