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Are Consumers Ready for Online Films?

Sure there is much ado about online music subscription services these days. MusicNet has launched. Pressplay has launched. And so has Listen.com's Rhapsody. Still, one has to wonder: if we can have that for music, why can't we have it for film?

That question may have been in some technology-driven minds last week in Park City, Utah, where the annual hipster Sundance Film Festival reigned supreme. From January 10 to January 20, people marketed and watched films until celluloid ran out of their eyes and noses. Well, maybe not, but people were there to watch a lotta film, just as renowned companies such as Miramax were there to snap up those with potential.

Make no mistake, if you have the means, it is a great place to win friends and influence people. So, it probably comes as no surprise that Microsoft Corp. looked to be front and center for the proceedings with its Windows Media player, even if it was used to go behind the scenes to check out films online.

"The use of digital media offers a new way for independent filmmakers to tell their stories and find new audiences," said Ian Calderon, director of Digital Initiatives at the Sundance Institute.

Funny, the same thing was said about Napster went it arrived with a bang almost three years ago; the notion that undiscovered artists could break into the big time via rampant file-sharing exposure was cheered by many. So much for that. That's not to pour cold water on the hot idea -- these things take time. But one of the more interesting tech schemes to come out of Sundance this week was the teaming of Microsoft, Flux Networks, Hewlett-Packard Co. and Symbol Technologies Inc.

Basically, the Sundance Institute gave 500 VIPS (directors and such) with HP Jornada Pocket PC for festival attendees to download and preview video clips from the Sundance Online Film Festival. The handhelds featured a custom digital guide with festival schedules, news and invitations to special events, which can be updated wirelessly at "hot spots" provided by Symbol located around the festival. Flux provided software and Microsoft, never one to shy away from a good marketing gig, showed off its latest Windows Media software.

The Redmond, Wash. software giant, together with Sundance and Digital Cinema Solutions (DCS), demonstrated its new incarnation, code-named "Corona," to attendees. Having seen it in action at Streaming Media World East in New York City a month ago, the obvious winning feature is its elimination of buffer, so users don't have to wait the extra, annoying 15 seconds to see and hear content. Corona also offers high-resolution video and surround-sound audio. Microsoft, understandably, was excited about this.

Dave Fester, general manager of the Windows Digital Media Division at Microsoft, said that in addition to enhancing viewer experience, the new Windows offering can help "the economics of the film industry."

How's that? Microsoft claims Windows Media has the potential to save filmmakers tens of thousands of dollars normally associated with making 35mm "blow ups" for screenings at film festivals and theaters. The company made overtures to back its claim by showing scenes from an upcoming 35mm feature documentary, "Standing in the Shadows of Motown," as well as footage "Teknolust," which was a Sundance Festival entry.

That's nice, but will people pay for it?

So it is apparent that technology aids film distribution to a degree. But can companies eventually profit from digital film? If the Microsofts of the world help build it, will people come?

Microsoft believes consumers will. This past October, it provided the technology for the launch of Intertainer, a video-on-demand (VoD) service for anyone with a broadband connection of at least 580 Kbps. Note that it is predicated on the adoption of broadband Internet access. According to one ARS study, broadband rates have risen some $4 from January 2001 to December 2001, which may explain why the adoption of it is down, too. But let's concentrate on the positives here. Intertainer offers subscription services such as FirstPass, which gives subscribers unlimited access to television, lifestyle and children's programs, for $7.99 per month. Once users sign up for FirstPass, full-length feature films can be purchased on a pay-per-view basis. New releases are $3.99, library titles are $2.99 and music videos are free.

Now that's been up and running for over three months, how is it doing? An Intertainer spokesperson told InternetNews.com that the firm does not reveal subscriber numbers, but did allow that VoD is building a lot of momentum. If media buzz is any indication, this would seem to be true. Access Hollywood gave it some treatment, and it was featured in a New York Times roundup recently. She also said Intertainer is just beginning to ramp up its marketing attack. This is vital because the heavyweights are getting involved. To be sure, movie studios are dipping their ladles into the VoD well. While Intertainer has already signed long-term service deals with the likes of Universal and Warner Bros., those two, along with Sony, Paramount and MGM are teaming to offer a VoD service called MovieFly. Disney is getting involved, too, as it has teamed with Fox to work on Movies.com.

"The concept is getting out to consumers that they can have this on-demand world," the Intertainer spokesperson said. "With VoD, there is convenience, choice and control. There is also no running to the video store to drop off rentals, and no late fees or rewinding involved."

Sounds like a couch potato's dream come true, but will these services fly? People accept digital music, right? Have online music subscription services not cropped up en masse? Yes, they have, said GartnerG2 analyst PJ McNealy, but the piping of digital music is a narrowband-driven technology. Remember, digital video is a broadband-dependent technology. McNealy told InternetNews.com that while there have been some advancements in digital video distribution, there are stumbling blocks in the way. And this article cannot begin to scratch the surface of the turf wars that may commence in the movie industry.

"The average consumer is not going to say on Friday night 'Hey kids, let's gather around the PC and watch a movie,'" McNealy said. "Not when they can have a 36-inch, surround-sound TV in their living room."

In fact, the mere notion that average consumers have the capability to do so is hardly a sure bet. A key missing ingredient, of course, is broadband access, which is far from ubiquitous.

"There's a lot of hype, but there are serious challenges," McNealy said. "Most houses don't have the guaranteed standard of broadband and service levels and quality standards haven't been established. What's the use of watching a movie if it cuts off half through?"

McNealy has done the research to back this up. In a December study, he found that only 10 percent of U.S. households currently have broadband access. Moreover, only 2 percent of some 156 million adult Internet consumers have purchased or downloaded a digital video.

Instead, the report said, 2005 is looking like a brighter star for VoD, with 2 percent of all movie distribution revenues coming through VoD as incremental revenue. For now, however, it remains a notion with potential and one that PC makers are focusing their attention on. McNealy said every tech firm from Intel to Apple is trying to insist that while PCs are viewed as productivity tools, that people will be willing to pay for entertainment online.

"There is no argument with the promise of being able to watch any one of a million different movies when people want," McNealy said. "Studios are embracing Internet streaming and download technologies today in order to deliver the business models of tomorrow."