5G: Supercharging Digital Delivery

It’s the new star in mobile that everyone is talking about: 5G.

The new technology, the next big advance for wireless customers, could have a significant impact on home entertainment.

Over the next decade, media and entertainment companies will be competing to win a share of a near $3 trillion cumulative wireless revenue opportunity, according to the newly released “5G Economics of Entertainment Report” commissioned by Intel and conducted by Ovum.
The report says that as early as 2025, 57% of global wireless media revenue will be generated by using the super-high-bandwidth capabilities of 5G networks and the devices that run on 5G. The low latency of these networks means that video won’t stall or stop — livestreaming and large downloads will happen in the blink of an eye.

The report forecasts that 5G will accelerate content consumption, including mobile media, mobile advertising, home broadband and TV, and improve experiences across a broad range of new immersive and interactive technologies — unleashing the full potential of augmented reality (AR), virtual reality (VR) and new media.

Wireless carrier U.S. Cellular offers an interactive link that enables users to see the benefits of 5G in their daily lives.

“People are watching more and more of their content on their mobile phones, so having instant access to the highest-quality format of a movie, 4K with HDR, having it no matter where you are, this is enabled by 5G,” says Robert Powers, executive director of global technology and business development at the Fox Innovation Lab — the high-tech think tank and lab launched in 2014 to meld technology and entertainment.

The technology should dramatically increase download times and the overall content experience.

“No buffering, no matter what time; whether it’s Tuesday night at 3 a.m. or it’s Friday night at 7 p.m., you’re getting the same quality experience,” Powers says.

This is sweet music to Netflix and other over-the-top video services that increasingly eye mobile access as a requisite to subscriber growth.

Netflix reports about 70% of its content is streamed through a television in the home, not on a smartphone, tablet or laptop. As the SVOD pioneer expands globally, especially in countries such as India heavily dependent on mobile networks, 5G affords greater streaming video access to millions of wireless devices simultaneously.

Indeed, Netflix partnered with T-Mobile in the United States, offering the carrier’s mobile subscribers free access to content for a year. The carrier, which is trying to merge with Sprint, recently announced plans to spend $3.5 billion deploying 5G nationwide.

“I believe 5G will be a game changer,” Jeff Binder, EVP of home and entertainment at T-Mobile, told a tech confab in August.“4G changed the way people used their phones; 5G is going to change the way all of us use our home as well as our phone.”

Even President Donald Trump is touting the benefits of 5G adoption.

Trump issued a memorandum to jumpstart a federal push with the subject line “Developing a Sustainable Spectrum Strategy for America’s Future.” The memo stated, “It is imperative that America be first in fifth-generation (5G) wireless technologies — wireless technologies capable of meeting the high-capacity, low-latency, and high-speed requirements that can unleash innovation broadly across diverse sectors of the economy and the public sector.”

Verizon launched 5G network coverage in four cities: Los Angeles, Houston, Indianapolis and Sacramento, Calif. Rollout included the choice of a free Apple TV with 4K functionality or a Google Chromecast device, and 90 days of access to online TV platform YouTube TV.

Verizon has bet its future growth on 5G. In announcing an internal restructuring that focuses on technological improvements, CEO Hans Vestberg on Nov. 5 said, “We’re building on our network transformation efforts … to deliver new customer experiences and optimize the growth opportunities we see as leaders in the 5G era.”

AT&T, too, announced plans for a 5G rollout in several cities, including Houston; Jacksonville, Fla.; Louisville, Ky.; New Orleans; and San Antonio. The telecom previously cited Atlanta; Charlotte, N.C.; Dallas; Indianapolis; Oklahoma City; Raleigh, N.C.; and Waco, Texas, for mobile 5G networks.

With large segments of their subscribers on mobile networks, telecoms and others eye 5G as a conduit toward greater direct-to-consumer efficiencies, including pay-TV.

AT&T is heavily marketing standalone online TV platform DirecTV Now, while Google’s YouTube TV was a main sponsor of the 2018 Major League Baseball World Series.

Dish Network’s pioneering Sling TV could be a 5G beneficiary should the satellite TV operator’s dreams of a proprietary 5G network come to fruition.

“If you want to lead in 5G, I will guarantee you’re going to have to have a standalone network because that’s the only way you’re going to compete with other people in the world,” Dish co-founder and chairman Charlie Ergen said on a Nov. 8 fiscal call.

“We’re at the dawn of something new that will define the next decade and generation of connectivity,” Andre Fuetsch, chief technology officer at AT&T Communications, said in a statement. “Future smart factories and retailers, self-driving cars, untethered virtual and augmented realities, and other yet-to-be-discovered experiences will grow up on tomorrow’s 5G networks.

Much like 4G introduced the world to the gig economy, mobile 5G will jumpstart the next wave of unforeseen innovation.” Intel projects that by 2022 nearly 20% ($47 billion) of total media revenue will be generated on 5G networks. That increases to more than 55% ($183 billion) by 2025, and 80% ($335 billion) by 2028.

The report estimates that average monthly traffic per 5G subscriber will grow from 11.7 GB in 2019 to 84.4 GB per month in 2028, at which point video will account for 90% of all 5G traffic.

The new technology is also expected to streamline media production. In a June trial, Fox Sports, in cooperation with the Fox Innovation Lab and Ericsson, Intel and AT&T, used 5G technology to stream 4K video over 5G for broadcast at this year’s 118th U.S. Open Championship.

“We set up a 5G network at one of the holes of the golf tournament, and we wirelessly captured and delivered 4K content for DirecTV consumers,” Powers says. In addition to the achievement for 5G delivery, the experiment opened up new possibilities to save money in production.

“What used to happen is we had to run fiber from the back of the camera all the way across the course,” Powers says. “And if now we can send this content wirelessly, we don’t have to spend money on the labor and fiber to lay that down. This is an example of how a 5G network can bring us cost savings on the production side.”

A New Reality in 5G

In addition to better overall delivery of traditional entertainment forms, 5G will help forward virtual and augmented reality.

“VR today is ultimately limiting in that you have a cord coming out of the back of a headset that hooks to a machine and that limits your mobility, and VR inherently is not necessarily yet a social activity,” Powers says. “With 5G we feel like you can cut the cord off of the back of that VR headset and still be delivered the type of visual quality and latency that makes VR possible. And then beyond that, because of the speed of 5G you’re able to make VR part of a social experience.

I think those two factors are things that will improve the overall VR experience and ultimately make it a more commercial or more mainstream product.”

But augmented reality may be the biggest beneficiary of 5G, Powers says, offering the Pokémon Go experience — the groundbreaking AR experience that allowed mobile users to “capture” characters placed in the real world — on steroids.

“In a given square kilometer, 4G enables roughly 1,000 devices to be connected to the network, and in a 5G world that number jumps to a million; a million connected devices per square kilometer,” Powers says. “What that means for us is the ability to — when all of these objects around us essentially can have sensors and they can be connected — this forms a platform where it’s not just like the Internet of things, which we have right now today in our home, but it essentially becomes like the Internet of everything.”

This hyper-powerful, hyper-connected environment will produce entertainment experiences that have better graphics, that are more social and that, ultimately, offer new narrative structures that can follow consumers anywhere they go.

“We certainly haven’t wrapped our minds around it, and we certainly haven’t produced anything commercial, but one thing we did do this summer is we took our first crack at trying to complete one of these experiences on the Fox lot,” Powers says. “We used the Fox lot as the stand-in for our public space, and we tried to build an AR experience that took you around the Fox lot. As you went through it, you went through a narrative, interacting with AR characters that stood next to the Nakatomi Plaza (the Fox Plaza building made famous in the original Die Hard movie) or characters that were located in our commissary, and as you moved around the lot, you would interact with these characters through a narrative experience.”

What they found is that a traditional narrative didn’t work as well in the AR experience as did a more fluid narrative.

“What we found very quickly is, in those times where we move out of that traditional structure, that’s when the AR storytelling really began to pop for us,” Powers says.

The structure is more “amorphous,” he says.

“It doesn’t necessarily matter where you start the story,” he says. “It doesn’t matter whether you go from point A, B to C, or you go from point A, C to B. I think that’s one of the kind of foundational things that we’re really trying to wrap our minds around.”

5G could also allow consumers to engage as a character in a story in AR with friends.

“Imagine you are a horror fan, and you want to do Fox’s newest AR horror experience that is enabled by 5G,” Powers says. “You might gather five of your closest friends, and this experience begins on the corner of Hollywood and Vine. And on the corner of Hollywood and Vine, you have your mobile phone or maybe a tablet or eventually you’ll have very-easy-to-wear smart glasses that can deliver images to you, and the experience starts on that street corner. And as you move through the city, perhaps it next takes you to the Hotel Marmont, but as you move through the city you go through a horror experience that is a narrative story that because of the capabilities of AR blends digital assets with the real-world environments that you are in.”

These experiences are at least three to five years away, according to Powers, who believes entertainment will expand in ways not yet thought of.

“5G will enable the types of new content experiences that will expand the concept of how we think about home entertainment,” he says. “These are experiences that are more personal, they are adaptive and … [they] take you outside of your home.”

The Fox Innovation Lab built an augmented reality experience in 5G on the Fox lot during the summer of 2018, placing characters in real-life spaces to experiment with storytelling in AR. (Photo rendering courtesy of the Fox Innovation Lab/20th Century Fox)

Redbox Unboxed

The video rental kiosk vendor is again thinking digital — just like that other disc rental service, Netflix, did 10 years ago. But what is now the dominant video rental company has a vastly different approach in mind — and a single-minded goal of satisfying both the customer and the bottom line.

 

A little more than three years after abandoning a failed SVOD venture with Verizon, Redbox, the country’s top video rental company, is once again going after the digital holy grail.

This time, however, the Seattle-based company — known for its more than 40,000 bright-red video rental kiosks outside Walmarts, supermarkets and drug stores — isn’t venturing into the subscription-streaming business dominated by Netflix, Amazon and Hulu.

Instead, round two of Redbox’s digital unboxing is focused on the transactional model familiar to users of its vending machines, where you pick a title and pay only for that film or TV show instead of a set monthly price for unlimited viewings of whatever’s available.

The company this past December launched Redbox On Demand, a digital distribution service with more than 6,000 movie and TV show titles available for on-demand streaming or purchase and digital deals with all major studios except for Disney.

On the disc rental side, Redbox has signed content deals with Warner Bros., Paramount Pictures, Lionsgate, Sony Pictures Entertainment, 20th Century Fox and Universal Pictures. The deals are for both DVD and Blu-ray Disc and, soon, 4K Ultra HD Blu-ray Disc.

“It’s very different from our partnership with Verizon,” says Galen Smith, who was appointed CEO in September 2016 just as the company went private. “Our customers come to us for that transactional experience — it’s Friday night, and they want to watch a specific movie. We try to satisfy them with our kiosk network, but there are occasions where you might not want to go out and rent a movie from a kiosk.

“So rather than lose that transactional occasion, we’re giving them the chance to get it online. We want to make sure we still capture that demand. It’s complementary to what we’ve been doing for years.”

“Redbox continues to make movies accessible in homes around the country through ubiquitous access to simple-to-use disc rentals, now expanding that ubiquity and simplicity through digital distribution,” says Mark Fisher, president and CEO of the Entertainment Merchants Association. “We expect to see many Redbox customers complement their kiosk movie rentals with additional digital consumption.”

Smith also says he sees Redbox On Demand as a way to transition consumers to the concept of bringing entertainment into their homes digitally. “As you know, transactional video-on-demand (TVOD) is down, and electronic sellthrough (EST) growth has slowed to the single digits,” he says. “We have a whole set of customers who might not have tried TVOD or EST, and we think we can transition them to this new form of content delivery that they’re not yet using.

“It’s a big opportunity for us to get them to stay within the Redbox ecosystem and serve their needs — and it helps the studios, as well, by getting consumers interested in doing a higher transaction.”

Redbox charges customers significantly more to stream a movie online ($3.99 to $4.99 for new releases, $1.99 for older films) than to rent a disc at a kiosk ($1.50). “The kiosk will always be the best value,” he says, “but if you want to watch it without leaving your home the value comes in the form of convenience, the ability to press a button on the remote and get the movie directly from the app.”

Redbox’s latest digital maneuver is not without its challenges. As Smith readily admits, TVOD hasn’t exactly set the world on fire. According to DEG: The Digital Entertainment Group, consumer spending on TVOD slipped 7% in 2017, while spending on EST notched upward just 5.7%, a significantly slower growth rate than in prior years. SVOD, meanwhile, rose an astounding 31%, the DEG reported. More telling are the actual numbers: TVOD and EST together generated an estimated $4.1 billion in 2017, less than half the money generated by subscription streaming.

Convincing consumers to rent a new movie online for $4.99, then, isn’t going to come easy, particularly since they need to download a Redbox app onto their TV that’s linked to Redbox.com. Isn’t that little complex for the average kiosk renter?

“The reality is, a majority of our customers have Netflix accounts,” Smith says. “And we’re OK with that because their subscription streaming services are focused on TV and catalog content, which is complementary to our a-la-carte, new-release movie offering. Redbox consumers want to watch the latest new movies, not wait months or even years for movies to appear on SVOD services.

“By entering the transactional video on demand market, we believe we can introduce a whole new set of consumers to TVOD, reigniting growth in the category which is good for all. It is really about consumer choice — you still have the best value around for new releases at the kiosk while you can choose to use Redbox On Demand for convenience.”

Smith says that while Redbox On Demand — as of January 2018, still in beta mode — is one of the company’s priorities, Redbox is just as focused on beefing up its core kiosk rental business. At the same time that the company is rolling out its online venture, it continues to add kiosks to its network — some 1,800 were added last year alone, bringing the current count up to more than 41,000.

Redbox has also been hard at work negotiating deals with studios to obtain DVD and Blu-ray Disc titles directly on the same day they are released, instead of 28 days later. “A large part of our business is about new movies,” he says. “Consumers want to see what’s new, and if we don’t have it, you might lose that transaction.”

The month-long holdback was initially a condition imposed on Redbox by Warner Bros., Universal Pictures and 20th Century Fox, under the premise that dollar rentals outside Walmart stores were cannibalizing the sellthrough business.

Smith says that premise is no longer valid. “We reach a different segment of the market, so I think there’s a better understanding today of the benefits Redbox provides to the studios,” he says. “This view that sellthrough is being hurt by rental, that’s a pretty outdated view of the world, I think. The studios understand it’s a great opportunity to serve a customer base they might not otherwise serve.”

This changing mindset was also spurred by Redbox agreeing to share rental revenue with the studios. Studios have been down that road before. More than two decades ago, when Blockbuster sought to increase its inventory of hot new releases at a lower up-front cost, revenue-sharing was the solution.

In May 2017, Warner was the first to cave on the 28-day holdback, agreeing to sell new releases to Redbox seven days after they come out. In July, Redbox cut a similar deal with 20th Century Fox. And in December, Universal Pictures came around, agreeing to make its Blu-ray Disc and DVD titles available for rental at Redbox kiosks on the same day they are available for sellthrough. (That deal, which took effect Jan. 2, also makes digital content available through Redbox On Demand).

Smith concedes revenue-sharing played a part in shattering the 28-day holdback. “I can’t get into the particulars,” he says, “but clearly we believe, and have felt for some time, that there was not enough economic benefit for studios from additional sellthrough by delaying a title’s release.” If consumers couldn’t find a new release at Redbox, that didn’t necessarily mean they’d go out and buy it either physically or digitally, Smith maintains. Nor did it mean they’d wait and rent it when it finally did become available. “You may have lost that transaction completely,” he says. “And over time, studios realized that by eliminating the window it was a way for consumers to win and for the studios to win by us generating more revenue — and them sharing in that.”

But revenue sharing isn’t the only reason behind the growing willingness by the studios to sell product to Redbox as soon as it comes out. “There have been big changes in how content has become available,” Smith says. “Subscription VOD didn’t really exist in 2008, 2009, but now consumers have come to embrace SVOD, and while there have certainly been some benefits to that, it’s also something that reduces the amount of money studios receive on a per-transaction basis.

“So we’ve found a way to make it work for us and benefit both our customers and the studios. We want to support this industry. We want to continue to see great movies being made.”

Like Netflix, now the single biggest force in home entertainment, Redbox began as a cheaper and more convenient way to rent DVDs. Netflix used the mail, while Redbox used vending machines stationed outside high-traffic discount stores and supermarkets. Both concepts attacked the No. 1 and No. 2 customer complaints about renting videos at the local rental store: return trips and late fees.

Redbox was initially funded by McDonald’s, renting DVDs from redeployed kiosks — which had originally sold a variety of products under the brand “Ticktok Easy Shop” — for a buck a day. Discs could be returned to any Redbox kiosk.

In 2005, Coinstar, known for its coin and bill-changing machines, bought half the company and began to rapidly expand the Redbox concept. Kiosks were placed outside high-traffic discount stores such as Walmart as well as supermarkets and drug stores. Despite competition from Blockbuster Video, with its fleet of Blockbuster Express kiosks, Redbox flourished. By February 2008 the company had chalked up 100 million rentals, a figure that grew to 1 billion by September 2010. In the meantime, Coinstar had become Redbox’s sole owner, and the company had begun renting Blu-ray Discs and video games as well as DVDs.

Much like the studios and independent video rental stores three decades earlier, Redbox’s growth came despite Hollywood’s best attempts to stop it. After 2005, DVD sales began to taper off, and the studios felt dollar rentals outside big DVD retail sellers such as Walmart would cannibalize sales even more. Lawsuits and countersuits were filed; Warner Bros., 20th Century Fox and Universal stopped selling their movies to Redbox, and Redbox sued on antitrust grounds. Redbox vowed to continue supplying customers with new releases, even if it meant buying them at retail, and began hiring workers to storm Walmarts on new-release Tuesdays.

Ultimately, the litigation was settled, with some studios agreeing to sell product to Redbox, but only after 28 days. Redbox, in return, agreed to not sell used discs.

Redbox rentals peaked in 2013, with more than 772 million transactions. That same year, Coinstar rebranded itself as Outerwall.

Before long the shift to digital — primarily subscription streaming from Netflix, once Redbox’s rival in the disc rental business — began to take its toll. Redbox rentals flattened, then began to fall — to some 587 million rentals in 2015, a 24% drop from the 2013 peak.

In the meantime, Redbox had launched a streaming service of its own, with Verizon, that included kiosk disc rentals as part of the package. Given Netflix’s meteoric rise as well as Amazon’s entry into the streaming game, it was too little, too late — 19 months after the launch the companies abandoned the venture.

Redbox’s fortunes continued to decline as management debated whether to continue pursuing digital or focus on the existing physical disc business. In March 2014 the company hired as president Mark Horak, a 20-year veteran of Warner Bros. who most recently was president of the Americas at the studio’s home entertainment group. Horak was a digital proponent who felt Redbox should take advantage of the vast amount of consumer data it was collecting, but effecting change proved difficult and by the end of 2015 Horak was out.

Less than a year later, in September 2016, Outerwall was sold to private equity firm Apollo Global Management, and its three business units — Redbox, Coinstar and mobile phone recycling kiosk operator ecoATM — split into separate companies. Smith, who had been Outerwall’s CFO, was named CEO of Redbox in September 2016, and promptly set about righting the ship.

“Actually, from my perspective, things may not have been as bad as you might assume,” he says. “We had a lot of leadership changes over a short amount of time, and our employees did a great job weathering that. But one of the priorities I had was to bring clarity to what we are about. We really wanted to go back to our core mission of satisfying consumer demand in a better way.”

Redbox CEO Galen Smith

Galen C. Smith was born in Olympia, Wash., in 1976. He spent two years at the University of Washington and then moved to Illinois to attend Wheaton College, graduating in 1998 with a Bachelor of Arts degree in political science. He initially worked in fundraising, raising money for various nonprofits. “I love meeting with people, building relationships, painting a picture of what could be and getting them to come along and invest with us,” he says.

In 2001, Smith enrolled in the University of Chicago’s M.B.A. program, earning his degree three years later. He briefly went into teaching, and then began working as an investment banker at Morgan Stanley in Chicago.

“I really enjoyed that,” he says. “One of my clients was McDonald’s, and they had this business they were looking to take public. The IPO never ended up happening, but when you’re in the investment banking business you get to know a lot of different companies and a lot of different cultures when you’re working with management. And as I was working with Redbox and then Coinstar, I met a great management team and company culture as well as a business founded on democratizing home entertainment for everyone, making it accessible for everyone. They had this great vision and mission, and I wound up calling the management team and asking for a job.”

Smith joined the finance team at Coinstar in May 2009 as director of corporate finance and by April 2011 had become SVP of finance for Redbox. “I loved being in the business,” he says. “I started negotiating studio contracts and building relationships.” When Coinstar became Outerwall in 2013 Smith was promoted to CFO, a position he held until the company’s sale to Apollo in September 2016.

“They asked me to stay on as CEO,” says Smith, who now lives in Seattle. “And I did. I have a deep passion for what we do, for our employees, for how we go about satisfying consumers and providing them with entertainment. Life is hard, and we give consumers a chance to escape for a couple of hours, laugh a little, watch a movie, play a game, do something that allows them to escape for a little bit.”

Smith says he also likes the relatively free hand he’s been given to run Redbox and take it in different directions. “One of Apollo’s thoughts was if they allow each individual business that previously operated under Outerwall to focus on the best opportunities for them, they’re going to excel,” he says. “It’s a challenge to break up companies, but we went through that and once we did, we’re now in the position to focus on what’s important to us, rather than what’s important to a connected but unrelated business.”

Ash Eldifrawi

Smith’s transformation strategy also included bringing in new talent. In February 2017, the company brought in Ash Eldifrawi as chief marketing and customer experience officer. Prior to joining Redbox, he served as chief commercial officer at Gogo, a global provider of in-flight Internet service. Before joining Gogo in 2010, Eldifrawi was chief marketing officer at Hayneedle, an online retailer of home and leisure products. Earlier in his career, he served as a senior director of brand advertising at Google, where he was responsible for all CPM-based revenue. He also spent time as a managing director at Wrigley, and in management consulting at McKinsey & Company.

Jason Kwong

Then, in October, the company appointed Jason Kwong chief strategy and business development officer. Kwong previously headed up content acquisitions for Fullscreen’s subscription VOD service. He was also VP of content and applications at Sonifi Solutions, which serves approximately 1.4 million hotel rooms worldwide in addition to health care facilities throughout the United States with interactive television, broadband connectivity and advertising. Kwong also worked at Netflix as director of content acquisition focusing on U.S. film deals. He has also held roles at Helio, Virgin Mobile and Warner Bros. Digital Distribution.

“With so much opportunity for Redbox’s future, we felt it was critical for us to add to our talented leadership team,” Smith says. “Both Ash and Jason have helped to enhance the business by refreshing the brand, launching a new loyalty program and bringing Redbox On Demand to market.”

Looking ahead, Smith’s next agenda item is to revamp Redbox’s loyalty program to enhance the company’s relationship with existing customers, to re-energize them — and at the same time step up social media and other marketing efforts to bring in new customers.

“We have customers who have been with Redbox for a long time, and we’re now in the process of launching a new loyalty program,” Smith says. “Our current program has about 27 million members, and we are looking at enhancing that — we’re going through a transition now. We also want to bring new customers in. There are consumers out there who don’t know we offer $1.50 movie transactions. And we’re being very thoughtful about how we go about doing that. We want to make Redbox new again.

“We are so special and unique in what we do, but we’ve been missing opportunities to tell people about it. Now, our marketing people are doing a great job in taking back our voice and explaining who we are, what we are. All of a sudden, I think both internally and externally, it’s starting to feel fun again.”