5 Studios Plan Joint Venture to Offer Movie Downloads

Five major Hollywood studios said Thursday they are joining forces to build an Internet service that will allow consumers to download full-length movies to watch on their home computers and televisions beginning as early as this year.

The studios--Sony Pictures Entertainment, Metro-Goldwyn-Mayer, Paramount Pictures, Universal Studios and Warner Bros.--believe that the pay service is the best way to combat the proliferation of bootleg feature films.

Their as-yet-unnamed venture marks a radically different strategy from the one adopted by music companies. Record labels watched helplessly as millions of computer users employed Napster and other song-swapping services to download pirated copies of songs for free.

Many observers believe that the record labels could have put a serious dent in services like Napster by offering consumers a legitimate way to obtain music on the Net. That is the strategy the studios are now embracing.

“We feel we needed to offer a legal, high-quality, user-friendly alternative to what is currently out there on the Internet today,” said Kevin Tsujihara, executive vice president of new media and strategic planning at Warner Bros. “By getting out in front of this, we were going to hopefully prevent some of the issues confronting the music industry.”

Initially, the studios will make 100 of their movies available to those with a personal computer and a high-speed broadband Internet connection. Each feature-length film will take 20 to 40 minutes to download, depending on the speed of a customer’s broadband connection, how far away the customer is from a network hub and how crowded the network is at the time. The movies will boast better picture quality than videotape but will be less sharp than DVDs.

“It’s not view on demand, but it’s as easy as getting in a car and driving to the local video store,” said Yair Landau, president of Sony Pictures Digital Entertainment.

Each studio will control when its movies become available for downloading, which titles will be on the service and how much each movie will cost. Sony, for example, plans to price its movies between $4 and $5 and offer them at the same time that they can be ordered through cable television pay-per-view services. Each studio will own 20% of the venture.

The new service will use technology developed largely by Sony to enable customers to download movies over digital subscriber lines and cable modems. The technology incorporates special digital rights management software designed to combat the rampant piracy that has plagued the music industry.

There are a few cable and Internet-based video-on-demand services in operation, but they lack a steady supply of current movies and television shows, and they have not attracted large audiences.

Conspicuously absent from the venture are Twentieth Century Fox and Walt Disney Co., which are developing a rival system called Movies.com. Disney officials would not comment on why the company did not join the five studios. The Burbank-based entertainment giant is expected to announce a separate video-on-demand venture in the coming weeks.

Initially, consumers will have to use their PCs to tap into the service. Some of the studios involved in the venture insist there is a segment of the movie-watching public--most notably college students--that will stare at a computer monitor for their entertainment. But analysts said the appeal of PC movies was limited.

“I don’t see a lot of people watching movies on their PCs unless they’re on an airplane,” said Rob Enderle, an analyst with Giga Information Group in Santa Clara, Calif.

Consumers can watch their downloaded movies on television by connecting their PCs and TVs with a simple S-video cable or a radio frequency device connection, which is standard on many computers.

Ultimately, couch potatoes will be able to download the movies directly to their digital cable set-top boxes and watch them on television without the need for special hookups. In fact, the movies will be able to drop directly into any digital device connected to the Internet, including many types of Net appliances that are still being developed, Landau said.

It was the realization that today’s technology could be extended to set-top boxes and satellite delivery systems that spurred the negotiations between the studios, Landau said. That broadened the nature of the talks into a forum for creating an industrywide standard for providing digital video on demand.

Anticipating federal regulatory concerns, the studios contacted the Justice Department “as a matter of courtesy,” said a studio spokesman, noting that other entertainment companies can join the venture. In addition, each of the studios is free to pursue other video-on-demand opportunities.

Having a single standard will speed customer acceptance of digital movie distribution, said David Bishop, president of MGM Home Entertainment Group in Santa Monica.

“If MGM opened its own video store and Paramount opened its own video store, it would be very difficult for the consumer to shop,” he said. “Here they’re able to go to one Web site and find a critical mass of content that is much more compelling than any one studio launching.”

Standards also will ease the work of broadband providers such as EarthLink Network, an Atlanta-based Internet service provider that discussed the venture with the studios.

“This will certainly make it easier for a company like us to come in and hopefully negotiate with one entity as opposed to having [to maintain] a different set of technology requirements for each studio,” EarthLink President Mike McQuary said.

The new service could cannibalize video rentals and sales at chains such as Blockbuster Video, which account for almost half of movie-company revenues. Although the exact timing varies from studio to studio, videos and DVDs generally are available for sale and rental six months after the theatrical release of a movie. Those movies are available to pay-per-view services two months later.

Earlier this year, Blockbuster dismantled a video-on-demand service it was testing with energy giant Enron Corp.