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Studios Pursue the Promise of Internet VOD

3 Feb, 2004 By: Gary Arlen

Editor's Note: This is the third and final installment in our series charting the convergence of digital media software and hardware in the home.

Hollywood studios have watched the music industry's battle with digital downloading, and it's clear the studios intend not to lose control of content as it migrates to the Internet.

Their stakes in key digital aggregators such as Movielink, MovieBeam and CinemaNow demonstrate their intent to participate in the digital environment by testing a full range of options to gain insight into the most successful technologies, practical business models and consumer behavior.

“Whenever we look at a new platform, we take into account security and cannibalization of our other distribution platforms,” said Jerry Pierce, SVP of technology at Universal Pictures. He includes “other business relationships, theft of service and cost of delivery” in the analyses of Internet plans.

It's still a wide open game, according to Charles Swartz, executive director and CEO of the the University of Southern California's Entertainment Technology Center, which the major studios fund to identify and explore digital issues.

“Each of the major studios is taking initial steps to figure out what works for direct distribution to the home. Not only is there no consensus among the studios, there's not even consensus within studios.”

Day-and-Date the Ultimate Target?
At the 2004 Consumer Electronics Show, actor/producer Morgan Freeman said a film he is making will be released simultaneously in theaters and on the Internet next year. The notion of ”superdistribution” via many channels at once is among the most controversial in play in the digital age.

Studio representatives avoid any such pronouncements or timetables. Even ETC's Swartz points out that Hollywood greeted Freeman's comments with skepticism.

Most expect major studios to take a more careful route to rearranging their 25-year-old distribution cycle. But there's little doubt that secure broadband delivery into home media gateways, with flexible content and payment choices, would make a compelling option for studios.

Movielink is unveiling a new pricing plan Feb. 2 that will let customers watch a movie multiple times during a one-month period -- not just the 24-hour initial viewing window. The extra fees will be 99 cents to $2.99 for the “relicense” service. Jim Ramo, CEO of the Internet video-on-demand (VOD) service owned by five Hollywood studios, told Video Store Magazine he expects customers will use it to let family members or neighbors watch movies. Ramo envisions various incentives to attract broadband VOD users, such as extra movies to customers who order a specified quota of titles. Movielink's Internet service provider (ISP) partners such as America Online, Bellsouth and SBC are also offering discounts or Movielink Money to new subscribers, thus introducing them to on-demand movies as soon as they connect by broadband.

These and other Web-based VOD services keep their subscriber and usage numbers to themselves, but acknowledge their market share is tiny compared to the packaged video market.

All of the VOD providers envision huge growth as home digital access and storage capabilities entice online viewers. Independent analysts who see technical convergence paving the way bolster their vision.

System Dynamics Inc., a New Jersey research firm, has dubbed 2004 “The Year of the Digital Media Adapter.” That's their term for the technology that can move movies, music or photos from the Internet and PCs to TVs or audio systems.

“Everyone is scrambling to create these bridges,” said David Waks, a principal of System Dynamics. “The big bet on the PC is also a big bet on Internet Protocol (IP). It's an alignment of forces that is not helpful to ... Blockbuster.”

Cable TV providers have not yet embraced IP video, Waks said. His partner, Sandy Teger, stressed, “This is one of the few places where the telephone companies, by focusing on [IP], could gain an edge.”

Telcos Get the Message
Indeed, telecommunications network operators, cable companies and ISPs have an immense stake in online video downloading and streaming. Movielink, CinemaNow and other video packagers help pump up the value of their high-speed services and gain or retain customers.

It stems from “the power of broadband as a revenue stream to the cable industry,” Ramo said. “At one point there might have been a fear of some sort of cannibalization, but Movielink helps sell cable modems and helps retain broadband customers.”

Ramo also pointed out that since cable modems still deliver signals to PCs but not TV sets, the fear of scavenging cable VOD offerings “is not relevant.”


Gary Arlen is president of Arlen Communications Inc., a Bethesda, Md., research firm.

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