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Piracy Fears Limit Film Downloads

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Times Staff Writer

When five Hollywood studios announced plans for the Movielink downloadable movie service, they heralded it as a revolution in home video.

Two-and-a-half years later, the revolution is still waiting to be televised.

Reviewers say Movielink offers more convenience to some movie lovers, enabling the ones with high-speed Internet connections to rent films without budging from their homes.

So far, however, it’s no match for the local video store in one critical respect: You can play a movie from Blockbuster on any TV in your house that is connected to a VCR or DVD player, but a Movielink film can’t be moved off the computer that downloaded it. That shortcoming has stunted the growth of the Santa Monica-based service, which charges $2 to $5 per rental. Movielink won’t disclose how many customers it has, but people close to the service say it’s struggling to find an audience.

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Analysts and some of Movielink’s founders say getting films off the PC and on to the TV is critical to the service’s survival. “If they can’t get it to the TV, they’re hosed,” said Josh Bernoff, a senior analyst at Forrester Research.

Movielink’s difficulties highlight the challenge for Hollywood as it slowly migrates to an era of digitally delivered entertainment that can be consumed anywhere, anytime: how to balance the flexibility viewers want with the piracy protections that studios say they need.

Even Movielink’s supporters acknowledge the service hasn’t found the right balance. “Clearly, the usage level is not what we’d hoped it would be,” said a Hollywood executive close to Movielink. “But frankly, the user experience is not what we’d hoped it would be.”

The five studios -- Sony Corp.’s Sony Pictures Entertainment, Time Warner Inc.’s Warner Bros., Vivendi Universal’s Universal Studios, Viacom Corp.’s Paramount Pictures, and Metro-Goldwyn-Mayer Inc.’s studio unit -- launched Movielink in November 2002, offering about 170 downloadable films from their collections.

Today, the service lets customers store digitally compressed movies in near-DVD quality for up to 30 days. They can watch a film multiple times, but it becomes unplayable 24 hours after the first viewing.

The technology developed for Movielink provided two ways to transfer movies to televisions. They could be beamed wirelessly to TV set-top boxes or burned onto a DVD or video CD. But the studios haven’t incorporated those features into the service, mainly due to concerns about piracy.

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At the heart of those concerns is a reluctance to take risks on a new technology that could wind up hurting the movie industry’s biggest cash cow, DVD sales. Several of the studios behind Movielink are in no rush to change the service; in their view, the masses aren’t ready for downloadable films, and Movielink is more of a test bed than a business.

In fact, one of the factors stalling Movielink is that some of its studio partners want more protection against illegal copying than they get from the home videos they sell today.

Said Yair Landau, vice chairman of Sony Pictures Entertainment and a leading advocate for the service: “The problem for Movielink is that the studios hold it to a higher standard than they hold themselves. We don’t allow Movielink to do what we allow our [studios’] home-entertainment companies to do, and that’s the challenge.”

Movielink’s main competitor in the field of downloadable films -- CinemaNow of Marina del Rey, which is controlled by independent studio Lion’s Gate Entertainment -- faces the same restrictions on transfers and burning. But CinemaNow Chief Executive Curt Marvis said he thought it was just a matter of time before the studios gave customers more flexibility.

“These days, every studio is willing to be open to ideas and concepts that they weren’t open to as recently as a year ago, and certainly not two years ago,” Marvis said. “I think that’s purely and simply a function of what they’ve seen happen in the music industry.”

What they saw was a dramatic drop in music CD sales from 2000 to 2003, a slump that many label executives blame at least in part on the rise of Internet piracy.

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The movie industry hasn’t been hit by anything similar yet -- DVD sales have accelerated every year since 1997 -- but a growing number of films are being swapped online.

Reports about emerging online movie piracy helped persuade Sony in 1999 to develop a downloadable movie service, which it dubbed Moviefly. The idea was to nip piracy in the bud by offering a legitimate online outlet for movies, which would be wrapped in electronic locks to deter copying.

Rather than launch the service by itself, Sony held up the rollout until it recruited the four other major Hollywood players. They all committed to support the service for five years and to invest a total of more than $100 million. That’s a tidy sum for a start-up, but not much more than the Hollywood average for producing a single film.

Sony paid an additional price to get everyone on board: It pulled back some of the service’s features. For example, the original design would have let customers download movies from each other, cutting the cost of distributing films. Sources said Paramount put the kibosh on that idea, insisting that movies be erased from users’ hard drives as soon as their 24-hour rental period expired.

But Paramount isn’t alone in opposing that kind of distribution -- executives at several other studios said that today’s electronic locks weren’t good enough to enable risk-free file sharing.

The service has been upgraded in several notable ways since its launch, offering more than three times as many films, adding titles from Walt Disney Pictures, Miramax and several other studios, improving the picture quality and allowing people to watch a film shortly after they start downloading it.

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Still, the only way to view a Movielink movie on a television is to download it onto a specially equipped computer that’s connected by a wire to a nearby set. Although it’s not unheard of, relatively few homes have computers wired to their TVs.

The easiest way for Movielink to reach more TV sets would be to start by letting people buy movies instead of just renting them. Then it could let customers burn the movies they buy onto video CDs or DVDs. More than 90 million DVD players have been sold in the U.S., and most of those are capable of playing video CDs and homemade DVDs.

The studios insist, however, that any disc containing their movies use encryption to restrict copying. If a home computer burns an encrypted movie onto a video CD or DVD, the disc won’t be playable on today’s DVD players; they’ll work only on a computer with the right decryption software. One solution might be to let customers burn downloaded films onto discs using the same type of encryption that the studios use on packaged DVDs, and that any DVD player can decode. But several of Movielink’s founders say that’s not good enough, given that pirates have already picked those locks.

“We want to have at least more protection than current DVDs have on them,” said Kevin Tsujihara, head of new business development at Warner Bros.

Tsujihara suggested that the problem could be solved in the next generation of DVD players, which will have stronger security features and deliver far better picture quality. Those players aren’t likely to hit store shelves for a year or more because of a dispute over formats and anti-piracy technology.

Rick Finkelstein, president and chief operating officer of Universal Pictures, said the studios had a host of significant issues to ponder before Movielink made the leap from renting movies to selling them. These include how to secure movie files, what price to charge, when to release movies and what other forms of distribution might be affected by offering downloads for sale.

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“We support it,” Finkelstein said, “as long as we can solve all these issues.”

Until Movielink starts selling films, it can’t allow users to burn their downloads onto disc. That’s because there is no practical way to burn a movie temporarily onto a DVD or video CD.

But there are several ways to beam a rented movie wirelessly from PC to TV. For example, there are low-cost set-top boxes on the market that can take audio-visual signals from a computer and display them on a TV set.

The studios behind Movielink, however, aren’t willing to let their films be transmitted over unencrypted wireless connections. They’re holding out for encrypted techniques that Microsoft Corp. and others are expected to start offering later this year.

“I don’t think that Movielink is going as fast as it can go,” Landau of Sony said, “but I think it’s going as fast as its partners are comfortable going.”

Bernoff of Forrester said the studios’ reticence made sense. “An easily set-up link from the PC to the TV would be more likely to jump-start piracy than it would be to give a boost to legitimate services,” he said.

It’s a Catch-22. The five studios won’t aggressively promote Movielink because it doesn’t offer consumers a great experience, so the service hasn’t attracted much of a following. And because it hasn’t, the studios have little incentive to improve the customer experience in ways that might cut into more lucrative ventures, such as DVD sales.

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Some studio executives believe it needs to find an independent owner in order to flourish. The company is reportedly fielding offers from prospective buyers.

On the other hand, Movielink is showing some momentum. The executive noted that downloads increased sharply during a recent promotion by Time Warner’s America Online, which offered 99-cent rentals to AOL for Broadband subscribers. As many movies were downloaded on one Saturday in January as had been rented in an entire month last summer.

“Have we moved at lightning speed? No, we probably haven’t,” said Tsujihara of Warner Bros. “Are we going to add a lot more functionality to the service? Absolutely.... I think the question is always one of when.”

Tsujihara conceded that Movielink had to break free of the PC to win public acceptance and provide a real alternative to piracy, as Apple Computer Inc. has done with its breakthrough online music outlet, the iTunes Music Store.

“We’re in this game to create a viable alternative,” he said.

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