Disney to Revive Video on Demand

Buoyed by its success selling ABC television shows online, Walt Disney Co. plans to revive an experimental service today that beams movies into customers’ homes.

MovieBeam was designed as the couch potato’s alternative to driving to the video store, but the service was suspended in April after a two-year trial that proved that the technology worked and that people would pay for the convenience.

Disney and its partners -- Cisco Systems Inc. and chip maker Intel Corp. -- are relaunching MovieBeam as the market for downloadable video is picking up. Disney was among the first companies to sell shows through Apple Computer Inc.’s iTunes Music Store.

But, analysts said, MovieBeam is anything but a sure bet.

The service allows customers to rent movies from a library of 100 titles stored in a set-top box. As many as 10 new films, including some in high definition, are automatically delivered to the device each week via television airwaves. The MovieBeam box costs $199.99 after a $50 rebate and requires a one-time service activation fee of $30. Movie rental fees are $3.99 for new releases -- $4.99 for films in high definition -- and $1.99 for older titles.

MovieBeam faces significant competition in the $9.5-billion movie rental market -- not just from the neighborhood video store but from cable operators that already offer video-on-demand services and Internet movie rental companies such as Netflix, which deliver DVDs by mail for a flat monthly fee of as low as $9.99.

“It has to be a tremendously compelling offering for you to stack another box in your component set,” said Bruce Leichtman, an independent media researcher in Durham, N.H. “Combined with something else, it has an opportunity. When it’s a stand-alone device, it’s very challenged.”

It’s the same barrier that stifled growth of another technological innovator, TiVo Inc., whose digital video recorder simplified the process of recording television shows.

Disney introduced MovieBeam in 2003 in three small cities -- Jacksonville, Fla., Spokane, Wash., and Salt Lake City -- in a bid to create a direct film pipeline to customers. It pulled the plug in April, saying it would reevaluate the service and its financing.

The studio wrote down $56 million of its investment and spun off MovieBeam as a separate company, which it jointly owns with Cisco and Intel. It raised $48.5 million, including investments from venture capital firms, to bankroll the service’s introduction in 29 cities -- including Los Angeles, New York and Chicago.

Disney Chief Executive Bob Iger set the tone for exploring new methods of electronic distribution in his landmark deal with Apple to sell downloads of ABC’s most popular television shows for the video iPod.

“With over 2.5 million downloads to date, our early success clearly illustrates how valuable content is when married with great platforms and great consumer electronics,” Iger said during Disney’s earnings call last week.

MovieBeam Chief Executive Tres Izzard said the service would target the 30 million avid movie fans who rent four or more movies a month. It seeks to entice these film buffs with features they can’t get through other on-demand services, such as high-definition movies and films from Disney, Miramax Studios and Touchstone Pictures available for rental on the same day they’re released on DVD.

The service offers hit movies from all major studios but one, Sony Pictures.

A Sony executive said Sony Pictures was in discussions with MovieBeam, but the two sides had not reached a distribution deal yet.

Analyst Gerry Kaufhold of market researcher In-Stat in Scottsdale, Ariz., said high-definition movies would be appealing for the estimated 15 million American households that, by the end of this year, would own a high-definition television but wouldn’t receive HD programming from their cable or satellite provider.

“Even if only 10% of those people decide MovieBeam’s a good idea, that puts them over 1 million boxes sold,” Kaufhold said. “They don’t have to be wildly successful to wind up with a sustainable business.”

Other analysts remain skeptical of MovieBeam’s prospects. The movie fans it targets already have myriad ways to get hit movies.

And other experiments with video on demand, such as MovieLink and CinemaNow, have failed to catch on with customers. Adams Media Research estimates that Internet movie rental services reaped only $17 million in revenue last year.

“The short-term prospects are good with this small niche of people that are already using video on demand and want the convenience, and with the early-adopter types that at least take a look at every new technology that comes out,” said Tom Adams, president of Adams Media Research, an entertainment industry consulting firm. “They’ve got a built-in small core audience. After that, it becomes a marketing battle.”