Hollywood Studios Launching Movies-On-Demand
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Five of the biggest Hollywood studios have partnered to launch a video-on-demand service that will allow consumers to access their vast collections of movies via a broadband Internet connection.
The partnership involves Metro-Goldwyn-Mayer, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros., and represents Hollywood's first large-scale effort to use the Internet to deliver their movies directly to consumers.
The studios have yet to say when the service will start, what it will be called, what the pricing will be or how many of their thousands of movies -- ranging from recent releases to decades-old classics -- will be available.
In a joint announcement today detailing the venture, the studios said broadband Internet subscriber levels have hit a critical mass of 10 million homes (plus another 25 million business and college connections) making it worthwhile for them to finally pursue a video-on-demand strategy.
"The introduction of the service represents a significant advancement in the development of the Internet as an entertainment medium," said Mel Harris, president and chief operating officer of Sony Pictures Entertainment. "In increasing numbers, we see audiences turning towards the broadband Internet as an exciting new channel through which they can access entertainment."
For the movie studios, the joint venture would be one of the biggest distribution advances since Hollywood's earliest days, when studios distributed their films to a network of studio-owned theaters (That type of vertical integration was banned years ago). The next big step came with the advent of the VCR and video rentals. And cable television has for years offered pay-per-view movies, but viewers typically must tune in at prearranged times and choose from a limited menu of movies. (In the late 1990s, a video-on-demand venture involving Blockbuster and broadband network operator Enron failed to generate enough studio participation to make it successful.)
The growth of broadband is changing that.
"We and our partners are pleased to be at the forefront of this ground-breaking endeavor, bringing box-office hits to consumers via the Internet, complementing our existing distribution alternatives," said Jonathan Dolgen, chairman of Viacom Entertainment Group, the parent of Paramount Pictures. "With this service, we can successfully deliver quality content to movie enthusiasts, providing them with greater choices and access, as well as a secure platform to receive their filmed entertainment."
Analyst Adi Kishore of the Boston-based Yankee Group said Thursday's announcement by the studios wasn't unexpected.
"This is something the studios have been considering for a long time, eliminating the middle man --the cable operators and the telcos-- and delivering the service themselves. Rather than get 45-50 percent of the revenue stream, in this case they get 100 percent," Kishore said.
The studios are also seen as moving quickly to avoid a Napster-like site from emerging to swap their films without them getting a piece of the action, he added.
The studios said there will be an "appropriate level of copyright protection" to enable the legitimate distribution of content on the Web and would use the latest digital rights management software. The service will also be available to other film producers and distributors who want to distribute their films to broadband users.
It was the second major news this week that the entertainment sector is capitalizing on the Internet and a growing number of broadband subscribers to deliver video content to users.
On Wednesday, AOL Time Warner announced a new division that will focus on accelerating the growth of media-like subscription services such as video-on-demand, interactive television content and advertising, and advanced technology like cable Internet telephony. The New York-based Interactive Video division will oversee initiatives involving interactive video and cable access across the company, especially in its Time Warner Cable and America Online units. It will be headed by veteran cable executive Joseph Collins, former chief executive and chairman of the company's Time Warner Cable division.
Kishore, the Yankee Group analyst, said the Internet may not be as ready to support video-on-demand service as the movie studios are trumpeting. He said they likely will have to deal with slow download speed and, more critically, video-quality issues that could degrade the users' enjoyment of watching a movie. "It'll depend where you live, who your ISP is, where it's being routed through," he said. "People might be willing to wait 10 minutes for the video to download, but then that wouldn't be video-on-demand."
He said the studios would have to price video downloads close to video rentals, around $4, to lure users.
In light of AOL Time Warner's news this week that it would focus on developing video-on-demand services for cable TV operations, Kishore said the five-studio venture would clearly be a competing service for movie viewing. But it would also be an added channel to sell movies from AOLTW's Warner Bros. studio.
For the studios, it's clear that the more outlets to sell their filmed content the better. For instance, one member of the video-on-demand consortium, Paramount Pictures, is owned by Viacom, which also owns Blockbuster. Vivendi, which owns Universal Studios, licenses Universal movies to In Demand, a cable TV pay-per-view provider.
The businesses in line to be hurt by a video-on-demand service are video rental stores and cable pay-per-view operators, as well as cable TV movie channels such as Showtime and Encore. Movie theaters, which have seen attendance drop due to video rentals and cable TV, might not suffer too greatly, Kishore said, especially those that have improved their product with stadium seating, surround sound and other amenities.