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Facebook Movie Rental to Be a Box Office Smash?

The Facebook-Warner Bros. video-on-demand movie rental service may be in the experimental phase, but has ramifications sure to be felt throughout the entertainment and tech industries as it piggybacks on several larger trends that suggest it could be a blockbuster hit.

The Batman movie "The Dark Knight" will be offered as an online movie rental on Facebook for $3, or 30 Facebook credits, which is the social network's virtual currency. Fans who click the "Like" button on the movie's Facebook page have 48 hours to watch the film through their Facebook account.

"Facebook has become a daily destination for hundreds of millions of people," Thomas Gewecke, president of Warner Bros. Digital Distribution, said in a statement Tuesday. "Making our films available through Facebook is a natural extension of our digital distribution efforts. It gives consumers a simple, convenient way to access and enjoy our films through the world's largest social network."

The surge in online video viewing -- up 45 percent this year -- and the soaring popularity of mobile apps, combined with the recent "appification" of entertainment content, suggest that film fans are primed for such a deal. Add to these ongoing trends Facebook's vast, ready-made audience, its need to diversify its revenue generating options beyond social games, and the movie studio's declining digital movie sales and you've got a nomination for success.

What it means for Facebook and Hollywood

The deal is a way for the social networking site to explore ways to diversify and increase revenue by making it a platform for paid content beyond its already successful virtual goods sales made through online games.

"Facebook is still looking for other revenue streams to back its core advertising business," said eMarketer principal analyst Debra Aho Williamson. "Facebook Credits will slowly increase its proportion of total revenue in the coming years, and this deal shows Facebook isn't content to hinge the success of Credits solely on virtual sales in social games."

Though Facebook's ad kitty is significant, $4 billion in annual global ad revenue, according to eMarketer, it makes sense to test strategies that involve paid content distribution, given there's a built-in audience.

"Facebook's sheer scale means that it has become a significant platform for consuming and sharing other content such as music and now video. (According to comScore it's now one of the top 5 video sites by views in the United States.) With a massive user base and its own virtual currency, Facebook could yet become a significant platform for paid content, beyond the virtual goods of social gaming, especially via connected TVs," Forrester analyst Nick Thomas wrote in a blog post on the deal.

The first-ever online movie rental service at Facebook could mean big bucks for Warner Bros., too. "The Dark Knight" has nearly 4 million Facebook fans, and the rental service will provide them with a direct channel for viewing it, as opposed to them having to find it in some other VOD library, opening a potentially lucrative business model.

"This is also a chance for Warner to test a direct relationship with viewers that it couldn't have in a Wal-Mart or Comcast era. If Warner can build a direct relationship to those customers through a channel they frequent more often than they visit local retailers or cable VOD menus, this could be a lucrative marketing platform for them," wrote James McQuivey, another Forrester analyst.

What it means for Netflix, Apple and mobile

Many analysts believe that if other Hollywood studios follow Warner's lead, Facebook could be a formidable competitor to Netflix's online streaming service and to Apple's iTunes. Jefferies analyst Youssef H. Squali described Warner's Facebook move as "yet another caution sign" for Netflix investors, according to the Associated Press.

Still, Facebook fans will have to connect their computers or tablets to their TVs for optimal viewing, and, unlike Facebook, Netflix offers online films as part of a monthly subscription. And yet, online video watching is a hot trend, up 45 percent from a year ago, according to Nielsen Wire, proving that viewers are more than willing to view films and television shows on laptops and other mobile devices.

Movie apps could bolster online audience for films

The Facebook experiment isn't the only digital venture being undertaken by Warner. It comes on the heels of last month's release of mobile apps for "The Dark Knight" and "Inception" for Apple's iPad, iPhone and iPod touch.

The apps include the first five minutes of the movie, bonus content and social media tools, and the users of the "Dark Knight" app can also unlock the full movie with a $10 in-app purchase, with Apple taking its 30 percent cut.

These "app editions" of movies could help increase the overall online audience for movie studios, some analysts say.

"The success of the greater apps business being driven by Apple and Google has created an opportunity for companies to experiment with the movie app concept, at a time when digital movie sales continue to struggle," IHS broadband media analyst Laura Aguilera told MercuryNews.com.