Disney’s Key to the Digital Kingdom

The Walt Disney Company is expected next month to unveil a new technology called Keychest, designed to allow users to buy permanent, on-demand access to its content across multiple platforms.

Keychest would rely on cloud computing, used for Web-based apps such as Google Docs, which stores files on remote servers that can be accessed from any device, as opposed to being downloaded to a computer.

So, for example, with Keychest, when a user purchases a Disney movie, the user’s accounts with other services, such as a mobile network carrier or video-on-demand cable provider, would show the content as available for viewing. The purchased content wouldn’t be downloaded, but would reside with each delivery service.

In what is being described as preemptive strike against its rivals – namely the Digital Entertainment Content Ecosystem (DECE), comprised of a long list of tech and content providers – the move by Disney is prudent though not expected to be widely adopted immediately, said one analyst.

“The idea of a secure digital storage locker up ‘in the cloud’ will eventually make a lot of sense, and will also help interested consumers gain easy and portable access to a lot of their content,” Gerry Kaufhold, analyst at In-Stat, said in a statement.

“Right now, if you have oodles of videos, music and photos spread across a mismatched bundle of hard disk drives and USB devices, you may actually desire a way to just have all your stuff available from one network service that can deliver the content to anywhere you happen to be. And the big upside is that when your local drive crashes, your content will still be safe, up in the cloud. But it’s going to take some time to get there, and not all consumers are going to sign up. Some of us will continue to buy packaged media and take our chances.”

Ahead of DECE

Still, Kaufhold said it puts Disney at an advantage over DECE, which has a skeletal Web site up and has yet to make any major progress on the front of digital content delivery.

DECE is a consortium founded to create a standard set of formats for address digital rights management (DRM) and content delivery. Its members include Alcatel Lucent, Best Buy, Cisco, Comcast Corporation, Deluxe Digital, Fox Entertainment Group, HP, Intel, Lionsgate, Microsoft Corporation, NBC Universal, Panasonic, Paramount Pictures, Royal Philips Electronics, Samsung, Sony, Toshiba, VeriSign and Warner Bros. Entertainment.

Kaufhold said Disney’s decision to forge ahead with a digital delivery system makes sense due to its massive library of entertainment titles spanning multiple companies and target audiences. It is the world’s second largest media conglomerate behind Time Warner, and owns Marvel Entertainment, ABC, Pixar, the Miley Cyrus titles and ESPN, among others.

“All these properties have major Web sites, and these Web sites keep tens of millions of consumers connected to Disney, on all continents and at all times of the day. For at least a percentage of the Disney audience, having the freedom to acquire the digital rights to a piece of Disney content, and having that content available at any time, in any location, on any device, will drive incremental revenues into Mickey’s treasure chest,” said Kaufhold.

The news of Keychest comes at a time when media companies are grappling with how to distribute content in digital form amid fears of piracy, declining DVD sales and anxiety over cannibalizing retail sales.

Sales of DVDs and Blu-ray discs plunged 14 percent overall during the third quarter, according to the Digital Entertainment Group.

With cloud computing, the theory goes, piracy is less of an issue, as users won’t actually have the content stored on their devices.

Disney is showing signs of embracing digital delivery as last month its publishing division launched an online subscription service offering families Web access to the empire’s library of children’s books.

Over the summer, Disney struck a deal with Hulu to show episodes airing on its ABC television network, such as “Grey’s Anatomy,” on the ad-supported online video site. It also partnered with YouTube to show mini-episodes from ESPN and ABC on ad-supported channels of Google’s (NASDAQ: GOOG) video portal.

In an interesting subplot, there is speculation that Apple (NASDAQ: AAPL) will join Disney’s Keychest venture as a partner, as Apple CEO Steve Jobs is one of Disney’s largest shareholders.

Meanwhile, another approach to the challenge facing media conglomerates called TV Everywhere comes from Comcast and Time Warner. In that scenario, cable TV customers would get access to TV shows on a variety of devices.

Disney spokespeople had not returned calls seeking comment by press time.

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