Net-to-Set Convergence Is a Story Currently in Development

Recent announcements from Hollywood and the consumer-electronics industry signal that some of the building blocks for the new digital living room are sliding into place.

In the last month, seven of the leading movie studios unveiled plans to distribute digital copies of their films over the Net directly to consumers. Those initiatives mark the first time big-budget video entertainment will be delivered online, other than by pirates.

Separately, Sonicblue, maker of the precedent-setting Rio MP3 players, said it would release in November the first digital video recorder that links the Net to the TV. The new ReplayTV model is part of a coming wave of devices that could be used to download and view the studios’ online films, or any other digital media, on a television.

These developments show where entertainment might be going: toward a world of programs that consumers watch when and where they choose. Entertainment in the new digital living room will be viewed on demand, not on a network’s schedule.

For most consumers, the impact of those announcements won’t be felt for several years. That’s because most homes don’t have the high-speed Internet connections and home networks needed to download the studios’ movies or record them with Sonicblue’s new ReplayTV recorders.

Oh and yes, the Replay recorders cost more than twice as much as the average TV set, with prices ranging from $700 to $2,000. Ouch.

Still, the studios have started the ball rolling after years of refusing to make their films and TV shows available online. One online venture launched by Sony and four other studios plans to make films available by the end of the year. A second initiative from Walt Disney Co. and News Corp., parent of 20th Century Fox, expects to go online sometime in 2002.

The symbiotic relationship between programming and technology often creates a Catch-22: new technologies languish without the programming needed to drive consumer demand, and companies with programming won’t make it available unless consumers are equipped to receive it.

That’s been one of the challenges for companies trying to sell high-speed Internet services. Although technophiles have snapped up cable modems and digital subscriber lines costing $50 to $60 a month, the masses have stuck with their dial-up connections because the Net doesn’t seem compelling enough to them to justify the extra expense.

Nevertheless, the audience has grown to the point that at least some of the studios see a business opportunity. They’re also being pressured by the rise of online piracy to offer a legitimate source of videos on the Net.

Another factor stoking the studios’ interest is development of devices such as the new Replay units, which will enable consumers to find online videos, download them to a set-top box and play them on their TVs. A new satellite receiver from EchoStar, due later this year, will offer some of the same capabilities. For viewers, that’s an incremental but critical improvement over finding and downloading videos to a personal computer.

A wave of more affordable recorders should arrive by mid-2002 with a similar ability to download Net videos, said R. Jordan Greenhall of DivxNetworks, a company that delivers video through the Web. And many analysts expect video recording and high-speed Internet connections to pop up soon in advanced cable set-top boxes.

Greenhall’s company recently announced its first downloadable video deal, lining up an independent movie from distributor Strand Releasing. Several other executives from upstart online movie companies joined Greenhall in welcoming the major studios’ announcements.

“We have received more encouraging responses from the studios since [the announcement] than we have in the last two years,” said Scott Sander, chief executive of SightSound Technologies. “They all completely and dramatically changed their tune and seemed enthusiastic about licensing to us.”

Reed Hastings of Netflix, which rents DVDs online, said his company wants to offer downloadable movies too, as soon as there’s a market for them. What’s so great about the recent announcements, he said, “is that the expensive, pioneering work is going to be funded by the studios.”

As more valuable programming moves online and more homes gain the ability to download and store it in powerful set-top boxes, however, the threat of piracy becomes even more acute for program owners. Their response is likely to have a huge impact not just on whether consumers forsake pirate sources of entertainment for legitimate ones but also on the capabilities of the new devices.

Sander of SightSound, for one, believes that the studios haven’t come up with the right answer yet. That’s because they won’t make films available online until weeks after the movies have been released in theaters.

“When an attractive movie hits theaters, it also hits the Net as an illegal computer file,” Sander said. “So by the time they release it [online] . . . millions of people have already ripped it off.”

Anti-piracy experts estimate that about a million bootlegged copies of movies are traded daily online through file-swapping services such as Gnutella and Morpheus. “It’s just startling that the reality of the problem still isn’t addressed,” Sander said. “Right now, kids are turning movies into computer files, not studios.”

Movie piracy isn’t nearly as pervasive and mainstream as music piracy, though, and there are at least two reasons for that: the huge size of digital movie files and the paucity of high-speed connections between the Net and living-room TV sets. Both of those barriers fade, though, as bandwidth increases and technology advances.

As much as they help create an audience for downloadable movies, devices such as the new Replay recorders are also a potential platform for pirates. That’s because they can send video files over the Net as well as receive them.

Because the Replay models are equipped to send files only to other advanced Replay boxes and because they don’t come with any of the compression software that can reduce downloading times, they aren’t nearly as useful to video pirates as a cheap PC with a TV tuner card. Nevertheless, Mark Radcliffe, an attorney in Palo Alto who specializes in copyrights, said the devices might test the legal limits of consumers’ rights to share recordings of copyrighted material.

The Supreme Court rejected the entertainment industry’s preemptive strike against VCRs in the celebrated Sony Betamax case because the recorders had a “substantial” use that didn’t infringe on copyrights. This reasoning, however, might not apply to digital recorders hooked to the Net, Radcliffe said.

“I think the television industry is going to land on them like a ton of bricks,” Radcliffe said. “It really is going to be another opportunity to see what the real scope of ‘substantial non-infringing use’ is.”

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Times staff writer Jon Healey covers the convergence of entertainment and technology.