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Jupiter Media Metrix recently posted results of research done on one of the most nascent entertainment-converging-with-technology markets around -- video-on-demand (VoD) -- and concluded that it will harm current pay-per-view services.

Jupiter, which said the U.S. VoD market will grow to 641.9 million dollars by 2006, believes that the majority of VoD consumers will come from the pay-per-view (PPV) audience instead of from video rental or box office audiences. Moreover, Jupiter said movie studios should work directly with cable and satellite operators as well as with potential content distributors such as Starz Encore and Intertainer.

"The industry heralded VOD as the entertainment technology that would unseat the VCR from the home and obliterate the video rental market -- that's unrealistic," said Lydia Loizides, Jupiter analyst. "The greatest value lies in shifting the pay-per-view audience to VOD and generating incremental revenues. Studios, operators, cable networks and the rental market must prepare to counter the effects, both positive and negative, of VOD on their businesses. Failure to do this will result in another blow to the advancement of interactive television."

Loizides also said movie studios should cut deals with operators and other distribution partners, such as HBO and Blockbuster, and become their own distributors.

Jupiter's study comes at an interesting time for a sector still in its infancy. Just last week, the Wall Street Journal reported that the U.S. Justice Department was peeping on the movies-on-demand industry for possible antitrust maneuvers -- something it is more deeply scrutinizing the online music subscription service sector for. At issue is whether or not joint-venture services are being used to block potential rivals in the online-movie business. The government wants to know whether the studios are refusing to let businesses license their films, or if they are trying to use the partnerships to jack up the fees.

Specifically, two joint ventures -- Movies.com (commandeered by Walt Disney Co. and News Corp.'s 20th Century Fox.) and MovieFly (backed by Sony Corp.'s Sony Pictures Digital Entertainment, AOL Time Warner Inc.'s Warner Bros., Vivendi Universal SA's Universal Pictures, Viacom Inc.'s Paramount Pictures and Metro-Goldwyn-Mayer Inc.) are being checked out by the government watchdog. While neither group has been subpoenaed, the department has also queried potential competitors Intertainer and Blockbuster.

Other findings of note from the Jupiter study:

• 28 percent of U.S. online consumers are interested in buying VoD-type services from their satellite or cable company
• While 45 percent of total online users rent a video at least once a month, only six percent order a pay-per-view movie or event in the same time period. Jupiter thinks VoD's ease of use, services, pricing and marketing will help it vault past pay-per-view offerings
• Jupiter found that the PC will not be a hub for VoD services and content. When asked about movie-related activities online, only 11 percent of consumers said that they were interested in viewing movies online. Thirty-one percent of respondents said that the Internet was too slow to allow them to watch video.