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HIVE EXCLUSIVE: VOD Deal Creates Opportunities for Others

24 Aug, 2001 By: Joan Villa

The five-studio joint venture recently formed for Internetvideo-on-demand (VOD) may open up the floodgates to dozens of other online retailers and pure-play Web services that have been waiting to license studio movies for downloading of their own.

The announcement that MGM, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. would share content ona “non-exclusive” basis means the consortium won’t run afoul of Justice Department antitrust regulations.

However, the fact that the studios can’t advance their venture without licensing their films to others mayprove a windfall to companies as diverse as online DVD rental retailer NetFlix, movie download site Sightsound.com, and the nation’s rental leader, Blockbuster Inc. There may even be room for independent video retailers to get in the game.

“It’s an exciting breakthrough because studios recognize this is going to be a business and that opens the door for lots of retailers to be involved as well,” says Ted Sarandos, NetFlix v.p. of content acquisition.

NetFlix, which has 300,000 subscribers to its online DVD rental service and some download licensing agreements already in place, plans to download its first films next year. Those initial offerings will likely target business travelers and other customers who already rent NetFlixmovies to watch on their laptops and are most receptive to downloading,he says. Customers will have the option to choose the download as an alternative to receiving the disc in the mail, as NetFlix does businessnow.

The success of such a venture hinges on access to licensing content, he adds. “Content has to be meaningful and it has to have variety toreplicate what there is in the real world.”

Right now, SightSound Technologies is the only system that offers fee-based downloads, a service it launched in April 1999 with the black-and-white thriller Pi. President and c.e.o. Scott Sander believesthe new venture will force the studios to take quick action to open up licensing to everyone.

Through deals with Miramax Films and Destination Films, Sightsound.com offers 20 movies per week as either a purchase or time-limited rental.

“We’re the closest to what the studios are talking about launching,” explains marketing director Jennifer Pesci-Kelly. After two years’experience with how the technology works, SightSound has insight into how to develop a “faster, cheaper and better way” to download for both the consumer and the copyright owner, she says. “One of the things we’redoing now is educating them about what this means and what the consumer experience is like.”

Blockbuster is “very glad” the studios have taken this first step toward VOD and, in the process, opened the door to content licensing, says v.p. Karen Raskopf.

“We feel very strongly that eventually when VOD becomes a reality, Blockbuster is well positioned to be a force in the VOD arena,” she explains. “The studios are looking for other home entertainment channels to participate in, so is Blockbuster.”

Mark Vrieling, owner of Seattle’s Rain City Video and Screen Play, an in-store trailer service that also streams movie clips on the Internet, believes that movie downloading is not beyond the reach of enterprisingindependent retailers.

“The studios may be able to do a better job of reaching the entire United States, but if I’ve got a way where it can run through [my Website], I can cover the three miles surrounding my video store better than they ever can,” he says.

In fact, while studios have a foothold in television (including satellite and cable), gaming and home video, the consortium createsaccess to the one segment previously untouched: PC/Internet use, according to Alexander & Associates research director Greg Durkin.

“It’s a long-term plan to promote brands and get a presence in that one quadrant of home hours,” Durkin says. The added visibility could help video as cable often does now — by showcasing movies that consumers view then rent in a store rather than buy online. Plus, he insists it will be many years before download quality will approach what consumers expectfrom prerecorded software.

“This is not the movie experience that is going to compete with DVD by any means,” he adds.

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