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UPDATE: Five Studios Join in Internet VOD Venture

17 Aug, 2001 By: John Jimenez

Five major studios — MGM, Paramount Pictures, Sony Pictures Entertainment,Universal Studios and Warner Bros. — have announced a joint venture to launch a video-on-demand service offering digital movies to broadband U.S. Web users. The Aug. 16 announcement confirmed months of rumors.

“A transaction of this size and complexity takes some time to complete,” says Don Levy, v.p. of marketing and communications for Sony Pictures Digital Entertainment.

The venture, called MovieFly in beta tests, doesn’t have an official name yet and is tentatively expected to launch in four to six months. It will offer theatrical and catalog titles online to an estimated 10 million broadband households as well as businesses and universities.

The movies will be available on an unspecified Web site and be accessible from some Internet portals and e-commerce sites.

David Bishop, president and c.o.o. for MGM HomeEntertainment Group, says, “We saw an opportunity to pioneer a new delivery system into the home. Over time this will be a viable business opportunity.”

“Why not market our movies where people are spending their time?” says Warner Home Video’s president Warren Lieberfarb.

The movies will be available for rent and users will pay aper-transaction fee. Though prices haven’t been set, Lieberfarb says users will download movies and be able to view them as much as they want for a 24-hour period.

Not all the studios will necessarily have the same terms, Bishop says, though he expects “early on” details are likely to be similar. Those details include when a movie will hit the online world. MGM and Sony both say they plan to release them during their pay-per-view windows.

Lieberfarb says one of the benefits is that it lets Warner “get ahead of our movies getting pirated.” He believes if people have a viable, legal VOD option, they will choose that rather than break the law.

The great thing about online digital delivery, says Kevin Tsujihara, Warner’s executive v.p. of new media, is that it allows them to “makemodifications to the digital rights management package on the fly,” so studios can upgrade the encryption technology.

The Department of Justice recently launched an antitrust investigationagainst the music industry over online digital distribution ventures, but the studios believe this deal will not draw such fire. “Westructured the venture to be in compliance with all applicable regulations,” Levy says. “As a matter of courtesy, the studios contacted [DOJ] to discuss the venture.”

The venture, notes Bishop, is non-exclusive and is only a single step in the studios’ VOD strategies.

The deal does not include all the major studios. 20th Century Fox, for example, is conspicuously absent. The Wall Street Journal reported last winter that Fox had a tentative VOD agreement with Disney.

The biggest question, perhaps, is how this will affect home video. “Thisis a first step toward something that would actually threaten home video, but it’s not an immediate threat,” says Greg Durkin, researchdirector for Alexander & Associates. “We think the impact on home video is going to be small,” says Ben Feingold, president of Columbia TriStar Motion Picture Group. “Certain people are going to like this channel but we think the growth engine for home video is going to continue to beDVD.”

“We’re glad the studios are making their content available for distribution. And when a viable VOD model is developed, we’re lookingforward to licensing their content,” says Blockbuster communications v.p. Karen Raskopf.

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