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HIVE EXCLUSIVE: V is for Vaporware?

21 Sep, 2001 By: John Jimenez


Video on demand: It's the sexy topic of the moment. Studios are makingbig announcements — like the five-studio venture among Sony, MGM, Warner, Paramount and Universal, dubbed MovieFly in beta tests, and Fox and Disney's Movies.com — and everyone else in home entertainment is scrambling to learn what effect it will have on them.

Amid all the speculation, however, is an unnerving silence from all those involved. None of the studios is saying much and all the silence is fueling greater intrigue.

One of the burning questions is, technologically, how is it all going to work? As with all the questions surrounding VOD, there is not widespreadconsensus, only informed speculation and, at times, downright disagreement.

“It's not going to include any software,” says one source knowledgeable about the two deals who didn't want to be named. In other words, users can access the films with basic Internet access. However, this access will need to be broadband—DSL, cable modem or T1 connections.

The Movies.com deal appears it will include cable partners as well, making the service available to digital cable subscribers. However, asGreg Durkin, research director for Alexander and Associates, points out, it is unlikely Time Warner Inc. will allow rival Movies.com to use its cable services. And if you factor AOL out, digital cable has a U.S.reach of less than 10 million households.

“It's just not realistic,” says Durkin, who believes the service doesn't have much value outside of a publicity tool. “Technically, it'sfeasible, but there are a lot of battles to be fought.”

Others in the industry are not quite as pessimistic, but none expects VOD to pose a significant threat to home video any time soon.

Bob Alexander, of Alexander and Associates, believes the agreements may pose a threat to pay-per-view or cable, but not home video.

“This is a business development project and any commercial version is several versions away. They may launch this in 2002 and modify it periodically before they get the answer that works. Does this particularoffering have an impact on video? We actually think they have tremendous impact on pay-per-view, because VOD cannibalizes pay-per-view,” he says.

Another question is how many people have the broadband Internet connections necessary for the services. On this point, too, there isdiscrepancy. Durkin says as of June 2001, broadband Internet was in 7 million U.S. homes. Gerry Philpott, president and c.e.o. of interactive market research firm E-Poll, puts the number at more like 25 million. And the source with knowledge of the VOD deals says it's closer to 10 million and should reach 30 million by 2003.

Even with the proper connection, are people willing to wait for a movieto download? One of the studios involved says it depends on the connection speed, but will likely take 20 to 40 minutes for afull-length movie to download. The source knowledgeable of the dealssays “20 minutes” has been thrown around, “but they'd have to show me that before I believe it.”

And will people want to watch movies on their computer screens, a likelihood for most people who use the service? Durkin thinks it's not likely. And Philpott admits, “It's unsure whetherthere will be a huge appetite [among users] to watch a two-hour movie on their computers.” He says the service will be most attractive for hard-to-find titles.

However, the anonymous industry source says both services will haveinstructions about how to plug the computer into a television or set-top box. And Durkin says DirecTV is offering a set-top box equipped with DSL.

So, for all the questions surrounding VOD, there are surprisingly few answers, at least reliable ones.

Though it seems the technology won't run video stores out of town any time soon, those who want to catch this new wave will have to do so with a lot of uncertainty and amid a deafening silence from the creators.

Additional reporting by Joan Villa.

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