Feel like watching a movie tonight on your PC? The choices aren’t anything to rave about at the moment.
But if you’re a Jennifer Aniston fan with a broadband connection, there’s always the box office bomb “Rock Star” on intertainer.com, a video-on-demand (VoD) entertainment network backed by Microsoft , Intel
, Comcast
, and Thomson Multimedia.
Or there is the straight-to-video, low budget horror flick “Addicted to Murder” on CinemaNOW, an IP-based entertainment site backed by Lions Gate Entertainment
, Microsoft, and Blockbuster Video
that offers a fairly average selection of new releases, dramas, comedies, and family features for a modest monthly fee.
The viewing process is simple and requires a credit card, an updated version of Microsoft Windows Media Player, and a minimum 56k modem or broadband connection of 100k or higher.
Not impressed? Not many people are. But piracy as an alternative is no more appealing and is extremely illegal, although it is becoming deeply entrenched in Internet culture. Still, movie studios seemingly continue to bide time and neglect a market demand that has reared its head time and again.
In It For The Benjamins
What seems to be the hold up? Well, for starters, last year’s flurry of business deals surrounding the cable broadband market that went bust unexpectedly. Disney’s
Buena Vista, Sony Pictures
, and Paramount all pulled out of cable video-on-demand deals, and similarly Blockbuster and corrupt energy giant Enron — which also had its fingers in the telecommunications pie — aborted plans at the altar to provide broadband cable content to consumers.
There is also speculation that services that isolate themselves to the PC will eventually be crushed by cable on-demand rollout over the next few years, which holds the advantage of being a more familiar and comfortable platform for the viewing of feature films and entertainment content.
But if you ask Gerry Kaufhold, principal analyst for In-Stat/MDR and author of a recent study on VoD over IP networks, the movie industry’s latency period is all about money.
The traditional revenue split that has been used between movie studios and cable television and satellite networks for pay-per-view content needed to be re-worked for “on demand” services.
“The movie industry is focusing on the IP broadband market to make sure no one beats them to it,” said Kaufhold. “There is a long-term threat that if they don’t come up with something on the Internet, they could lose control of it to some college kid, like what happened to the music industry with Napster. Many studios are already sitting on cable alliances where they can bide their time until the right deal comes along.”
But can a business strategy that belly flopped 1-2 years ago with the closure of AOL Time Warner’s Entertaindom and Digital Entertainment Network still build a critical mass of broadband-enabled consumers?
The majority of profits from cinematic releases, DVD, and VHS sales go to the movie studios. However, with an Internet-based subscription system the profits are miniscule by comparison and the studios have been mulling over ways to make money off such a risky business model.
“This is the Tarzan era of economics,” said Phil Leigh, a digital media analyst for Raymond James & Associates. “The movie industry realizes there is a new vine they have to swing out and grab hold of, but they really don’t want to leave their old vine. There is no question they are resisting change, but eventually they’re going to have to make their move.”
According to Kaufhold, a new generation of more appealing, consumer-driven VoD services for IP-based broadband is on the verge of being rolled out by Hollywood’s leading entertainment companies.
Can’t Get There From Here
Part of the VoD hold up is that not all of the carriers are ready to go. Cable companies like AT&T , Cox Communications
and Comcast have been scrambling to make deals this year to make sure that they can stay on par with what the satellite companies are planning.
But satellite companies like DIRECTV are currently battling technical issues. VoD evangelist and co-author of the book “DSL: A Wiley Tech Brief,” Dave Burstein says the technology is ready to go now, but a bandwidth problem is delaying VoD rollouts from satellite companies by about three years.
“There are some technical issues, but it’s mostly a bandwidth problem,” said Burstein. “In cable there are a limited number of channels but all they have to do is give up one or two to dedicate to video-on-demand. Satellite companies have pretty much used up all their bandwidth and there is only a limited supply.”
DSL companies are also pushing for VoD services but most won’t be offering anything more than what they already do for a while.
Burstein said there is also the issue of too many middleman companies that are trying to take a slice of the pie.
For example, Bell Canada recently tacked on an extra $7.90 (Canadian) per gigabite on high-speed traffic, which is about ten times the real cost of the traffic load, based on public figures and the competition. And a patent lawsuit is heading to the courts over MPEG-4 (a higher industry standard alternative to current MPEG-2 video). The complaint has Sony and Panasonic looking to gather fees for each stream.
“The great fear among Internet pioneers is that large companies will carve out subnets, blocking content from others. SBC has threatened that many times. The cable guys already do that for video,” said Burstein.
Continue on Page 2 with: Hollywood’s Latest Venue
Hollywood’s Latest Venue
By the end of this year, Los Angeles-based MovieLink.com, formerly MovieFly, will go live with a VoD service that is backed by five of the most powerful movie studios in Hollywood: MGM, AOL Time Warner’s Warner Brothers, Vivendi Universal , Viacom’s
Paramount, and Sony Pictures
.
MovieLink, which in its previous incarnation was incubated by Sony Pictures, received backing from the five studios in August 2001, and by January 2002 announced its new name and new CEO, Jim Ramo, a senior business executive in the entertainment industry for 25 years.
Once the site is up and running, MovieLink users will be able to rent box office hits from the movie vaults of all five film studios, depending on which titles each studio decides to make available. Fees will be determined on a per-viewing basis. The site will also provide content from independent video and film producers wanting to distribute films to MovieLink’s customer base.
“It will be an alternative service that will help keep honest people honest,” said a MovieLink representative.
MovieLink is also expected to use MPEG-4 technology, a digital compression standard that produces a higher-quality download, similar to formats from RealNetworks and Microsoft. Delivery time will depend on the user’s high-speed connection, and movies can be viewed on a regular PC or television connected by an S-video cable or radio frequency device connection.
MovieLink will eventually rollout VoD services to other devices and distribution services at an undetermined date.
“We believe human nature is not predisposed towards piracy,” Warner Brothers’ Chairman and CEO Barry Meyer said in a statement to the press. “By proactively offering a convenient, affordable, high-quality source of content, the film industry can meet the needs of the public while successfully protecting our intellectual property as we move further into the digital millennium.
The clincher is that MovieLink’s official VoD launch date is still shrouded in mystery, possibly due to issues related to antitrust violations. Originally, the site was intended to launch as a VoD service by late summer, but that date has been pushed forward to “sometime by the end of the year.”
There is also the looming possibility that a tug of war between movie studios and cable companies over content monopolies could heat up in coming months. Some say the intention behind many studios launching their own subscription services over the Internet is to capture a bigger slice of revenue than they now get from cable viewing fees.
Let Me Entertain You
CinemaNOW and intertainer.com, both pioneers in the Internet community, are solid examples of authorized movie services that have already attracted a healthy following of consumers. The only slowdown for these sites has been the laborious process of striking licensing deals that give their libraries enough punch to attract mainstream Internet audiences.
CinemaNOW, which launched in 1999 as a strictly IP-based VOD service, houses a library of 1,000 movies and maintains 1 million registered users, many of whom visit the site primarily for its collection of martial arts films. Premium Pass, CinemaNOW’s monthly all-access option, has several thousand subscribers, and due to the present lack of competition in the VOD space, has seen its numbers grow steadily.
“We don’t have blockbuster films yet,” said Jared Goldsmith, director of marketing for CinemaNOW. “But the market is growing and as content improves and broadband penetration increases, we see this space expanding and we see it all heading in a positive direction.”
Unlike intertainer.com, CinemaNOW offers users both streaming and downloading options for pay-per-view as well as subscription services through special licensing agreements with MGM, Trimark Pictures, and Lions Gate Entertainment.
In recent months, the site has licensed its proprietary VOD technology ‘PatchBay’ to Japan’s Walker Asia, a broadband multimedia content provider, in addition to dealings with Taiwan’s Chunghwa Telecom, a provider of multimedia-on-demand services to more than 1 million high-speed Internet subscribers.
Intertainer.com, helmed by CEO Jonathan Taplin, has also had no problem attracting users. The site, which launched in 1996, streams 2 million movie trailers, feature films, and television shows each month to Internet audiences.
Intertainer.com is also sitting on a technology platform that is compliant with both cable on-demand services as well as IP services, and provides entertainment content from MGM, Warner Brothers, and Dreamworks. For cable modem subscribers, it has content deals with Vivendi Universal, A&E, PBS, Discovery Channel, and some assets from the Disney library.
Intertainer CEO Taplin has been an outspoken advocate for the increase in bandwidth access for the average consumer, which if overlooked could pose a significant threat to the IP-based VOD market. The availability and growing demand for broadband access was originally thought to be a godsend for services that supply streaming music, video, and interactive gaming. But slower-than-expected speeds have hindered VOD’s popularity.
The Federal Communications Commission (FCC) defines broadband as 200 kbps, a standard that cannot deliver the kind of high quality, uninterrupted streaming necessary for a desirable movie-viewing experience. Taplin has called on government regulators to set bandwidth at a minimum of 750 kbps in order to qualify as a legitimate broadband service. At present, the FCC has shown no signs of complying with this request.
The Mouse And The Fox
In the meantime, Disney-owned Movies.com has not found the road into the VoD market an easy one. An online source for movie reviews, box office stats, news stories, and ticket and showtime information, Movies.com has considered following in the footsteps of its predecessors, although Disney officials would not comment on when video-on-demand service would be added to its site or whether it would rely entirely on Disney-owned content from Buena Vista, Miramax, Touchstone, and Hollywood Pictures, or seek out additional partnerships.
Originally Disney was lined up to partner with Twentieth Century Fox, a unit of News Corp., but less than a year later, fickle Fox reneged on the deal, uncertain that the marketplace was ready.
Representatives for Fox were reported as saying that its change of heart was based on “logistical issues and careful examination of technological and marketplace developments.”
But whether Disney comes along for the ride or not, according to In-Stat, over the next few years VoD services on IP networks will begin a steady rise alongside the expanding broadband market, giving the entertainment industry a chance to gain a foothold in the Internet marketplace for pay-per-view/VoD and provide a secure vehicle for Digital Rights Management solutions.
Slow And Steady Wins The Race
By 2006, broadband growth is expected to reach 20 million households in North America alone, with 40 percent of those households participating in a movie subscription service. Currently only 10 million U.S. households have broadband Internet access.
But according to GartnerG2, the market for movies on the Internet will only account for 2 percent of industry revenues by 2005, a harsh reality that might make many VOD services a short-lived phenomenon if their expectations are too high.
“We’ve always felt that slow and steady wins the race,” said CinemaNOW’s Goldsmith. “They’ve been talking about conversion for years and it still hasn’t happened. But when it does, we think we’re in a great position. We’re out there. We’ve launched, and we’ve got the system down.”
In the words of the venerable Jack Valenti, president and CEO of the Motion Picture Association of America (MPAA), Hollywood’s number one trade association, digital piracy is the main reason the industry has been so hesitant to move into the VoD space.
Disney’s chief honcho Michael Eisner has also chimed in on this argument, expressing grave concerns over releasing Disney’s digital library to the Internet public with piracy still so unregulated.
“We’re dealing with an industry where an unspoken strategy is that the killer app is piracy,” Eisner was reported as saying by the New York Times. “Their quarter-to-quarter growth is definitely pushed forward by people wanting to get anything for free from their television or computer or handheld device.”
On April 23, 2002, Valenti announced before the House Appropriations Committee that MPAA members, which include seven of the biggest names in the motion picture industry, were forging ahead with video-on-demand services as a viable and consumer-friendly alternative to digital piracy. Movie studios would use the Internet as a delivery system to make movies available to consumers “at a fair and reasonable price” in high-quality digital format, Valenti said.
“Because as I have said before (and I pray we are right) that 99 percent of the American public are not hackers. Given the choice between a legal alternative for watching movies and stealing, I believe the vast majority will choose the legitimate alternative, but only if we do not allow lawlessness to become mainstream,” said Valenti.
Continue on Page 3 with: The Killer App Is Piracy
The Killer App Is Piracy
But despite Hollywood’s effort to re-ignite the market for online movie distribution, the bootlegging of industry assets has become a way of life that has already cast its dye on an entire generation of Internet users. Online consumers who don’t already have a cable modem or other means of attaining on-demand movie content may not be willing to pay for subscription services that charge anywhere from $3.99 to $9.95 per month.
“The problem is that you can’t compete with ubiquitous, free, and convenient,” said Bruce Forest, an independent media technology consultant. “It’s like closing the barn door after the horse has been out, had kids, and grandkids!”
“It’s all about users getting habituated,” said Phil Leigh. “New and emerging trends on the Internet are about control and empowerment. People feel a sense that they can have what they want, when they want it, and unless the marketplace is there, they’ll find other ways.
“The popularity of the CD burner is demonstrating that the consumer wants to listen to or watch what he/she wants to at any given moment,” Leigh continued. “Until the CD burner, the consumer really didn’t have control and had to comply with market availability. Younger generations have demonstrated that they want that control and they are going to exercise that control, regardless of what the labels and studios do about it.”
Gerry Kaufhold thinks differently. “There’s no hurry for the film studios to get it right, it’s just important that they be there as the market develops. It will still take another three years before the numbers start to look great.”
The Real ‘Clone Wars’
Depending on the speed of the broadband connection, it can take as little as 40 minutes to download a 5-gigabyte feature film, burn it onto a DVD, and voila, it’s yours for the taking.
Not a bad option when just about every new release and seasonal blockbuster is available over the Internet long before the general public can see them in movie theaters.
Viant, a Boston-based consulting firm, estimates that 350,000 movies are being downloaded illegally from the Internet every day, and that’s a modest estimate.
Copies of “Star Wars: Attack of the Clones” have already been circulating through sites like Usenet a full week before the official theatrical release date.
“Those guys you see lined up around the block for days dressed like Chewbacca for the opening day of Star Wars have probably already watched pirated downloads of the movie,” said Forest.
Last weekend alone, during the premier weekend of the pre-summer blockbuster “Spider Man,” an estimated 2.5 million users flocked to peer-to-peer site IRC (short for Internet Relay Chat) where any number of summer blockbuster movies and music releases like Eminem’s newest CD could be downloaded, ripped onto disk, and either sold offline or distributed through other sites and chat rooms.
“It was the biggest moment in piracy history,” said Forest. “I’ve never seen anything like it. This is going to be a blockbuster summer for movies and a blockbuster for piracy. The entire numerical quality of piracy is going to get blown out of the water because there is a demand there and it is being filled. Why should I buy a movie if I can download it?”
There is no question that the movie industry has been slow to provide authorized copies of appealing digital content to the Internet community. The move into the VoD space has been an obstacle course of legal hurdles, licensing woes, industry infighting, and of course the monster threat of digital piracy which has had the movie and music industries in a chokehold for the past two years.
Movie studios have done little else but step up efforts to pass legislation like the newly scribed Hollings Bill, named after South Carolina Democrat Sen. Ernest Hollings, which, if passed, would require computer and device manufacturers to install anti-copying technology that prevents the illicit use of digital content.
In addition, many studios have led the charge in litigating against the makers of hardware and software that enable the unauthorized use and distribution of digital content.
Give the people what they want, or else they’ll take it anyway, appears to be a self-fulfilling prophecy as the film industry clashes with the Internet, and movie titans scramble to find a way to keep their bottom line from falling out, capitalize on business opportunities the digital age has to offer, and maximize competitive advantage over the cable industry’s rollout of similar movie-on-demand products.
Even renegade Taiwanese site Movies88.com, which sold pirated movies over the Internet for a mere $1.00 each, proved that the market for IP-based movies-on-demand is ripe for the taking. The site has since been shut down, but the demand is still out there in cyber space.
The In-Stat/MDR report titled “Consumer Oriented Video-on-Demand Via IP Networks” will be available the week of May 20, 2002.
Internetnews.com Associate Editor Michael Singer contributed to this report
