Who wants to pay $15 to $30 for a sub-DVD-quality video? If you raised your hand, consider yourself rare. Over the past year, Sony Computer Entertainment tried to popularize pocket-sized but DVD-priced movies, a market and content it had all to itself in the absence of an iTunes Music Store from Apple Computer. But according to an article in The Hollywood Reporter today, that effort has failed, and there are lessons to be learned as a consequence.

Buy Your Favorite Movies – Again!

One year ago, Sony Computer Entertainment claimed that it had a juggernaut on its hands. In addition to playing games and music, the company’s PlayStation Portable (PSP) would also be able to play back full-length theatrical movies stored on Universal Media Discs (UMDs), one of several features distinguishing Sony’s device from Nintendo’s popular, cartridge-based Game Boy products. Movie playback wasn’t just an abstract possibility, Sony suggested: it quickly trumpeted the support of “several motion picture studios” as “validati[on of] the multi-media entertainment value proposition of PSP,” and itself released several films in UMD format. Amazingly, Sony and these studios were operating under the presumption that consumers would pay DVD-level prices for lower-resolution films they could only watch on their PSPs; they collectively proceeded to release many more UMD format movies, and even built a critical mass of titles. Despite persistent whispers that most people weren’t especially interested, Sony repeatedly suggested that UMD movies were popular, and even claimed that videos – not games – would comprise 60% of UMD sales, with an estimated 130 million UMDs being sold in 2008.

The house of cards began to fall earlier this year. Though Sony took steps to counter reports of sagging interest in UMD movies by claiming that titles were “successful” and “still selling well,” its movie studio partners became unusually candid about the platform’s failings. Warner Bros. openly told film industry trade publication Variety in February that sales were disappointing, and Paramount reportedly decided to stop releasing titles for the format at that point. Today, the signs of gloom became undeniable. A second trade publication, The Hollywood Reporter, ran an article discussing the failure of the UMD movie platform, quoting an executive with Universal Studios who dubbed UMD “another Sony bomb,” and said that sales were “near zilch.” The article also suggested that leading retailer Wal-Mart is dropping support for UMD movies, and that even Sony Pictures had conceded that the format was losing shelf space.

What went wrong? Though The Hollywood Reporter attributed the PSP’s decline in part to “the arrival last fall of Apple’s video iPod,” Sony Pictures’ President Benjamin Feingold claimed that the inability of PSP videos to be played on bigger TV screens was at least partially to blame, along with the PSP’s inclusion of a Memory Stick reader, capable of playing back user-ripped DVDs. Said differently, consumers apparently didn’t want to pay twice for the same movies they’d previously purchased, and didn’t always want to watch them on the device’s little screen.

Lessons For Apple: Watch Sony, Do The Opposite

Putting the iPod’s possible role in the PSP’s decline aside for the moment – a curious point, given that no one is or was selling movie content for the iPod as PSP movie sales slumped – there are other lessons to be learned from this story. The first: as with CDs, most consumers aren’t interested in paying full DVD prices for stripped-down versions of movies – if they were, they’d buy the DVDs. That’s the reason $9.99 album download pricing was the right move for the low-bitrate songs sold through iTunes; to make more money, companies will need to offer an equally good or better-than-physical disc experience. As we said last April, pricing UMDs at $20 was an absurd idea, and unless they offer DVD quality and a superior archival solution, similarly priced movie downloads would be equally suicidal.

Second, movies optimized for small screens – even good ones, like the 4.3-inch, 480×272-pixel PSP display – aren’t enough to satisfy mainstream consumers. People want to buy a movie once and watch it on multiple devices. Sony seemed to learn this lesson late in the game by planning $30 premium movie packages that would include both a DVD and a UMD in the same package, but the higher-than-standard DVD price wasn’t warmly received. The alternative, of course, is to create a single digital video file that looks great and plays on any device, or one that can be quickly scaled downwards for playback on portable devices.

Apple appears to understand that the iPod isn’t the only or best place to watch its videos; in recent months, it has released Front Row for all of its new computers, as clear a sign as any that the company intends digital videos to be viewable on both small and big screens. But it’s still missing at least one part of the equation: TV-ready video quality. On the bright side, it’s easy to connect your iPod to a TV with one of Apple’s $19 AV cables – a computer-to-TV wireless video streamer would of course be nice, too – but unless you’re a video fanatic, what you’ll see on your big screen from Apple won’t be pretty. Videos converted by iTunes for the iPod and videos sold through the iTunes Music Store are still being formatted at a primitive 320×240 resolution, which doesn’t look great on most televisions sold today, or when scaled for full-screen viewing on a Mac or PC monitor.

Third, and although this is obvious, discs are a loser of a format for today’s portable devices. If the PSP was in any way undermined by the release of the fifth-generation iPod, it was for one reason: the device and the introduction of videos to the iTunes Music Store proved conclusively that you didn’t need to carry around a big player or collection of discs to watch video on the go. In fact, something the size of an iPod – actually, an iPod itself – could pretty much do the trick alone, aided by a properly functioning digital download system.

Movies in iTunes: Another Chance to Grow the iPod

The iTunes Music Store’s approach to videos isn’t perfect – besides video quality, we still see episodes that are incorrectly tagged (e.g. Wonder Showzen’s “Birth” episode, which we downloaded just last night and found to be the totally wrong show, as iTMS users have commented in the Store to no effect), and the number of different shows available is still small – but it continues to get better with every passing week. Most people expect further expansion of the iTunes Music Store in 2006, specifically embracing theatrical movie downloads, and of course, we’re hoping that Apple doesn’t repeat Sony’s mistakes in the process. Further polishing of the Store’s video quality, refining the pricing model for short videos, and defining full-length movie pricing have the potential to further expand the appeal of both iPods and iTunes-ready computers as video players; if Apple can bridge that content over to a TV, and provide a smart permanent storage solution for downloaded video, the appeal of its digital video initiatives will grow even more.

What do you think? Did Sony’s pricing or quality cause the collapse of the UMD format for movies? Was something else, like the iPod, really to blame? What lessons should Apple take away from Sony’s experiences? As always, your comments and opinions are appreciated.

Jeremy Horwitz

Jeremy Horwitz was the Editor-in-Chief at iLounge. He has written over 5,000 articles and reviews for the website and is one of the most respected members of the Apple media. Horwitz has been following Apple since the release of the original iPod in 2001. He was one of the first reviewers to receive a pre-release unit of the device, and his review helped put iLounge on the map as a go-to source for Apple news.