Kaleidescape Bows Lower-Priced Cinema Line, Begins Hardware Sales Through Company Store

Kaleidescape lowered the entry point for consumers to buy its server and video management system to $3,995, down from the $14,000 price of its multi-zone server system, the company said Tuesday. The $3,995 Cinema One server is a one-room solution for a home theater and will be sold through Best Buy’s Magnolia Design Centers and Kaleidescape’s network of 1,800 custom integrators worldwide. The product will also be sold through the Kaleidescape Store, marking the first time the company has sold hardware under an e-commerce model from the company-owned store, Tom Barnett, senior director-marketing, told us.

The $4,000 Cinema One, with capacity for 100 Blu-ray movies or 600 from DVDs on its 4TB server, opens a new market for Kaleidescape, which has 15,000 installed systems worldwide, Barnett said. Kaleidescape has been selling its premiere products -- including sophisticated video management software -- through Magnolia for five or six years, and the Cinema One offers a lower cost solution for a customer whose overall home theater budget is in the $20,000 range, Barnett said. “It’s hard to fit a $14,000 Kaleidescape system in and still have a projection, screen and speakers,” Barnett said, repeating feedback from Magnolia stores carrying the higher end system. Studios will benefit from the lower priced movie server, which will broaden the market for content from the Kaleidescape Store, he said. Kaleidescape customers buy on average 51 movies per year, compared with seven to eight movies for the average consumer, Barnett said, citing data from Morgan Stanley.

Until now, Kaleidescape has been operating exclusively “in the high end” with the Premier product line, Barnett said. Cinema One is the first product in the Cinema line, an all-in-one device that’s both the server and player in one set-top that’s the size of a “tall Blu-ray player,” Barnett said. Next up for the Cinema series is likely an add-on storage product, he said. On whether Kaleidescape sees a future lower-priced model in the Cinema Line to broaden the reach, Barnett said the $3,995 unit “is an exciting and big step for us” and the company “has our hands full” learning about how to operate in the retail market versus selling solely through custom integrators. The company has a “pretty good network of 12-hours-per-day support staff” to handle customer service for the U.S. time zones, he said, along with an online knowledge base. The do-it-yourself system comes with a colorful quick-start guide inside the box to minimize calls to the support staff, he said. The most important aspect of being retail-ready was making the product easy for a consumer to install, he said.

In accordance with Kaleidescape’s announcement in May that it joined the Digital Entertainment Content Ecosystem, when consumers buy and download Blu-ray-quality movies from the Kaleidescape Store, the company also checks UltraViolet rights into the user’s account for a lower-resolution version that they can watch on a smartphone, tablet or PC, Barnett said. And when consumers upgrade from standard-definition DVD movies to Blu-ray quality on their Kaleidescape servers for $6.99 per movie, the HD UltraViolet rights are included, he said. Users transfer the files to a tablet using an app from UltraViolet retailers such as Flixster, Vudu or CinemaNow, Barnett said.

On compatibility with UltraViolet Compact File Format (CFF) downloads that could be transferred to an external storage device, Barnett said the Cinema One has a USB port but the port is only used for a Wi-Fi adapter currently. The Cinema One plays DVDs, Blu-ray discs and Kaleidescape’s proprietary download format but won’t play CFF-encoded movies, he said. A software update “could be written” if Kaleidescape chooses to make its players also UltraViolet players, he said.

Regarding opportunities for Kaleidescape’s online movie service with 4K, Barnett said the company’s customers are the type who would upgrade to 4K as early adopters. “We are certainly very interested in and working on being part of both delivering and storing and playing 4K product,” he said. The Cinema One does not play 4K material because the Ultra HD ecosystem “isn’t mature enough yet for us to bring a product to market,” he said, saying the HDMI specification needs to be finalized along with content security and other technical considerations including possible changes to color depth specs. Rights and content management and encryption are all issues that need to be worked out, he said. Once there’s a market for moving 4K content around, “we'd follow suit with a product that could support it,” he said.

The lawsuit that has dogged Kaleidescape since the DVD Copy Control Association (DVD CCA) sued Kaleidescape in 2004 for breach of contract, in what has become a seesaw legal case, remains an “ongoing matter,” Barnett said. Most recently, a California district appellate court granted Kaleidescape a temporary stay of an injunction that would prevent Kaleidescape from selling its servers and content-ripping software (CED March 29/12 p1). On whether consumers who buy the Cinema One could be sued by DVD CCA for ripping DVDs onto Kaleidescape servers, Barnett said, “They're definitely not.” He cited the initial ruling from 2007 in which a California court ruled Kaleidescape servers were in compliance with the DVD CCA license agreement and the subsequent appeal by DVD CCA tossing the suit back to the appeals court. The 2012 ruling “was not favorable to Kaleidescape,” he said, and included a 90-day injunction stipulating that Kaleidescape systems sold after a certain date could only play DVDs from the tray but not be able to copy DVD movies to the hard drive. The injunction was stayed until the court hears the appeal, Barnett said.

If Kaleidescape loses the appeal, the injunction would go into effect, and Kaleidescape would appeal to the Supreme Court of California, Barnett said. If DVD CCA brought a claim against a Kaleidescape customer, “that would be a motion picture studio claiming that the customer didn’t have the fair use right to be making a copy of a particular disc,” he said, and that matter would have to be about a particular disc and incident, he said. “I would think if they were going to make an example of someone with that -- and I don’t think that’s their strategy -- they'd be better to go after” a DVD-ripping software program “that’s more black hat,” he said.

The most recent ruling “doesn’t have anything to do with Kaleidescape’s ability to service existing customers who bought systems before,” Barnett said. He said the judge noted that those customers had good-faith reasons to buy the Kaleidescape product “including that that same court had ruled that it was OK back in 2007,” Barnett said. He said the lawsuit isn’t a copyright infringement suit but a contractual business-to-business case. Because the case has to do with copyrighted material, a “common misconception” is that the DVD CCA thinks the consumer is infringing on copyright when ripping a DVD onto a Kaleidescape server. “In fact, it’s a much more technical argument about what the CSS special specifications say and what products Kaleidescape can continue to manufacture,” Barnett said. For now, consumers can copy DVDs -- along with Blu-ray discs and CDs -- which aren’t part of the lawsuit, to the hard drive of the Cinema One, he said.

Greg Larsen, spokesman for DVD CCA, said: “We have seen reports about the new product but at this early stage have not had the opportunity to learn more about how it operates. Given that, and our ongoing litigation with Kaleidescape, we are not able to offer any comment on it at this point.” The appeal is “in process,” Larsen said, but a date has not been set.