A panel at this week’s CES show in Las Vegas yielded two pieces of positive news for the DECE/UltraViolet standard, after a launch several months ago with Warner Bros. and its Flixster subsidiary that could charitably be called “premature.”  Of the two news items, one is a nice to have, but the other is a game-changer.

Let’s get to the game-changer first: Amazon announced that a major Hollywood studio is licensing its content for UltraViolet distribution through the online retail giant.  The Amazon executive didn’t name the studio, though many assume it’s Warner Bros.  Even if it’s a single studio, the importance of this announcement to the likelihood of UltraViolet’s success in the market cannot be overstated.

Leaving aside UltraViolet’s initial technical glitches and shortage of available titles, the problem with UltraViolet from a market  perspective had always been a lukewarm interest from online retailers.  As I’ll explain, this hasn’t been a surprise, but Amazon’s new interest in UltraViolet could make all the difference.

UltraViolet is the “brand name” of a standard from a group called the Digital Entertainment Content Ecosystem (DECE), headed by Sony Pictures executive Mitch Singer.  It implements a so-called rights locker for digital movies and other video content.  Users can establish UltraViolet accounts for themselves and family members.  Then they can obtain movies in one format (say, Blu-ray) and be entitled to get it in other formats for other devices (say, Windows Media file download for PCs).  They can also stream the content to a web browser anywhere.  The rights locker, managed by Neustar Inc., tracks each user’s purchases.

In other words, UltraViolet promises users format independence and a hedge against format obsolescence, while providing some protection for the content by requiring it to be packaged in several approved DRM and stream encryption schemes.  It includes a few limitations on the number of devices and family members that can be associated with a single UltraViolet account, but in general UltraViolet is designed to make video content more portable and interoperable than, say, DVDs or iTunes downloads.

Five of the six major Hollywood studios (all but Disney*), plus the “major indie” Lionsgate, are participating in UltraViolet.

One of the design goals of UltraViolet was to ensure that no single retailer could attain a market share large enough to be able to control downstream economics — in other words, to avoid a replay of Apple’s dominance of digital music downloads (and possibly Amazon’s dominance of e-books).  To do this, the DECE studios pushed for ways to thwart consumer lock-in by online retailers that would sell UltraViolet content.

The most important example of this is rights locker portability: users can access their rights lockers from any participating retailer.  UltraViolet retailers must compete with each other through value-added features.

Amazon’s Kindle e-book scheme offers a good illustration of platform lock-in and how it differs from other features that a retailer can build or offer.  If you buy an e-book on Amazon, you can download and read it on a wide variety of devices: not just Kindle e-readers but also iPads, iPhones, Android devices, BlackBerrys, PCs, and Macs — in other words, pretty much everything but other e-reader devices.  You get e-book portability — it will even remember where you last left off if you resume reading an e-book on another device — but you are still tied to Amazon as a retailer.  If you want to read the same e-book on a Nook, for example, you have to buy it separately from Barnes & Noble (and then you can read that e-book on your PC, Mac, iPhone, Android, etc.).

This lock-in gives Amazon power in the market as a retailer; it had 58% market share as of February 2011 (by comparison, Apple has over 70% of the music download market).  UltraViolet wants to make it as difficult as possible for a single digital video retailer to assert such market power.

The downside of that policy has been a lack of enthusiasm among retailers to sell UltraViolet-licensed content — which entails significant development investment and operational expenses.  A good shorthand way to evaluate the potential impact of a standards initiative is to look at the list of participants: what points in the value chain are represented, how many of the top companies in each category, and so on.  In DECE’s case, members have included most of the major movie studios, plenty of consumer device makers, lots of DRM and conditional access technology vendors, and so on, but few big-name retailers… one of which (Best Buy) already had a different system for delivering digital video content via Sonic Solutions.

Warner Bros. tried to jump-start the UltraViolet ecosystem by acquiring Flixster, a movie-oriented social networking startup, adding digital video e-commerce capability, and using it as an UltraViolet retailer for a handful of Warner titles.  This has been little more than a proof-of-concept test, which was plagued by some technical glitches and suboptimal user experience — all of which, according to Singer, have been fixed.

It would be unworkable for Hollywood to pin its hopes for its next big digital format on a small unknown retailer owned by one of the studios.  It has been vitally necessary to attract a big-name retailer to both validate the concept and provide the necessary marketing and infrastructure footprints.  There had been talk of Wal-Mart entering the UltraViolet ecosystem, although it already has its own video delivery scheme through VUDU.  But otherwise, the membership list had been short on major retailers.

Of course, Amazon is the major-est online retailer of them all.  And it so happens that Amazon’s digital video strategy is a good fit to UltraViolet in two ways.  First, Amazon currently runs a streaming service (Amazon Instant Video), whereas UltraViolet is primarily focused on downloads, a/k/a Electronic Sell Through (EST): the idea of UltraViolet is to buy a download and only then be able to view it via streaming.

Second, Amazon Instant Video does not look particularly successful.  Of course, Amazon does not reveal user numbers, but it is telling that Amazon included Instant Video Unlimited as a perk in its US $79/year Amazon Prime program… and that when people extol the virtues of Amazon Prime, they tend to emphasize the free overnight shipping but rarely the streaming video.

The biggest winner thus far in the paid online video sweepstakes is Netflix, with about 24 million subscribers as of mid-2011.  Netflix’s subscription-on-demand model is most likely far more popular than Amazon Instant Video’s pay-per-view (except for Amazon Prime members) model.  Thus Amazon may be looking for ways to improve its market position in video without having to hack away at the Netflix streaming juggernaut.

The video download market is in comparative infancy.  It has no runaway market leader a la Netflix, or Apple in music.  If this situation persists long enough, and if Amazon’s trial run with UltraViolet is successful, then other retailers might see UltraViolet as a viable format as well… precisely because it will make them better able to compete with the Online Retailing Gorilla.

Yet the other dimension of UltraViolet that is currently lacking is availability of titles.  And that’s where the other CES announcement comes in.  Samsung announced a “Disc to Digital” feature that it will incorporate into new Blu-ray players later this year.  With this feature, users can slide in their Blu-ray discs or DVDs, and if the content is “eligible,” they can choose to have that content available in their UltraViolet rights lockers for delivery in any UltraViolet-compliant format.

The Disc to Digital feature is a collaboration between Flixster (i.e. Warner Bros.) as online retailer and Rovi as technology supplier.  It works in a manner that is analogous to “scan and match” services for music such as Apple iTunes Match: it scans your DVD or Blu-ray disc, identifies the movie, and if the movie is available in the UltraViolet library of licensed content, gives you an UltraViolet rights locker entry for that movie.  Rovi’s content identification technology and metadata library are undoubtedly at the heart of this scheme.

There are two catches: first, users will have to pay a “nominal” fee per disc for this service, which is even larger (and as yet unspecified) if they want it in high definition; second, it is limited to “eligible” content, and no one has offered a definition of “eligible” yet (beyond the fact that the content must come from one of the DECE participating studios).  But surely the “eligible” catalog will exceed the current list (19 titles) by orders of magnitude, or the service will not be worth launching.

Nevertheless, these developments are very positive news for DECE/UltraViolet after months of embarrassments and bad press.  DECE still has lots of work to do to make UltraViolet successful enough to be the major studios’ designated successor to Blu-ray, but at last it’s on track.

*Yes, I’m aware of the irony of using a tag line from “Who Wants to Be a Millionare” in the title of this article: Disney owns the home entertainment distribution rights to that hit TV game show.